How to design an expense management workflow

Many businesses couldn’t operate efficiently if employees weren’t allowed to incur expenses on behalf of the company—from the occasional office supplies to travel expenses and more. Empowering your employees to make purchases when necessary means critical work can always get done quickly.

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Of course, if your employees are making these purchases with their own funds, you need a workflow in place to reimburse them. Even if they’re making the purchase with a corporate card or other preapproved funds, you need a process to track each expense so that you have clear insight into your spending habits.

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Below, we’ll take a closer look at why it’s so important to have an expense management workflow in place. We’ll also outline the key steps in a typical workflow and provide some best practices to establish a successful expense management process for your business.

What is an expense management workflow?

At its heart, your company’s expense management workflow consists of all the steps that go into creating and processing an expense report. It begins when an employee incurs a business expense and ends when the employee has been reimbursed or, if the purchase was made with a company card, when the expense is posted and recorded in the general ledger.

Why do businesses need an expense management workflow?

If you haven’t documented your expense management workflow, you open the door to confusion over what information goes into an expense report, what documentation an employee must submit with their expense reimbursement request, who handles approvals, and more. 

Establishing a structured and well-defined workflow for how you manage expenses offers a number of benefits, including:

• Faster expense reconciliation
• Increased transparency around company spend
• Streamlined employee reimbursements
• Decreased risk of expense fraud
• Fewer errors and missing receipts 

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Key steps in the expense management process

While the specifics can vary from business to business, most expense management workflows will include the following steps, which begin after an employee incurs an eligible business expense.

1. Gather the relevant records

In order to submit an expense report, an employee must provide proof of the business transaction. This proof of purchase typically comes in the form of an expense receipt, though other documentation—such as a canceled check, credit card statement, invoice, or bill—is sometimes acceptable.

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With this in mind, the first step in the expense management workflow is typically to gather the relevant receipts, records, and other documentation that must be submitted alongside the expense report.

2. Generate an expense report

Next, the employee will need to generate the expense report according to the specifications outlined in the company’s travel and expense policy. 

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While employees can submit a separate expense report for each individual purchase, it’s usually more efficient to submit a single expense report that itemizes all the purchases made in a week, month, or quarter. In any case, the report should include the following information:

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• Purchase cost
• Purchase date
• Purchase description
• Payment method
• Expense category
• Retailer, vendor, or supplier name
• Subtotal by category
• Grand total

3. Submit the expense report for approval

After reviewing the expense report for accuracy, the employee submits it for review and approval with the documentation outlined above. At this point, the report begins working its way through the expense management workflow and is no longer in the hands of the employee who incurred the cost.

4. Notify the approvers

Next, whoever is responsible for reviewing and approving the expense report must be notified. This is typically the employee’s direct manager as well as a member of the finance team. Notification can take a variety of forms, including email, text message, or in-app notification within the company’s accounting software or expense management platform.  

5. Review and approve the report

After being notified of the report’s submission, the approvers will review it for:

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• Accuracy and completeness
• Compliance with the company’s expense policy
• Proper expense categorization and account attribution
• Appropriate supporting documentation

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If the reviewers deem the report complete and accurate, they’ll approve it and forward it to the next step in the workflow. Otherwise, if it’s incomplete, missing key documentation, or contains out-of-policy expenses, the reviewers return it to the employee for corrections or appeal. 

6. Send the approved report to accounts payable

Upon approval, the expense report is sent to the accounts payable department, who will take over for the remaining steps in the workflow.  Ultimately, it’s accounts payable who issue reimbursement to the employee.

7. Verify the receipts and other documentation

Any documentation submitted along with the expense report—receipts, credit card statements, invoices, and so on—is then reviewed and verified by the accounts payable department. If the report includes paper receipts, they may be digitized for easier storage. All documentation is then filed away for future reference.

8. Code the report

Each expense in the report must be properly categorized to reflect key information about the purchase, such as the type of expenses, business expense categories, tax status, and other information. While the employee who made the purchase will typically categorize each purchase, AP should review these for accuracy as well.

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Once reviewed, each expense must be coded, either manually or automatically depending on the company’s software.

9. Post the expense report

After each expense is properly coded, they can be entered into the business’s accounting system or ERP as journal entries. Pending final review and approval, these entries are then posted to the general ledger (GL). Should the IRS ever audit the business, these ledger entries act as an official record of the employee’s expenses

10. Authorize the expense reimbursement

If employee reimbursement is required, AP will then authorize and schedule the payment.  Typically, reimbursement will coincide with the next payment period, but in some instances—for example, if an employee has fronted an exceptionally large dollar amount—it may be expedited.

11. Reimburse the employee

Finally, the employee receives reimbursement, typically in the form of a check or direct deposit (ACH). Reimbursement can be included in an employee’s regular paycheck or issued as a separate payment, depending on the company’s expense policy.

Best practices for a successful expense management workflow

As you think about your business’s expense management workflow, consider implementing these best practices to streamline the process:

1. Document the entire workflow in your expense policy

In order to minimize errors and avoid unnecessary back and forth with your employees, you should document each step of your expense management workflow in your company’s expense policy, making it clear who’s responsible for what at each step.

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At a minimum, your policy should outline:

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• Spend guidelines: Including spending limits, approved and unapproved spending categories, and when preapprovals may be necessary
• Submission requirements: Including how long after a purchase an employee must submit a reimbursement request, and what kind of documentation is required with each expense submission

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Make this policy available to any employee that might incur expenses on behalf of your business.

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Tim Stobierski

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Contributor Finance Writer

Tim Stobierski is a writer and content strategist focused on the world of finance, investing, software, and other complicated topics. His friends know him as a bit of a nerd. On the side, he writes poetry; his first book of poems, Dancehall, was published by Antrim House Books in July 2023.

https://www.linkedin.com/in/timothy-stobierski-82065422/