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 ensure your team’s purchases stay within budget.

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Unfortunately, a manual expense approval process can be time-consuming, tedious, and error-prone. Luckily, there are steps you can take to automate the entire process, making it smoother for everyone involved.

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Below, we take a closer look at the steps in the expense approval process and the different types of approvals companies use. 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 refers to the steps involved in reviewing and approving employee expense reports. A good expense approval process ensures that spending complies with the company’s expense policy and that employees are reimbursed quickly for any expenses they make on behalf of the business. This helps companies avoid overspending and prevents other kinds of abuse, including expense fraud.

Steps in the expense approval process

The expense approval process is usually pretty similar from one company to the next. It typically looks something like this:

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• An employee makes a purchase: The expense approval process kicks off when an employee makes a purchase or otherwise incurs a business expense
• The employee submits the expense for approval: The employee compiles this and any other expenses they’ve incurred into an expense report, and then submits it for approval. The report should include the amount, date, business purpose, and required documentation (e.g., a receipt or credit card statement) for each expense in the report.
• The expense undergoes review: The employee’s manager or finance team reviews the expense report for accuracy, documentation, and expense policy compliance
• The expense is approved or denied: If the expense is deemed legitimate and within company policy, the manager approves it. Otherwise, it may be returned to the employee for further explanation or documentation, if not outright denied.
• The employee gets reimbursed: If the employee paid for the expense out of pocket, the employee receives a reimbursement—either by direct deposit or physical check

Types of expenses that require approval

Unless you’ve already pre-approved the expense or provided a cash advance, every business expense your team incurs should go through the proper expense approval workflow. Some common examples of expenses that need approval include:

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• Travel expenses, including airfare, hotels, car rentals, and other transportation
• Business meals (including meal expenses incurred during business travel)
• Business mileage
• Customer entertainment
• Office supplies
• Equipment purchases or rentals
• Professional dues and licensing fees
• SaaS subscriptions

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This list is far from exhaustive. The safest approach is to assume that every expenditure should go through your expense approval process.

Methods to handle expense approvals

Companies can handle expense approvals in a few ways. Expenses can either be pre-approved, manually approved, or automated.

Pre-approvals‍

With pre-approvals, the expense is authorized before the employee incurs it. This means your finance department has already determined the expense is within budget and complies with company policy.

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Pre-approvals often make it easier for businesses to reduce unnecessary costs by maintaining stricter control over employee spending. However, relying entirely on pre-approvals can lead to rigidity and inflexibility, especially for expenses you can’t predict, like incidentals.

Manual approvals

In the case of both manual and automated approvals, the expense comes first. When approvals are handled manually, each step in the process requires manual input from your team. This can lead to inefficiencies and errors that slow down the entire expense approval process, especially if you ever need to chase down an audit trail.

Automated approvals

In contrast, modern expense management software can help you automate many of the steps in the process. The best tools let you define your expense policy and configure custom controls to automate the majority of employee expense approvals. You can also set triggers to require manager approval or a multi-step approval workflow for certain types of expenses. Automated notifications and reminders ensure expense claims don’t go unnoticed.

Tips to automate your expense report approval process

As you begin exploring 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 in a spreadsheet that could be made more efficient through technology? Your answers may present opportunities.

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Here are some ideas for optimizing your expense approval process:

1. Define a clear and thorough expense policy 

Do you find yourself spending a lot of time explaining what is and isn’t reimbursable to your employees? Or rejecting a lot of expense submissions?

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If so, it might be time to revisit your expense reimbursement policy to make sure it’s clear—especially if it’s been a while since you updated it. If your business doesn’t have one at all, using an expense policy template is an easy way to get started.

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Address any points of confusion or frequently asked questions so your employees can determine for themselves whether an expense complies with company policy. Be sure that your policy outlines:

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• Which expenses are eligible for reimbursement
• Which expenses (if any) require pre-approval
• What spend limits (if any) employees must adhere to
• What documentation, such as proof of purchase or price quotes (in the case of pre-approvals), are required
• How long an employee has to submit an expense after incurring it
• Your reimbursement process, especially the timeframe for reimbursements

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While this step won’t directly help you automate your process, implementing a thorough expense policy can save you a lot of time and back-and-forth communication. Likewise, walking through your policy may also help you identify bottlenecks you can eliminate with automation software.

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2. Use corporate cards to automate pre-approved expenses

Manually approving every expense is a surefire way to slow down your approval process—whether you do approvals before or after the expense has been incurred. But with the right tools in place, you can automate pre-approvals, helping you streamline your expense management process.

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With a corporate credit card, for example, you can set a monthly budget for each employee. Likewise, you can establish pre-approved expense categories. Then, as long as an expense is within an employee’s budget for the month or within a pre-approved category, it can be automatically approved at the point of sale.

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If, on the other hand, the employee has exceeded their monthly budget or is trying to make a purchase in a category that isn’t pre-approved, it can be automatically rejected in real time, eliminating the need for manual review altogether.

3. Collect digital receipts instead of paper receipts 

It’s not uncommon to waste time tracking down paper receipts if employees forget to submit them in their expense claims. And once you do find them, you then need a system for storing and organizing them—whether that means you’re digitizing them on the backend 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 manual review, cutting down on how often you have to chase your employees for documentation.

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As a bonus, digital receipts are automatically matched with the corresponding expense in your expense management system. This makes it easier to track down the necessary documentation if your business ever faces an audit.

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 so you can see exactly where your money is going and identify trends 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’s not always obvious which category an expense falls under, it’s easy for employees to make mistakes at this point in the process. Getting it right requires an understanding of how expense categories differ and an attention to detail that’s often lacking when employees are rushing to get their expenses filed on time.

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

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5. Replace paper mileage logs with digital trackers

Relying on your employees to track their business mileage—whether they’re 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 drive? While inaccurate mileage reports might not seem like a big deal, they 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 Google Maps or a GPS removes the need to manually verify mileage reports.

6. Generate reports automatically on a preset schedule

Forecasting, 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 that reporting doesn’t need to be a manual process. Modern financial technology can help you automate the reporting process. Plus, many are easy to synchronize with your existing accounting software.

Automate expense approvals with Ramp

By thinking critically about your expense approval process, you’ll uncover ways to automate 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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• Issuing corporate cards—including budgets, pre-approved spending categories, and more, all from a central interface
• Collecting digital receipts at the moment of expense submission through a user-friendly mobile app
• Tracking and reconciling business mileage via direct integration with Google Maps for more accurate mileage reimbursements
• Running reports automatically on a predetermined schedule (and using AI to find opportunities to save)

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Interested in learning more about how Ramp can power your automated expense approval system? Try an interactive demo and see for yourself how Ramp can save your company time and money.