Building an expense policy in 2021 is no easy feat. After all, the ‘how’ of work has changed drastically in the last year, and for better or for worse, remote working is here to stay. Consequently, your expense management policies are likely tired and out of date.
For accounting and finance teams, this is bad news. Outdated policies undoubtedly lead to a lack of spend control, and that’s a recipe for disaster. As explained by our own CFO, Bevan van der Berg, in The Future of the CFO:
“Companies have finite resources and you need to properly allocate those funds in the most effective way. If you aren’t controlling spending, or if spending is not aligned with your strategy and goals, you end up wasting a key opportunity to grow the company.”
As we push further into 2021, the challenge to control spend and modernize policies becomes even greater. And the longer we resist adapting, the harder it will be to reconcile at the end of the year.
But what exactly is expense management?
Expense management is what a business does to process, pay, and audit their outgoings. It includes things like policies and procedures that govern such spending, as well as the technologies and services used to process and analyze the data associated with it.
There’s a lot to consider when it comes to managing business expenses. For example:
- Are your expenses fixed, variable, or periodic?
- Is your spend lightweight or deliberate?
- Do they fall under operating or non-operating expenses?
- Is it a travel expense? A meeting expense? Or an everyday expense?
And within these categories, there’s a multitude of expenses incurred by a business. For example:
- Marketing, advertising, events, promotions
- Salaries, freelance contractors, and other benefits and wages
- Rent, utilities, and insurance
- Home office supplies for remote-working team members
- Technology and software subscriptions
Given that, on average, 19 percent of expense reports filed contain errors and it costs 18 minutes and US¢52 to correct each one, it’s essential to have a clear and concise expense policy in place from the beginning.
In this blog, we showcase five tips for building your own expense policy so that it’s aligned with the new world of work.
1. Use clear language
First and foremost, you’ll likely write down your expense policy to share it with your company. As a consequence, the language you use must be clear, concise, and easy to understand by everyone in your business, not just your accounting and finance teams.
Clarity of writing usually leads to clarity of thought. With this said, be sure to keep your policy simple and avoid using legal jargon that leaves your teams confused.
2. Decide on a spend culture
Every business has a unique spend culture (find out more about spend culture here). Before you begin writing your expense management policy, you need to determine what type of policy best suits your business’s culture.
There are four types of spend culture to consider:
- Administrative: This places the spotlight on procedural correctness and coordinated strategic decision making.
- Democratic: This places significant responsibility on the different leaders and their team, which makes people feel empowered.
- Agile: This embraces order and stability but also encourages adaptability and innovation.
- Unrestricted: This policy empowers people to take responsibility for decisions so businesses can react quickly and adapt on the fly.
Each culture has a unique take on how they approach company spending, and consequently, each type of spend culture will influence the wider business.
For example, if you adopt an unrestricted spend policy, your team members will feel empowered to spend liberally in areas they feel are essential for growth. An administrative culture, however, will create hierarchy but reduce expense errors.
Whatever you decide, decide wisely. If you want to find out what type of spend culture your business has, take the quiz.
3. Set budgets
Before you hand over the company credit card to your team members, your expense policy must outline the types of expense categories that are loggable, and the budget for each of these categories.
You’ll need to weigh your budget so that it’s fair to your team members, while also making sense for what the business can afford to spend.
By setting budgets and dividing expenses up by category, your teams will have a clear understanding of what they can spend for each type of expense.
4. Get buy in from the bottom up
Oftentimes, a top-down approach to expense management can be misguided. After all, executives who drive business direction usually don’t have their boots on the ground. As a result, they don’t always know what’s best for individual teams.
When it comes to producing your expense policy, be sure to consult those that it affects most. Lower-level managers often know the needs of their teams best. Including their voice will prevent you from setting budgets that are too low or too high. Oh, and listening to your teams will no doubt improve culture and morale, too.
5. Include details on expense reimbursements
An expense management policy is meaningless without details on how team members can both make a payment and file for reimbursement. Do you use virtual pay cards? Do teams place a Request for Order? Are team members expected to buy with their own card and submit a Request for Expense?
Whatever your process is, be sure to explain the steps someone needs to take to make a payment and, if necessary, claim their money back.
Within this section of the policy, be sure to include whether or not there’s a time limit on filing for reimbursement, and how your business intends to reimburse teams. You should also include how long this process may take.
Most importantly, a clear process will save your team members time chasing reimbursements. It’ll also set the right expectation on how repayments will work and ensure teams can rest assured that they’re spending in the right ways.
Modernize your expense management in 2021
In 2021, your expense policy must reflect the fast-changing landscape of modern, distributed work. Without a clear expense management policy in place, your teams will remain bottlenecked by spending. More importantly, they’ll fail to effectively contribute to your organization.
Not only will this affect company culture, it’ll also impede business growth. And without strong culture and growth, your business will struggle to keep up. In 2021, then, we implore you to remember these words:
Great ideas take money, so manage it well.
If you want to build an effective expense policy and expedite the process, download our free expense policy templates here.
Equally, if you want to learn more about how Procurify can help you manage your business expenses, request a demo and find out more.