Guide to employee expense claims

An expense claim allows employees to seek reimbursement for out-of-pocket business expenditures. These expenses can range from travel and dining to office supplies. Streamlining this process requires better training, clearer communication of policies, adopting efficient technologies, and regular auditing to prevent misuse and ensure compliance.

In this article, we cover what expense claims are with some examples, the expense claim process, and tips for overcoming common challenges.

What is an expense claim?

Expense claims are requests from employees to get money back for business-related costs they paid themselves.

Employees should use expense claims to document and request reimbursement for business expenses initially paid using personal funds or credit. These claims form the basis of an expense report, a more comprehensive document that businesses use to track, approve, and reimburse these employee expenses

Employees must give specific details about each cost when they ask for reimbursement. That includes the date when they spent the money, a description of purchased items, how much they paid, and proof of the purchase.

There are two types of expenses:

• Actual expenses paid with personal funds: When employees pay for business expenses with their own money, these are known as "out-of-pocket" expenses. An example is using your credit card for a business trip or buying office supplies with cash.
• Allowances based on rates: This refers to set amounts of money to cover certain costs, even if you did not spend that amount. For instance, this could be money for using your car for work or a daily allowance for meals or lodging, regardless of the actual cost.

What are examples of expense claims?

Examples of expense claims include:

• Meals and entertainment: Food on the road or for client meetings
• Travel: Airfare, hotels, car rentals, business miles
• Office expenses: Supplies employees need to complete their work
• Professional fees: Licenses and training courses

What’s the difference between an expense claim and an expense report?

An expense claim is typically a single reimbursement request made by an employee for out-of-pocket expenditures or charges to personal credit cards related to business activities.

An expense report is a consolidated document that includes multiple claims and provides a broader overview of expenses for business or accounting purposes.

What is expense claim management?

Expense claim management is the process of submitting, reviewing, and reimbursing for expense expense reports. Managing the process through dedicated expense accounts helps in organizing and monitoring financial transactions more effectively.

How does the expense claim process work?

The expense claim process initiates when employees incur expenses on behalf of the company. These are the common steps in the process:

1. Business purchase

The process begins when someone from your team makes a legitimate business purchase with their own funds. This could be with cash or a personal credit card.

2. Receipts and documentation

Every expense claim needs proper documentation. Employees need to save receipts and invoices, whether they are digital or paper-based, for accurate expense tracking and reporting.

3. Expense report

While expense reports don’t necessarily follow a one-size-fits-all template, they should include essential details to comply with tax regulations. Specialized expense reimbursement software can help you effortlessly maintain accurate records, ensure compliance, and simplify management.

• Employee information: Name, department, and employee ID number
• Purchase information: Expense's date, type, and amount in the appropriate columns
• Business intent: Brief descriptions of the business purpose of each expense claimed
• Documentation: receipts should be attached
• Grand total: The total amount of all expenses claimed on the report
• Employee signature: Either physical or digital

4. Approval and verifications

Once an expense report is submitted, it is time for approval. This process usually involves HR and the finance team. They will review the expenses to ensure they comply with company policies and are accurately documented.

5. Reimbursement

Once expenses are approved, the employee receives reimbursement. It could be a check, direct deposit, or another method specified by your company's reimbursement policy.

Challenges for the expense claim process

While the expense claim process generally follows a set of prescribed steps, the process is not without its challenges. These are four things to look out for:

Manual and inefficient processes

Entering expense claims and receipts into spreadsheets and manual forms, can be a real time suck. It’s tedious, but also inefficient and rife with potential for errors. This could lead to delays in reimbursement and inaccuracies in your budget.

Missing receipts

When you rely on paper receipts, they can easily be misplaced, especially when your team is on the road. And without proper documentation, it’s harder to verify expenses and track tax deductions.

Unclear expense policies

If your expense policy isn’t water-tight, you’ll find out in the expense claim process. Your team might try to submit questionable expenses, or there simply might be inconsistencies across the board.

Delays of budget insights

Logging expenses manually also makes it challenging to get real-time budget information since you’re always waiting for the expenses to be reported before they can hit your budget sheet. Of course, you can make sure it stays within a specific range, but with delayed insights, it takes longer potentially to identify cost-saving measures.

5 Tips for how to simplify the expense claim process

While there are some challenges in the process, here are five tips to make things easier:

Create a clear policy

Start by creating a clear expense reimbursement policy outlining which business expenses qualify. This clarity will help avert disagreements and ensure smooth settlements. Define expenses, set budgets, and categorize expenses. Treat employees equally with spending allowances. Keep the policy simple and update it as your company grows. Stay compliant with local regulations and use software to automate expense reporting.

Automate the process

Expense management software helps businesses and individuals track, control, and optimize expenditures. Many software tools are available to electronically track and organize receipts, seamlessly integrating with accounting software.

Organize by expense type

To effectively organize business receipts, it's crucial to implement a robust filing system that categorizes each type of expense, including meals, operating costs, payroll, and business travel expenses. Here are key steps to streamline this process:

1. Categorization: Arrange receipts by expense category in designated folders. This aids in quick access and organization.
2. Cloud Storage: Utilize cloud-based platforms for secure and remote storage of receipt scans.
3. Efficient Retrieval: Ensure each receipt is accurately tagged and easily searchable within the system.

This approach not only maximizes efficiency but also ensures better compliance with financial auditing standards and enhances document security, allowing for quick retrieval and management from any location.

Use digital apps to organize receipts

Receipt-scanning apps are available that simplify this entire process. These apps are designed to accommodate both individuals and teams, offering customizable features and a variety of pricing options. When choosing a receipt organization app, it's crucial to determine if your company needs the following functionalities:

• Real-time notifications
• Automated receipt data extraction
• Receipt scanning capabilities
• Support for multiple users
• Integration with accounting software
• Compatibility with various payment services

Provide your team with corporate cards

Corporate cards offer a convenient solution, especially for employees who travel frequently. By integrating corporate cards into the expense management system, businesses can ensure spending limits are adhered to and transactions are authenticated. It’s a win-win for employees and employers, making expense management hassle-free and efficient.

Automate employee expense claims with Ramp

Managing the intricate manual processes involved in reimbursement claims can be taxing, and automation is the key to solving your expense management challenges. Ramp offers a comprehensive solution to streamline corporate spending, all within one convenient platform. Our mobile-first approach offers the following benefits:

1. Prevents cash leakages, whether cash advances or international payments.

2. Real-time visibility into expenses, with the ability to generate reports at the push of a button.

3. Ramp's Smart Audit feature uses AI to flag anomalies like duplicate bills and incorrect claims.

Let Ramp help you expedite reimbursements, improve visibility, and reduce costs.