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An expense policy is a set of guidelines and rules established by an organization to manage and control the expenses incurred by employees during the course of their work. While expense policies can vary from one company, they should communicate the following three key elements: 

  • Which employee expenses are eligible for reimbursement
  • How to write expense reports
  • How the reimbursement process works

Implementing an expense policy is important because it helps your company manage its spending. It does so by helping you stick to a set budget and minimize the chances of overspending and mismanagement of business funds by having a set budget for each expense. It's also essential for preventing expense report policy fraud

In this article, we’ll explain how to go about writing an expense policy, some of the expense policy best practices to keep in mind, and explain how automation tools can help you along the way. 

How do you write an expense policy?

When you decide to write an expense policy, there are 6 components you must include so that it serves its purpose. These include:

  1. Purpose and scope
  2. Expense categories
  3. Expense approval process
  4. Documentation requirements
  5. Non-reimbursable expenses
  6. Expense reimbursement

Components of an expense policy

Let's examine each of these components of an expense policy in detail and what you should cover. 

Purpose and scope

This is a sort of introduction to the expense policy. It should outline the reasons for creating the expense management policy, and explain which team members and departments the policies apply to. 

Expense categories

The expense categories section should include all of the types of expenses your business allows its employees to spend company funds on, and indicate spending limits for each. This section should be detailed to make sure there's no room for misinterpretation and vagueness. Your policy can break up this section under the following subcategories:

  • Travel-related expenses (e.g. mileage reimbursement for business travel)
  • Meals and entertainment expenses (e.g. meal per diem)
  • Office supplies and equipment 
  • Software subscriptions
  • Employee training and development (including trade organization memberships)
  • Health and wellness expenses (e.g. medical expenses)
  • Client-related expenses

Expense approval process

Once you've covered all the business expenses that your company will cater for, you must outline how these expenses, once filed, will be approved. Make sure you identify all of the individuals involved in the approval process (approval hierarchy), from the employee who incurred the expense moving up to higher levels of management.

It's also important to describe how employees should submit expense reimbursement requests to your accounting or finance team. For instance, you can specify the timeline for submitting expenses, the medium to use, such as email or expense management software, and how long approvals should take.

Documentation requirements

If your expense approval process requires evidence to accompany expense reports, you must outline the different types of documents employees must provide and the format. Most businesses require evidence of expenses in the form of receipts, invoices, payment notifications, etc. They may also include scanned copies, pictures of documents, or screenshots.

Non-reimbursable expenses

Your expense policy should also cover all the expenses your business will not reimburse your employees for. This section should have an exhaustive list so that there's no misunderstanding as to what’s allowable. If possible, ensure you clearly define each and provide examples. You can include things like:

  • Personal expenses (make sure to provide a comprehensive list under this subcategory)
  • Non-business meals
  • Over-the-limit expenses
  • Late submissions
  • Expenses without receipts
  • Personal penalties or fines
  • Purchases from unauthorized suppliers or vendors
  • Pending and unapproved expenses

Expense reimbursement

It's also important to include a reimbursement process section in your expense policy. Under this section, you should cover:

  • How long the reimbursement will take
  • The payment method for reimbursing employees
  • Which financial period the reimbursements will be made

Expense policy best practices

Writing a good business expense policy isn't just about being comprehensive; it's also about ensuring it remains effective and helpful throughout your business's lifetime. Some best practices for writing and maintaining a good expense policy include:

  • Making sure the expense policy is simple and clear. Avoid using a lot of technical jargon and use simple, easy-to-understand language.
  • Keeping your expense policy up-to-date. As your business grows and evolves, so should your expense policy. What may have worked when you were starting definitely won't work five or ten years later.
  • Making the policy easily accessible to all employees. You can use the company intranet, a printed handbook, or a dedicated expense management software platform.
Build your own expense policy with Ramp's expense policy template

The 3 pillars of an effective expense policy

A fit-for-purpose expense policy empowers everyone in a business by granting them easy access to the tools needed to get the job done. In practice, that means setting parameters in advance while giving employees the autonomy to operate freely within these predetermined bounds. The best expense policies are centered on three foundational pillars:

  • Before spending happens: Set approval policies that give LOB leaders the controls to approve work-related expenses in advance, allowing them to set priorities for their own team.
  • When spending happens: Policies monitor every transaction and block out-of-policy spending as it happens, so there are fewer mishaps.
  • After spending happens: Open a variety of communication channels, so employees can easily submit any necessary accounting information.

Set clear roles for managing and enforcing your expense policy

Generally employees should fall into three roles within your expense policy: cardholders, card managers, and admins.

Cardholders, who are all employees within the company, use virtual or physical corporate cards for company-related purchases and submit receipts for any expense surpassing a predetermined threshold. This system empowers employees and reduces the need for extensive monitoring. 

Card managers, on the other hand, approve spending, review their team's spending bi-weekly, ensure adherence to policy, and track departmental budgets. They may also need to confirm itemized receipts and validate transaction memos. This decentralized approach allows managers to keep a close eye on expenses without centralizing th e responsibility.

Admins play a pivotal role in clarifying expense policies, training employees, and defining roles. While they make the final decisions on expense policy, their primary function is to support managers who handle day-to-day employee spending oversight. This delegation allows admins to focus more on strategic planning and budget analysis. By spreading responsibilities across cardholders, card managers, and admins, the system becomes more efficient and provides better insight into daily spending patterns, facilitating easier budget management and analysis.

How to automate your expense tracking

A company expense policy is necessary for expense tracking, especially if your employees frequently handle your business's cash. However, like many business processes, expense reporting and approvals can be lengthy and time-consuming.

Luckily, you can automate expense tracking with tools like Ramp. Ramp's expense management software provides the following features that help streamline this process:

  • Let your employees send pictures of their receipts on the go via SMS or through the mobile app
  • AI-generated categories and memos to speed up the process of expense reporting
  • Integration with popular services like Uber, Lyft, and Gmail for easy collection and matching of receipts
  • Set controls over vendor categories, expense types, and spending limits
  • Know who approved expense reports by creating a customizable approval trail
Try Ramp for free
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Thank you! Your submission has been received!
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Finance Writer and Editor, Ramp
Ali Mercieca is a Finance Writer and Content Editor at Ramp. Prior to Ramp, she worked with Robinhood on the editorial strategy for their financial literacy articles and with Nearside, an online banking platform, overseeing their banking and finance blog. Ali holds a B.A. in Psychology and Philosophy from York University and can be found writing about editorial content strategy and SEO on her Substack.
Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.

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