How to Take Charge of Your Expense Reimbursement Process

by Ken Boyd

8 min read

Managing your business requires you to monitor dozens of company activities. To manage your organization efficiently, you need to put systems in place, and one process that is often overlooked is a written expense reimbursement policy.

If you don’t create and monitor a formal policy, you may incur unnecessary expenses, hurt business profitability and waste time handling one-off situations. Use these tips to manage reimbursable expenses.

Why You Need a Process for Reimbursable Expenses

If you have to perform the same task twice, it needs to be documented in a procedures manual. This is especially true of your expense reimbursement policy. There are several reasons why maintaining a detailed procedures manual is important for your business:

  • Training: When you need to train an employee on a certain task, you can refer to the procedures manual. If a worker leaves your company, you can quickly train a new worker using the manual.
  • Avoiding confusion: If several employees perform that same task, the procedures manual clears up any confusion about how a particular task should be performed. The manual helps your staff to operate efficiently.
  • Automation: Once your processes are documented, you can start to automate the parts that are better done by a computer. This includes outright automation as well as reminders and optimizations.
  • Your secret sauce: One of your firm’s competitive advantages may be the daily tasks you perform to operate the business. How you do what you do has tremendous value. It may take a company years to figure out how to operate efficiently, and you need to document that valuable information in a procedures manual.

Make the effort to create a written procedures manual, and update the manual every few months.

A Reimbursement Policy Makes It Easy to Budget and Forecast

To explain how a reimbursement policy is created, assume that Julie owns Mountain Peak sporting goods, a firm that generates $15 million in annual sales. Mountain Peak produces hiking, biking and camping gear, and the company sells its products through sporting goods stores.

Julie has five salespeople who call on sporting goods stores around the country. The home office books each salesperson’s travel so that airfare, hotel and car rental expenses are paid directly through the accounting department. Salespeople are reimbursed for meals, client entertainment and other miscellaneous expenses that are incurred on the road.

The managers at Mountain Peak have decided to create a written policy for expense reimbursement as the current process isn’t working. Because the sales force does not have a clearly stated policy on expenses, some salespeople spend far more than management feels is reasonable. The excessive spending makes it difficult for Mountain Peak to budget for sales expenses. In addition, expense reports and receipts are submitted months after the spending occurs. To get control of the process, Julie and her managers decide put the policy in writing.

The Tax Impact of Business Expenses

The IRS has three requirements that an expense reimbursement policy must include:

  • The expenses reimbursed must be incurred while the individual is performing services as an employee.
  • The worker must adequately account for expenses within a reasonable period of time.
  • If an employee is paid a reimbursement in excess of their actual expenses, that worker must return any excess payment to the company in a reasonable period of time.

It’s important for a company to follow a formal reimbursement policy, so that all out-of-pocket expenses can be reimbursed to the salespeople.

How to Write an Expense Reimbursement Policy

Clear Timely
Employers Agree on how much employees can spend and what they can spend it on Reimburse employees according to an agreed-upon schedule
Employees Understand how much they can expense and what to do if an expense goes over budget Submit expenses and receipts in a timely manner

Julie wants to create a policy with input from her salespeople. She wants to balance the need to serve clients with Mountain Peak’s desire to control spending and account for all expenses. Once the policy is written, Julie needs to clearly communicate the reimbursement guidelines to the entire company.

With these points in mind, Julie meets with Mountain Peak’s salespeople to discuss spending. She asks her staff to explain client expectations about meals and entertainment. The group determines that the majority of the spending is for customer lunches and dinners, with some additional spending for entertainment, such as tickets to sporting events and concerts.

During the meeting, Julie reviews last year’s spending with the sales staff. Mountain Peak generates the majority of their business from sporting goods stores in 20 cities, and the salespeople spend most of their time in those locations. Julie and the sales staff use the historical data to come up with spending estimates for lunches and dinners in those 20 cities. The group decides that a reasonable budget amount for the salesperson and a client is $50 for lunch and a $100 for dinner. Entertainment spending will be discussed with Julie and approved in advance.

The group agrees that some meals and entertainment will be more expensive, depending on the individual. A sporting goods company CEO will require more spending than a meal with a sales manager, for example. Julie will approve spending above the budgeted limits for meals.

Reduce Overhead to Get Employees Paid

Julie also wants to simplify the reimbursement process, so that the sales staff can focus on customer service and not be frustrated by expense paperwork. The reimbursement policy outlines a new process for processing expenses. Mountain Peak’s salespeople will use the Expensify mobile app to scan receipts and submit them online. The app will track spending for each customer, and alert the sales staff if the spending is above the company’s budget. Each salesperson will email Julie to get approval for any entertainment spending.

Expensify simplifies the process of creating expense reports and getting reimbursed so that the sales stuff does not need to spend time on paperwork. The new system eliminates the need to keep receipts and create expense reports manually.

Once everyone is in agreement, Julie emails the policy to the entire company. She explains how the policy helps Mountain Peak budget for expenses and simplifies the reimbursement process for the sales staff.

Save Time and Avoid Confusion

Creating a formal expense reimbursement policy requires a small investment of time, but the process will pay off for you. A clearly communicated policy will save everyone time and eliminate any confusion about expenses.

Learn more about how Expensify and QuickBooks work together to keep expense reports simple for employers and employees.

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