Five Best Practices for Business Expense Management
Expense management is critical to any business, large or small, and setting up a process in your organization is a key component of any business operation. Employees often spend personal funds for business expenses and need to be reimbursed. Typically, the employee fills out a spreadsheet, emails or prints documentation, and hands it off to the accounting department to be manually entered and paid. The employee waits, sometimes several days, communicating back and forth on what is and is not reimbursable, and then finally receives the reimbursement.
Does this sound like your process? No two companies are the same, but the following best practices for expense management principles are universal.
1. Establish an Expense Reimbursement Policy
This should be clear and simple. Expense policies should explain the spending limits for employees. Notifying employees upfront on what is acceptable will help them stay within the policy and maintain company trust. The process should not just define the acceptable expenses for reimbursement but also define the process for submission and the timeline for acceptance and reimbursement of payment. Employees need to know the acceptable processes and timelines. Having a clear and simple policy also helps build employee trust. They understand the policy and can be confident on the reimbursement process. Lastly, the policy should encompass the IRS’ three accountable plan standards:
- The expenses must have a business connection.
- The expenses must be substantiated within a reasonable period of time.
- The employee must return any money not spent to the employer within a reasonable period of time.
2. Collect Required & Relevant Information
Companies should be compliant in record-keeping by having supporting documentation for all expenses. The details needed for each expense will vary based on the type of expense. For example, say you spend more than $75 taking a client out for dinner. To satisfy the IRS requirements for expenses above $75, you need to keep a copy of the receipt for that dinner. It also is a good practice to have a process and checklist to collect this relevant information at the time of expense. Through automated expense management, employees can take pictures, upload invoices, and provide relevant information at the time of the expense. Most expense management software also will house the receipts and data so in the event of an audit, all the details will be in one place.
3. Maintain & Follow the Expense & Approval Policy
Following the reimbursement policy is crucial to help ensure accurate and timely reimbursements as well as accounting correctly for company expenses. If expenses are not accounted for promptly, the company’s overall financial health can be misstated. Managers should be required to review and approve expense reports while following the established reimbursement policy to help ensure they expense reimbursements that adhere to the company policy. This can be challenging when managers are traveling or working remotely. However, a digital expense management software can allow for review and approval of employee expenses while working remotely.
4. Process Expense Reimbursements Timely
The best way to help ensure data accuracy for your company’s financial health is to process reimbursements punctually. This helps ensure accurate and timely financial data, which helps reduce catch-up expenses at period-end, and also can assist with more accurate job costing throughout the period. Time frames for expense management should be defined in the policy so all parties know and understand the expectations, i.e., when to submit for reimbursement, the timeline it will be accepted, and expected reimbursement payment schedule. Employees appreciate timely reimbursement. The timelier your policy is, the more incentivized your employees are to complete their expense reports. This all starts with defining the process for receiving, reviewing, and paying reimbursements.
5. Use Expense Management Software
Manual processing can leave room for errors. Leveraging technology can streamline a business process, and a well-designed system can assist with error mitigation. There are many well-known expense management platforms that can improve the company experience by reducing the costs of processing claims and offering appropriate controls via optional requirements of two digital approvals for accountability. Other benefits of reliable technology include automating payment processing, allowing for a digital environment to review expenses, designing digital rules that follow your company’s established policy, and providing a mobile app to encourage employees to more easily capture expenses as they occur. Lastly, we encourage you to consider a technology solution that effectively integrates with your cloud-based accounting platform. See our suggestions for accounting platforms here.
If you have any questions about this topic, reach out to your BKD Trusted Advisor™ or use the Contact Us form below to get in touch. You also can visit our Outsourced Accounting Services page to learn more about how we help businesses with expense management, digital accounting assessments, and other related services.