When running a business, expenses arise. That is inevitable. They can arise when employees travel on behalf of the company, when a salesperson hits the road and has to refuel their car, or when an employee in the marketing department buys ads or software.
More times than not it is the employees who use the company’s money – either with outlays or with a company card. In these cases, employees might wonder what amount is acceptable to spend on behalf of the company. And what is seen as a business-related purchase and what is not?
Companies owe it to their employees to communicate clear messages about what is okay and what is not okay. This is where an expense policy comes into the picture.
What is an expense policy?
The expense policy establishes guidelines and sets the framework for how expenses are to be handled in the company in question. In other words, it defines how the employees can spend the company’s money.
A distinction is made between public and private expense policies, and in this blog post, we focus on the expense policies of private companies.
One of the purposes of an expense policy is to clarify how employees can spend money within a certain limit. But it also needs to ensure that the company buys on terms where quality, functionality, price, delivery security, sustainability, etc. are essential parameters.
The expense policy can also define which payment methods and suppliers employees should use. In this blog post, we will not dive into choosing specific suppliers, etc. but rather focuses on describing why having an expense policy is a good idea.
Today, most companies have ambitious climate policies or sustainability goals, and expense policies are an effective tool for ensuring that employees buy from sustainable companies.
Five tips for compiling an expense policy
We will mention it just one more time. It is a good idea to have a clearly defined expense policy because that way there will be no doubt or confusion whenever employees swing either their own or company card.
Here are five tips for compiling an expense policy:
- Clear rules for expense categories – make expense categories and define specific rules that apply to each category. Examples of categories could be meals, transportation, lodging, etc.
- Collect input from employees – the expense policy needs to be adapted to the company as much as possible. Especially when it comes to limitations. It would not make sense to set an amount limit of DKK 500 for lunch if most employees only spend DKK 250 anyway.
- Make the policy easy to understand – have your policy made in a format that is simple and straight to the point. All employees should be able to read and understand it without having to run by the finance department.
- Avoid exceptions – the expense policy will be easier to understand if everyone is aware that rules are rules. This will save the finance department time as they do not have to consider the exceptions.
- Updated and accessible – it is a bit of a no-brainer but the expense policy needs to be updated if consumption habits change or new suppliers are introduced. It needs to be easy and quick to get your hands on – online of course.
Benefits of having an expense policy
An expense policy is first and foremost an amazing tool for defining guidelines for how much money employees can spend on different kinds of expenses. However, there are even more benefits to having one:
Minimize the risk of fraud
In addition to setting the rules of the game for expenses, an expense policy is also a way to hold employees accountable if they break the rules. A lot of the time, fraud occurs because employees are not aware of when exactly a rule has been broken. An expense policy can therefore make a company less vulnerable when it comes to fraud. Fraud is something we have written about before in another blog post, which you can read here.
Less doubt and fewer questions
Expense policies remove a lot of doubt and minimize the number of questions for colleagues, managers, and the finance department. The idea of whether it is alright to spend this or that amount is eliminated, as clear rules have been established for what is okay and what is not okay.
At the same time, expense policies can contribute to limiting spending caused by employees who, at times, spend too much.
Everyone is equal
If the policy applies to all employees across all departments there is a bigger chance of no one feeling like they have been treated unfairly. It is also a good idea to consider if the policy should also apply to the management team.
Combine expense policy with internal controlling
The expense policy can advantageously be supplied by digital tools which will increase internal control and transparency. For many years, Acubiz has helped a lot of our customers with internal control through our service Company Policy Manager. Company Policy Manager is a service that helps employees with complying with the company’s rules, guidelines, and spending policies – including expense policy.
Through the Company Policy Manager, a company can set amount limits, control criteria and spot check frequencies. It may be that your company has an amount limit on entertainment expenses of DKK 750 per. person. If two people use more than DKK 1,500 together, the person who registers the expense will be notified that the limit has been exceeded. The employee will be asked to add a comment, after which it is up to the approver and the finance department to handle the expense.
More times than not, it will not make sense to control all expenses. The internal control can easily be streamlined – let’s say that an employee has bought a cup of coffee on the company card for DKK 30. If data from the card issuer states that something has been bought for DKK 30 at a petrol station and the employee registers the purchase of DKK 30 as a cup of coffee it is quite likely that the registration is correct, which is why it makes sense to let the expense pass directly to bookkeeping.
We hope the header of this blog post makes even more sense now than before you started reading. We also hope that it is clear that we at Acubiz believe that expense policy is an important document for better control of companies’ expenses. You are always welcome to contact us if you want to know more about how Acubiz can contribute to more efficient handling of your expenses.