As a business owner, you know that managing expenses are essential to ensure that your business remains profitable. One of the best ways to keep your expenses under control is to establish clear and comprehensive expense policies. In this guide, we’ll take a closer look at the eight types of expense policies that every company should have in place.
Why your company needs expense policies
Expense policies are important for several reasons. First, they help to control costs and reduce the risk of fraud and misuse of company funds. With clear guidelines in place, employees are less likely to spend money on unnecessary expenses or abuse company resources.
Second, expense policies help to streamline processes and make expense management more efficient. By establishing clear procedures for submitting and approving expenses, you can reduce the amount of time and effort required to manage expenses.
Finally, expense policies help to ensure compliance with legal requirements. By keeping accurate records and following established procedures, you can reduce the risk of fines and other penalties for non-compliance.
Travel and Entertainment Policy
Travel and entertainment expenses are often significant expenses for businesses, especially for those with a lot of traveling employees. To keep expenses under control, businesses should have a travel and entertainment policy in place. This policy should outline the types of expenses that are acceptable and unacceptable, the procedures for submitting and approving expenses, and any restrictions or limitations.
For example, the policy may state that employees can only fly coach or economy class and that they cannot book expensive hotels or rental cars. The policy may also require employees to provide receipts for all expenses and limit the amount of money that can be spent on entertainment expenses.
Corporate Credit Card Policy
A corporate credit card can be a useful tool for businesses, but it can also be a source of fraud and misuse of company funds. To prevent this, businesses should establish a corporate credit card policy. The policy should specify who is eligible for a corporate credit card, the procedures for obtaining and using the card, and the consequences of misuse.
For example, the policy may state that only employees with a certain level of authority can obtain a corporate credit card. It may also require employees to submit receipts for all expenses and limit the amount of money that can be spent on the card. What can really help with this, is a smart expense management platform (such as Clyr!).
Expense Reimbursement Policy
An expense reimbursement policy is essential to ensure that employees are reimbursed for expenses incurred while performing their job duties. This policy should outline the process for submitting and approving expense reports, the expenses that are eligible for reimbursement, and any restrictions or limitations.
For example, the policy may state that employees can be reimbursed for travel expenses, meals, and lodging, but not for personal expenses such as dry cleaning or haircuts. The policy may also require employees to submit receipts for all expenses and limit the amount of money that can be reimbursed for certain expenses.
Mileage Reimbursement Policy
For employees who regularly travel for work, a mileage reimbursement policy can be useful. The policy should specify the reimbursement rate, how to calculate mileage, and any restrictions or limitations.
For example, the policy may state that employees will be reimbursed at a specific rate per mile driven and that the reimbursement will only be provided for trips related to business purposes. The policy may also require employees to keep a mileage log and submit it with their expense reports.
Gift and Entertainment Policy
Gifts and entertainment expenses can be a gray area, which is why having a policy in place is important. The policy should outline what types of gifts and entertainment are acceptable, along with any restrictions or limitations.
For example, the policy may state that employees can provide gifts to clients or vendors up to a certain value, but not cash or cash equivalents such as gift cards. The policy may also require employees to obtain prior approval before providing gifts or entertainment expenses.
A procurement policy outlines the procedures for purchasing goods and services. This policy should specify the steps for obtaining approval, the process for selecting vendors, and any limitations or restrictions.
For example, the policy may require that all purchases over a certain amount be approved by a certain level of management. The policy may also require that vendors be selected based on a competitive bidding process.
Petty Cash Policy
For small expenses that don’t require a reimbursement process, a petty cash policy can be useful. This policy should outline the amount of money that can be accessed, who is responsible for managing the petty cash fund, and how to replenish the fund.
For example, the policy may state that only certain employees have access to the petty cash fund, and that they are required to keep a log of all transactions. The policy may also specify the maximum amount of money that can be withdrawn at one time, and how often the fund must be replenished.
Records Retention Policy
A records retention policy outlines how long financial records must be kept and how they should be stored. This policy is crucial for maintaining accurate financial records and complying with legal requirements. The IRS actually has material about this, which can be found here.
For example, the policy may require that all financial records be retained for a certain period, such as seven years. The policy may also specify the format in which records must be kept, such as in paper or electronic format, and the procedures for destroying records when they are no longer needed.
Implementing these eight expense policies can help ensure that your business runs efficiently, while also protecting against fraud and misuse of company funds. By establishing clear guidelines and procedures, you can streamline your expense management process and improve your financial stability.
It is also important to communicate these policies to your employees and provide training to comply with them. This will help ensure that everyone in your organization understands the policies and follows them consistently.
In conclusion, having comprehensive and well-communicated expense policies is essential for any business. By implementing the procedures outlined in this guide, you can help protect your business from financial losses and ensure that your expenses are managed efficiently. So, take the time to review your current policies and make any necessary updates to ensure that your business is fully protected.