A Guide to Optimal Expense Management Practices

A Quick Overview of Expense Management

Your company’s overall expense management practices include controlling employee expenses related to performing company business tasks. Typical employee expenses include company travel and entertainment expenses, professional dues, miscellaneous business-related expenses, and other maverick spending without a purchase order. 

These types of employee expenses can be reimbursed after submitting and approving expense report claims. Or employee expenses can be made and captured through controlled, employee-issued spending cards paid directly by the company. 

Employees can also submit receipts for small expenses using the company’s petty cash fund, although that’s not an efficient process for either the spender seeking reimbursement or the employee managing the petty cash fund. 

Benefits of Implementing Best Practices

The benefits of implementing best practices for employee expense management include employee and company advantages.

Employee benefits of expense management best practices are:

1. A clear understanding of which expenses are reimbursable
2. Easier process for employees making company purchases requiring expense report reimbursement, including the digital capture of receipts
3. More timely reimbursement of employees for their out-of-pocket costs
4. Assigned business spending cards that don’t require employees to incur out-of-pocket costs or wait times for reimbursement

Company benefits of expense management best practices are:

1. Easy and faster approvals from anywhere, using a mobile device, email, or online software
2. Cost reductions from enforcing unambiguous company policies when making expense report reimbursements
3. Ensuring tax-deductibility of reimbursed employee expenses
4. Efficiency and added financial controls and company policy and regulatory compliance from AP and Expense automation software
5. Better visibility of this type of business spend for cash flow forecasting and budgeting
6. More accuracy in completing financial statements with the timely submission of employee expense claims and maverick spending on controlled business spending cards
7. The ability to better track, monitor, and audit employee expenses for propriety and reasonableness

Expense Management Best Practices

Expense policy best practices for employee reimbursement are:

1. Establish and enforce company policies. 
2. Use an automated system.
3. Make expense reports easy and timely for submitters and approvers. 
4. Track and review spend management by each employee and in total.
5. Pay employee expenses promptly to motivate employees.
6. Issue business spending cards to authorized employees. 

#1 – Establish and Enforce Company Policies for Employee Expense Management

Your business needs at least one comprehensive company expense policy for the employee expense management process, including elements of a business-purpose travel policy (T&E policy) for travel management. 

This company policy sets spending limits for types of ordinary and necessary business expenses that comply with IRS rules for deducting Business Expenses in IRS Publication 535. It specifies examples of qualified business-related expenses to be repaid with company money and non-qualifying business expenses that won’t be reimbursed by the company. 

Your T&E expenses/employee expense management policy should specify:

•  Procedures for travel booking, with price limits and example class of airfares, ground transportation, and motels or hotels allowed for business travel
• Per diem limits for meals and lodging as part of corporate travel 
• Mileage reimbursement at the standard IRS mileage rate
• Authorized approvers by role and the limits above which a second, higher-level approval will be required

Include a timeframe for employees to submit expense reimbursement requests and the number of days after submission that an approved expense report will be paid to reimburse the employee for out-of-pocket business expenses. Also, describe the employee expense process for getting employee expenses submitted, approved, and reimbursed. 

This travel and expense management company policy must be enforced to ensure that only reasonable, ordinary, and necessary employee business expenses are paid by the company. 

A company policy can also address cash advances that employees need upfront for paying travel expenses or personal issues.

#2 – Use an Automated System for Expense Management

A procurement best practice is using automated expense reimbursement software with a companion mobile app. Your company shouldn’t need to process paper receipts. Find out more about applying automation to employee expense management, approval, and reimbursement in the next section, Automation + Expense Management. 

#3 – Make Expense Reports Easy and Timely

Use a system that makes submitting standard expense reports and supporting receipts easy for your company’s employees. They should be able to use the company-approved mobile app to capture business receipts anytime from anywhere, automatically perform the calculations, and create and submit their expense claims quickly, without delay. 

This expense software should enable employee and business travel expense policy compliance and automatically route and communicate the need for approvals and approval status to designated approvers. Even if approvers are on a business trip, they should be able to approve team member expense reports for reimbursable expenses using the mobile app or cloud-based expense software. For employee morale, it’s necessary to make approvals and reimbursements of business travel costs and other work-related expenses paid with their own money in a timely manner.

#4 – Track and Review Spend Management by Employee

Your employee expenses software should provide visibility for all stakeholders to review or audit each employee’s spending for the year. Are any employees spending lavishly, submitting personal expenses, or incurring expenses in categories that aren’t qualifying and tax deductible? 

You may be able to catch some of these issues for travel spend in the T&E process during the approval process and with software that implements company policies and detects exceptions. But at least undertake a random sample of employee expense reports in regular audits as an additional spend control performed by the internal audit team.

You can also track total employee spending in your system to find patterns and identify outliers that may indicate expense reimbursement fraud. Generative AI tools embedded in your automated expense management system may help you analyze these trends.

#5 – Pay Employee Expenses Promptly to Motivate Employees

Employees don’t need the added stress of having to pay their own credit cards before receiving money from reimbursements for their approved business travel expenses. Use a system that processes expense reports efficiently. As a company priority, make reimbursement payments to employees quickly. 

#6 – Issue Business Spending Cards to Authorized Employees

To eliminate the need for employees to pay out-of-pocket for authorized types of expenses, issue virtual or physical corporate credit cards or debit cards to eligible employees with spending limits that prevent overspending. The employee spending corporate cards use includes pre-approval for maverick spend on small-dollar items like office supplies not requiring a purchase order. 

The conceptual difference between using business spending cards for buying items (and managing expenses) and submitting expense reports for out-of-pocket expenditures needing to be repaid to company employees is disbursements vs. reimbursement.

Your company may receive rebates on spending with these business spending cards (aka P-cards), as an additional advantage. Establish and document qualifications for and proper ways for employees to obtain, activate, and use their spending cards in a company policy. 

Tipalti Card lets you issue virtual or physical spending cards to employees and earn rebates. You gain automatic expense tracking of purchases made by each employee. The Tipalti Card manages purchases from suppliers and expense categories. You’ll have this digitized spend feed into your company software and get automatic reconciliation.

Automation + Expense Management

Using an automated system for effective expense management will make it easier for employees to create and submit expense claim reports electronically with digitally captured receipts through a mobile app with optical character recognition (OCR). The employee expense management software will encompass automatic enforcement of company policy in the expense reimbursement process and reduce the potential for expense fraud. 

Tipalti Expenses software is used with Tipalti AP automation software for a complete electronic expense management solution giving employees a choice of payment methods and the company spend visibility for all employee expense reimbursement and supplier purchases through accounts payable.

Tipalti’s cloud-based employee expense management automation software has a modern, cloud-based UI/UX. It helps your business achieve best practices for travel expense management. 

Explore Tipalti’s Expenses solution to learn about using AP automation and Expenses software for your company’s expense management best practices.