A How-To Guide on Automating Your Expense Approval Process

Your finance team can choose to make the expense approval process prompt and easy instead of repeatedly delayed by bottlenecks from paper-based, manual expense approval. Slow expense report approval causes pain when late employee expense reimbursement is always an issue. 

This article defines and describes the expense approval process relating to employee expense management, expense approval workflow obstacles, expense approval automation benefits, and how to use automation tools for the expenses approval process and initiate a total business expense management strategy with expense management automation. 

What is the Expense Approval Process?

The expense approval process is a step in business spend management for an authorized manager to either accept or reject employee travel and expense reports for reimbursement, or their business expenditures incurred on employee-issued corporate prepaid debit or credit cards. 

Examples of Expense Approvals

Employees submit expense reports, needing expense approvals before the company pays to reimburse them. Alternatively, employees get expense advances in cash before submitting an expense report or repaying a personal cash advance. As a third option, companies issue certain employees corporate prepaid debit or credit cards for incurring business expenses that require payment approvals.  

Finally, in the fullest sense of the meaning, expense approvals may refer to approving all of a company’s expenses, including employee expenses and business expenses related to supplier invoices or bills submitted by the seller of goods or services to the business. As our final topic, we’ll explain how to automate expense management as a whole in your business. 

Company Policy for Expense Approvals

The company expense policy dictates which employee expenses should be approved. Besides requiring reasonable amounts for expenditures, company policies often require that business expenses be ordinary and necessary business expenses to comply with IRS tax-deductibility rules. 

The definition of ordinary and necessary business expense is provided by the IRS in its Publication 535, Business Expenses:
“To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”

The company policy for travel and expense management will include other custom guidelines for expenses, including some travel pre-approval and booking requirements, a description of qualified approvers by job level with approval limits, and the number of approvals required for payment totals above a stated amount. 

Types of Employee Business Expenses Requiring Approval

Expense approval examples are:

1. Business travel, including airfare, hotels, and meals or per diem
2. Business mileage for travel or local vehicle use, usually at a standard IRS mileage rate
3. Relocation expenses
4. Incidental trade show expenses
5. Customer entertainment
6. Office supplies
7. Professional dues and licenses 
8. Networking  
9. Employee morale-building event expenses 

Expenses for employee-focused events include annual company parties, award presentation expenses, birthday and company work anniversary celebrations with cake, and catered meals, appetizers, or restaurant dining. 

Business Expense Advances Requiring Approval

Some employee expenses are approved as prepayments, with employees receiving cash advances before taking a business trip or incurring moving expenses. 

The advance is recorded as a prepaid asset. When employees later submit an expense report, the amount of the cash advance is deducted before paying more cash or requesting the employee to repay any remaining advance above their actual expenses total. The prepaid asset is credited, and actual expense categories are debited. 

Prepaid Debit or Credit Cards

Another method for incurring employee expenses requiring approval is through the issuance of virtual cards or physical corporate prepaid debit or credit cards to authorized employees. The expense approval occurs by setting spending limits and approved categories in advance. Some prepaid credit cards function by requesting real-time approvals before allowing charges to the card. 

Typical Expense Approval and Reimbursement Problems

The traditional system of employees submitting manually prepared, and possibly paper-based, expense reports causes pain for both the employee and the company. 

Employee Pain

Employees’ personally incurred bills for business travel and other business-related expenses could be due for employee payment before receiving company cash. Receiving cash too late for the items charged on their credit cards is anxiety-producing and impacts an employee’s credit scores when they make late payments. This hurts employee morale and sometimes manifests as controlled anger. 

Business Pain

Using a manual, or error-prone spreadsheet-template-based, employee expense report system with possibly paper receipts and expense reports requiring approval causes delays at every step of the process. Late expense report submission adds business pain. 

The steps for employee expense management include:

1. Employees submitting expense reports
2. Checking expense reports for accuracy and company policy compliance
3. Approving expense reports
4. Paying expense reports

But delaying employee expense reimbursement payments when expense reports are submitted on time isn’t the only problem. The company doesn’t know how much its expenses are for the month when employees are late in preparing and submitting their expense reports.

If submitting expense reports takes too much time, employees delay submitting their travel expense reports until they’re back in town and have time to focus on the task. Or, they’ve been reminded by their supervisor that the expense report hasn’t been received and requires submission. Meanwhile, the employee may have misplaced essential expense receipts, causing further delays in expense report submission to get replacement receipt copies. 

Submission delays mean that pending expense reports with approval requests aren’t in the accounting system yet, nor included in the cash requirements forecast and financial statements prepared by the finance department. These are real business problems. 

With a manual employee expense submission process, the business experiences:

• Higher employee expense processing costs 
• Delays from manual data entry and late expense report submission
• Bottlenecks in the expense approval process, requiring expediting
• Incomplete knowledge of upcoming expenses that will require payment 
• Inaccurate financial reports 
• Lack of audit trails
• Frustration 

The Benefits of Automating Expense Approvals

The benefits of automating expense approvals for the entire process, with automation expense management software, are:

• Easier and quicker expense claim submission, with efficient expense approval and payment, using streamlined processes
• Captured receipts and expense data for automated digital processing
• Guided approvals (or expense rejection) from anywhere, at any time, by mobile device or Internet-based software platform
• Automated company expense policy compliance
• Automated payment status communication
• Global payments to a bank account or digital wallet, with a choice of electronic payment method 

When your company chooses to automate expense approvals and expense processes, it implements expense management best practices. 

How to Automate the Steps in the Expense Approval Process

To achieve significant benefits, strongly consider implementing and using automated expense approval software that includes expense report submission, verification, automated company policy compliance, guided approval, and payment. Your organization can configure the software to meet your business needs. Your company will replace time-consuming, manual processes with automated, touchless expense claim processing.

When using automated expense management and approval software for employee reimbursements:

1. The employee captures receipts via photos taken with their mobile device through the app.
2. The expenses software lists expenses and automatically codes these expenses to general ledger accounts.
3. Expense claims are automatically compared to company expense policy to determine compliance. 
4. Approvers click a button to approve or reject submitted expenses (through either the mobile app or Internet-based software platform). 
5. Approved expense claims are paid electronically to domestic and internationally-based employees by the company. 
6. Real-time payment reconciliations are automatically prepared. 

When using controlled corporate payment cards issued to authorized employees, approvals are either made upfront through spending limits, or sometimes real-time approval is requested through the payment processor when a desired purchase is being made by the employee. Statement charges and payments are automatically reconciled with the general ledger. 

The Expense Approval Tools That Make It Easier 

Automation software provides efficient and easy-to-use expense approval tools for employee expenses. Tipalti Expenses works with its AP automation software product to receive and process employee expense claims, including the approval and global payment steps. 

With Tipalti finance automation software, your business can pay employees in over 196 countries and 120 local currencies, giving them a choice of available payment methods.

Tipalti’s 12 payment methods through its automation software include:

• ACH (domestic U.S. only)
• Global ACH
• PayPal
• Prepaid debit card
• Wire transfer
• Check

Automating Expense Management as a Whole

Automating employee business expense reimbursements, including the expense approval process, helps you solve the problems of late expense report recording and reimbursements. Businesses need to control all of their expenses, not just expense management for employees.

This total expense management solution streamlines business processes for accounts payable and improves timeliness, efficiency of team members, profitability, and cash flow. Tipalti has solutions for expense management process automation and spend analysis as a whole. Tipalti automation software provides AI-driven features, including business intelligence and analytics, with visibility for stakeholders that meet your business needs. 

Virtual or Physical Corporate Spending Card for Business Expenses 

Tipalti offers a virtual or physical corporate payment card called Tipalti Card for managing employee business expenses without requiring upfront payments or expense report submission by employees. 

Combined Finance Automation System for Expenses and Payables

Tipalti cloud-based finance automation software products work as a unified system integrated with your ERP or core accounting software. Tipalti’s scalable solution for automating total expense management (including its automated expense approval system) is using Tipalti Expenses seamlessly combined with Tipalti AP automation software. 

This holistic expense management system gives your business an automated process for employee expense report submission, guided manager approvals in the expense approval process, and a reimbursement process. It also provides regular AP invoice processing through large batch payments and reconciliation to the general ledger. 

The combined Tipalti system also provides supplier invoice processing for invoices with credit terms in accounts payable, and global payments. AP automation can save up to 80% of payables processing time, so your company will need to hire less staff. The system gives employees and suppliers automatic payment status notifications, leading to fewer business interruptions and time-wasting. To automate your company’s total expense management for employees and suppliers, flowing through accounts payable, explore Tipalti’s Expenses automation.