The Importance of an Expense Management Policy

Almost every organization has some kind of an expense management process in place. However, many of them do not care to define and implement something equally important – an expense management policy. Expense management is a long-winded process that needs buy-in from several different stakeholders; lack of a clearly defined expense management policy can have an adverse effect on the process. In this post, we’ll see why having an expense policy is important.

Segregating reimbursable and non-reimbursable expenses

You will very well reimburse a legitimate business expense like an employee taking a prospect or lead out for lunch. However, will you reimburse the same employee for a lunch with an old friend while on a business trip? What if the employee tries to pass this off as a legitimate expense as he is out of town on business purposes?

Employees need to be communicated the kind of expenses that can be reimbursed and those that cannot. This can be done through a stated expense policy.

Controlling costs

In the same vein as the previous point, having an expense policy also helps with cost control. Sometimes, employees can claim more than what was allocated to them. If there were no expense policy, they can pass this additional expense off as a legitimate expense since they were not aware of any limits on spending. By having a policy, you can ensure that the costs do not exceed the legitimate limits.

A streamlined, efficient workflow

As mentioned earlier, the expense management process involves coordination among several disparate business functions. The workflow therefore has to be optimal and flexible. It is very easy to be confused, go wrong, or bypass some functions while routing the workflow, making it complicated and inefficient.

With an expense policy, the whole process and workflow routing can be clearly defined so that there is no scope for misrepresentation of the process. All the stakeholders in the process know their stated roles and responsibilities clearly.

Enforcing an expense policy is another matter altogether. Learn more about implementing and enforcing one.