How to automate your expense approval process

A streamlined and transparent expense approval process empowers employees to make business-critical purchases confidently and quickly. It also helps to ensure your team is staying within budget with its purchases.

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Unfortunately, the manual expense approval process can also be time-consuming, tedious, and error-prone. Luckily, there are steps you can take to automate the entire process, making it smoother on your entire team.

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Below, we take a closer look at what expense approvals are, the steps in the expense approval process, and the different types of approvals that many companies leverage. We’ll also offer advice on how to automate your expense approval workflow to boost operational efficiency.

What is the expense approval process?

The expense approval process is a structured procedure that organizations use to manage and authorize employee expenses. The expense approval process is meant to ensure that spending complies with the company’s expense policy and reimbursement policy. This helps companies avoid overspending and other kinds of abuse which could otherwise harm the financial performance of the business. 

Steps in the expense approval process

The expense approval process is typically broken down into the following discrete steps:

• Expense incurrence: An employee makes a purchase or otherwise incurs a business expense.
• Expense submission: The employee submits the expense for approval. This submission will typically include the expense amount, purchase date, description of business purpose, and documentation (i.e., a receipt or credit card statement).
• Review: The employee’s manager or finance team reviews the expense submission for accuracy, documentation, and compliance with company policy.
• Expense approval or denial: If the expense is deemed to be legitimate and within company policy, it receives manager approval. Otherwise, it may be returned to the employee for further explanation or documentation, or outright denied.  
• Expense reimbursement: If the employee paid for the expense out of pocket and the expense is approved, the employee is then reimbursed—either by direct deposit or physical check.

Types of expense approvals

Approvals can be pre-approved, manually approved, or automated.

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With pre-approvals, the expense is authorized before the employee incurs it. This means that it has already been determined to comply with company policy and that it fits within the relevant budgets. Pre-approvals often make it easier for a business to reduce unnecessary costs by keeping stricter control over employee spending. That being said, relying entirely on pre-approvals can lead to rigidity and inflexibility, especially for those expenses that can’t be predicted.

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With both manual and automated approvals, the expense comes first. When approvals are handled manually, each step in the process relies on a human worker. This can lead to inefficiencies and errors that slow down the entire expense approval process (especially if it comes time to chase down an audit trail). Automation software can help to automate one or multiple steps in the process.

Automating your expense approval process

As you begin looking for ways to automate your expense approval process, you should start by evaluating your existing processes. Where are you or your employees spending the most time on approvals? What are you currently doing manually on spreadsheets that could be made more efficient through technology? The answers to those questions may be opportunities.

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Here are some ideas for optimizing your expense approval process:

1. Compile a thorough and easy-to-understand expense policy 

Do you find yourself spending a lot of time explaining what is and isn’t reimbursable to your employees, or otherwise rejecting a high percentage of expense submissions? If so, it may be time to revisit your expense policy or reimbursements policy to make sure that it’s clear—especially if it’s been a while since the documents have last been updated.

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Do your best to address any points of confusion or frequently asked questions so that your employees are empowered to determine for themselves whether an expense complies with company policy. Be sure that your policy outlines:

• Which expenses are and are not business-related and eligible for reimbursement
• Which expenses (if any) require pre-approval
• What price limits (if any) employees must adhere to
• What documentation, such as receipts or price quotes (in the case of pre-approvals) are required
• How long employees have to submit an expense after incurring it
• The timeframe for reimbursements

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While this step will not directly help you automate your processes, it can save you a lot of time and back-and-forth communication. Likewise, walking through your policy may also help you identify bottlenecks that can be alleviated with automation software. 

2. Leverage corporate cards to automate pre-approved expenses

Manually approving each individual expense is a surefire way to slow down your entire approval process—whether you complete the approvals before or after the expense has been incurred. But with the right tools in place, pre-approvals can be automated, helping you streamline the expense management processes. 

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With a corporate debit card, for example, you can set a monthly budget for each individual employee. Likewise, you can establish pre-approved expense categories for each employee. 

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Then, as long as an expense is within an employee’s budget for the month and within an pre-approved expense category, it can be automatically approved at the point of sale. If, on the other hand, the employee has exceeded their monthly budget or is trying to make a purchase in a category that is not pre-approved, it can be automatically rejected in real-time—removing the need for a manual review altogether. 

3. Collect digital receipts instead of paper receipts 

It’s not uncommon to waste time tracking down paper receipts when employees have forgotten to submit them along with their expenses. And once you find them, you then need a plan for storing and organizing them—whether that means you’re digitizing them on the back end or storing them physically. In short, receipt collection can be a tedious, inefficient process. 

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With the right expense management platform in place, you can empower your employees to upload a digital photo of their receipt as a part of the expense submission process. Expense submissions without receipts can be automatically rejected, or otherwise flagged for review, cutting down on how often you have to chase your employees for documentation.

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As an added bonus, digital receipts are automatically associated with the correct expense in your expense management system, making it easier to find proof of purchase in your records if your business is ever audited by the IRS. 

4. Use software to automatically categorize expenses

Expense categorization is an important part of the approvals process. Thorough and accurate categorization makes it easier to track spending in discrete categories—such as travel expenses and office expenses—so that you can see exactly where your money is going and how your spending changes over time. It also makes it easier to distinguish between deductible and non-deductible business expenses, which can help you maximize your tax savings each year. 

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Unfortunately, because it may not always be obvious which category an expense falls under, it’s easy for your employees to make mistakes at this point in the process. Getting categorization right requires an understanding of how expense categories differ, and an attention to detail that is often thrown out the window when employees are rushing to get their expenses filed on time.  

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With a sophisticated expense management platform, it’s possible to use AI and machine learning to automatically categorize your expenses as a part of the submissions process—removing the potential for mistakes and freeing up your staff for more important tasks. 

5. Replace paper mileage logs with digital trackers

Relying on your employees to keep track of their own business mileage—whether they are driving a company car or a personal vehicle for business purposes—can lead to reporting inaccuracies. After all, who remembers to check the odometer before every single drive? But inaccurate mileage reports, while they might not seem like that big of a deal, can lead to under-deductions and over-reimbursements. 

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A digital mile tracker removes this uncertainty by automatically calculating the mileage for each trip. Likewise, an expense management platform that integrates directly with a GPS or a service like Google Maps removes the need to have someone in the back end check mileage to make sure they are accurate. 

6. Run expense reports automatically on a pre-set schedule

Forecasting spending, reconciling expenses against payments, and otherwise keeping an eye on where your company spends its money requires periodic reporting and analysis. But whether you run those reports on a daily, weekly, monthly, or quarterly basis, manual reporting takes time, and gleaning insights from those reports requires a certain level of financial expertise. 

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The good news is, reporting doesn’t need to be manual. There are many softwares available that can help you automate the reporting process—both in generating reports and analyzing them. Plus, many are easy to synchronize with your existing accounting software.  

Automate your expense approval process with Ramp

By thinking critically about your expense approvals process, you may find it possible to automate many of the most time-consuming and frustrating parts. Ramp makes it easy to implement many of the automation opportunities discussed above, including:

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• Establishing corporate cards—including budgets, pre-approved spending categories, and more all from one central interface.
• Collecting receipts digitally at the moment of expense submission, through a simple and easy-to-use mobile app.
• Tracking and reconciling business mileage via a direct integration with Google Maps for more accurate mileage reimbursements. 
• Running reports automatically according to a predetermined schedule, and using AI to find opportunities to save.

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Interested in learning more about how Ramp’s expense management solution can help you automate your approvals process? Request a demo, or try Ramp for free today.