A guide on expense reimbursement
Reimbursements are a huge expense category for businesses. Channeling and processing it through the right methods and technology is essential not to lose money and time in the procedure.
Expense reimbursement is a long and complicated process that takes up your employees' time and is also prone to expense fraud.
Expense reimbursements are described as the compensations paid to the employees for the expenses they made for the business. The out-of-pocket transactions the employees have to make for their assigned duties of the business are reimbursed expenses. Most of the reimbursed expenses consist come under travel, meals, and supplies-related purchases.
For example, your employees use their travel credit to book tickets for a business conference in Australia, or your finance managers use their money to buy supplies for a presentation; everything has to be reimbursed.
Any expense that your employees incur on the company's behalf must be reimbursed. It is legally required for the company to do so.
However, reimbursement to employees is not given for all expenses. Just the ones that are strictly and directly related to the business. Hence, setting out clear guidelines of what expenses will and will not be reimbursed is essential.
Here is a list of all employee reimbursement expenses:
These expenses make up a huge part of employee reimbursements. Air tickets, cabs to and from the airport, car rentals, public transport, and hotel stays everything comes under reimbursed expenses. Visa charges and other travel-related costs are also included in this category.
You might be interested to read: A guide on travel and expense management
Next, under reimbursement for employees are meals and entertainment. While on a business trip or conference, or meeting, all the meals for the employees have to be compensated.
Plus, any out-of-pocket expenses incurred to entertain the clients or potential customers are also reimbursed.
If you offer training programs, courses, and workshops or ask them to enroll in one for their professional development, the employees should not be charged for these.
The company is responsible for this professional skill enhancement and hence is supposed to reimburse employees for the same.
Any purchase made for office supplies and equipment by your employees using their personal funds is also counted under reimbursement to employees.
For example, stationary, attachments for software processes or third-party storage devices, laptops, tablets, etc.
Some businesses also cover internet connectivity charges and cellular bills when employees are outside the domestic area.
With the trend of working from home and globalization, you might have employees working from different parts of the world. Any software or system used to establish communication between them and the company is categorized under employee reimbursement.
So if your employees have to use the paid version of Zoom for holding meetings and conferences, it has to be reimbursed.
Other categories under reimbursement to employees are subscriptions and memberships. Subscriptions for SaaS software, any membership for a business industry club, or a working forum are all supposed to be compensated.
For example, Hubspot, membership to content libraries, Adobe, etc.
Any other work-related expenses that are valid under the reimbursable expenses category must be compensated.
For example, healthcare or health insurance. Companies encourage their employees to apply for health insurance, for which they can later raise claims.
Some companies also cover the fuel charges for the employees traveling to the office in their own vehicles.
A document or form known as an expense report is used to report and record expenses incurred by an employee while carrying out activities that are related to the business.
It fills in the form of following and recording these costs for repayment purposes or bookkeeping and monetary announcing.
The following information is typically included in an expense report:
1. Details of expense
The date of each expense, a description of the product or service purchased, the amount spent, and the currency used are all included in this section.
2. Categories of expenses
Expenses, such as lodging, meals, travel, and office supplies, are grouped by their nature. Sorting costs assist with arranging and dissecting the use.
3. Supporting documents
The expense report typically includes receipts, invoices, or other supporting documents that verify the incurred costs. For purposes of reimbursement or auditing, these documents are necessary because they serve as proof of the costs.
4. Total charges
The total costs incurred over a specific time are compiled in the report. It might likewise incorporate subtotals for various cost classes to give a breakdown of the consumptions.
5. Additional details
The purpose of the expense, the project or client associated with it, and any special notes or comments may all be entered in additional fields on some expense reports.
The expense report is usually sent to the right department or authority within an organization for review, approval, and processing after it has been completed. The association's repayment strategies and methodology will direct the way that the costs are assessed, repaid, and represented in the monetary records.
The process won't be a hassle if you have a clearly laid expense reimbursement policy. Once your employees are aware of this policy, any chances of overspending or expenses that are not allowed to be reimbursed according to the policy will not be made.
So here is a step-wise process of how an expense reimbursement process works:
As stated above, start by building a clear and all-encompassing expense policy. Your employee reimbursement strategy must include what expenses will be reimbursed and which won’t be reimbursed. How should the reimbursement claims be submitted — the format, deadline, proofs required, and any other attachments?
Moreover, mention any other necessary detail like signatures needed, department-specific information, etc.
You might also be interested to read: Key components of a corporate travel policy
Now this whole policy document that you have created is not just meant to lie around. Get all your employees together and educate them about this policy.
Explain to them all the rules and important steps of the process. The employees should be aware of all details to be compliant with it.
Make a list of the documents that are necessary for getting the reimbursement claim through the system.
So, the employees must know that important documents are receipts, purchase bills, invoices from vendors, subscription purchase proofs, etc. These documents help in checking whether the claim is legit or not.
Also, these are supporting records for maintaining a database of all expenses.
Your expense reimbursement policy should determine how the documentation proofs have to be collected or in what format. Some companies still use the analog method and ask their employees to store every expense receipt or bill and submit the hard copy as proof.
However, some companies have adopted automation systems that allow employees to click a picture of the receipt, upload it on the software, and be done. The further process is taken over by the system and automatically processed.
Suggested read: Paperless expense reporting to streamline expense management
Again this step comes down to the type of processing you use. If you are still acquainted with a manual process, you will have to set up a team and divide responsibilities and tasks. Along with this, you need to make a clear division of expense categories.
However, with an automation system, you don’t have to worry about organizing and categorizing. The system tracks all the expenses and automatically creates a clearly bifurcated and organized list of all expenses.
Once the employees know the format and the process, they are supposed to submit their expense reports within the given submission time.
The finance team will then begin processing all the expense claims. Any expense report out of order or in the wrong format would be sent back for amends.
The process some towards the end, where the financial team reviews all reimbursement expenses, looks over the claims submitted, and checks everything against each other to maintain accuracy and validity.
As the reimbursements are processed, they are forwarded along to the department managers or head of accounting for approval.
Lastly, after the legitimacy and validity of reimbursements are checked, the claims are finally up for being reimbursed. This means that with the salary of the employees or as an extra payment, the out-of-pocket expenses that were incurred by them are transferred into their accounts.
There are various challenges your company will have to face while dealing with employee reimbursements. These difficulties can be anything from process limitations to employee compliance.
Here is a list of all the problems you might encounter:
The first and most difficult problem to deal with is policy compliance. However, may everyone knows the rules, but there are possibilities of mistakes and intentional non-compliance.
For example, some employees might forget the department managers' signatures, or someone might knowingly slip in extra expense receipts.
However, these problems can be effectively tackled with automation software.
Continuing on the point above, manual processes are prone to human errors. Plus, it is both time and cost-consuming. Going over a hundred expense reimbursements, checking their validity, and ensuring all information is accurate is tedious.
When done manually, the probability of mistakes in the final outcome is 1 (probability ranges between 0 and 1).
Moreover, extra time and money will be spent on correcting those errors and reprocessing the claims.
Another expense reimbursement challenge is miscommunication and the absence of clear instructions. You cannot just recite the rules and policies to your employees because this will definitely create complications and misunderstandings.
Employees get confused with documentation requirements, processing steps, a chain of approvals, etc. This not only creates a dilemma but also delays the whole process.
Another problem in the expense reimbursement process is receipt management. If you have a manual processing system, this is a nightmare.
Storing all physical receipts, keeping them in the right files, organizing according to the steps of the process, and easy accessibility.
Receipt management doesn’t just end here; figuring out if the receipts are fake, if there are missing receipts, and any such anomaly is a whole lot of work on top.
This can be seen as a drawback of the manual system. Approvals are hectic if you do not have an automation system.
The employees will have to run to and fro from office to office to get approval signatures and green lights. Any missing detail or attachment will have to be procured and sent for approval again.
On the manager or approver side, numerous expense reimbursement claims flow in daily and require close reading so that no fraud expense is reimbursed.
Reiterating that the financial team members have to sit for hours and hours every day to ensure that every reimbursement claim is in compliance with the company policy. If not, getting hold of the employee, asking them to make amends, or bringing the necessary documents is another hell of a task.
Another nightmare in the same category is an audit. Just in case, even if everything reaches the final stage and when it comes the time for audits, there are mistakes in the database or process that will highly damage the company's image and the employees' work efficiency.
On average, for a mid-sized company, the expense fraud amount is almost $30,000 every year. This means that the concept of fake receipts, over-estimated reimbursement figures, fake expense claims, and many more fraud types are not new to any business.
However, combating these issues is a pain. An automation system can still prove to be effective in solving these problems; however, manual processing makes the job harder.
Related read: How to identify and prevent fake reimbursement claims
Looking from an employee's point of view, if the company runs behind on the reimbursement processing, the employees will have a limitation on their personal funds.
Plus, many companies use cheques to reimburse employees, which takes another few days actually to transfer the money to their bank accounts. This limits the employee's personal funds and creates mistrust and a lack of belief in the system and the company.
A colossal problem people sometimes fail to recognize is the lack of process transparency and spending visibility. A manual expense reimbursement process does not update everything in real-time. It takes days to complete the claims processing, enter data into the database, sort it according to need, and finally be available to be used by all.
Any overspending or incompliant expenses will not be caught in that very instance, plus the heads do not have the facility to see when are where the company funds are being utilized.
There are various techniques and strategies that can be used to streamline your employee expense reimbursement process. These are meant to help you make the processes smoother and seamless.
Streamlining employee expense reimbursement starts with establishing clear expense policies and guidelines.
As mentioned above, the expense policy document must have all necessary information like process, submission format, date and deadlines, and any other particulars.
Your employees need to understand the set guidelines clearly. Train them to follow the procedure steps and help them with any queries or confusion. Crystal communication will help build a strong workflow without any interruptions.
The greatest solution of all is automation. Setting up an automated expenses management-centric system, setting spending limitations, and increasing the overall efficiency of the expense reimbursement workflow.
Whichever expense management system you decide to install for your company, make sure that it has a mobile app version. This app can be installed on all your employees’ phones and can be used to upload receipts on the go, check the payment status, check the status of approval, etc.
It is always a good option to have digital or virtual copies of the physical receipts. This is because physical receipts are highly prone to be lost or misplaced and hard to store over the years.
However, with digital copies, none of the above problems apply, and these can be stored for years and years.
Set clear approval workflows. Create a workflow where 3-4 people at different levels are supposed to approve the reimbursement claims. This helps to make the process rigid. Plus, also define steps 1 to the last step.
Employees should know whom to submit the reimbursement claims to, whose signatures are needed in chronological order, and when the reimbursement actually be fulfilled.
A good practice in the employee reimbursement process is to regularly review and audit all expense reports. A regular check and tab on all details will help you sort out any issues before it is too late. Plus, catching any fraud will be easier.
Along with an expense management system, corporate cards are another effective tool to help streamline employee reimbursements.
Cards allow making spending easier, and you will always know which employee is accountable for what expenses.
Now let’s talk about one of the most powerful and potent tools to solve all your expense reimbursement challenges — corporate cards.
Starting with the basics, using corporate cards, you will be able to track all expenses and transactions in real-time. This means you just have to give these cards to your employees, and all activity is traced to the minute.
So you don’t have to worry about receipts and physical records to know how much and where your employees are spending.
Corporate cards enable companies to maintain expense policy compliance. You can set spend control limits and assign cards for specific expense categories as well.
Any transaction under the given card limit will be automatically approved. But any expense over the limit will require the employees to raise funds request and approval of the superiors.
Another benefit of corporate cards is budget allocation. Corporate cards can be assigned to employees, departments, and projects. Hence, the card spending limit feature can allocate a budget for departments and projects.
Plus, the feature of setting a card for one-time payments and recurring payments is another feature that helps control spending.
As corporate cards track all transaction activity, there is already an automatically created database with all the details of the expenses.
Hence, the need to store receipts gets eliminated. Plus, the expense management software can upload receipt snapshots for digital records.
The automatically created database helps to maintain a streamlined reconciliation process. Corporate cards can be integrated with an accounting system.
So all the expense details are filled into the accounting books without having to put in any extra manual efforts for data entry.
One of the most amazing outcomes of using corporate cards is enhanced data analytics. As every expense detail is captured in real-time, an expense record is also created in the system.
With this, data analytics is also improved, as the system creates reports, analytics graphs, and diagrams to help you identify spending patterns and employee expense behavior.
As everything is in real-time, there is no scope to make amendments or slip in false expenses in the report. Expense reports are made in a system, and employees cannot alter any information as the real-time recording does not allow it.
Plus, the system catches any anomaly or unusual behavior and stops it immediately.
Now that you know automation is the ultimate solution for all your expense management problems and your ultimate solution should be the best in the game, i.e., Volopay.
An all-in-one expense management solution for all your business expense problems. From delays in vendor payments to fraud issues in reimbursement to the inaccuracy of expense data to high-charging international transfers, Volopay can help solve all the challenges.
If your question show, then here is just a glimpse of the features and tools offered by Volopay:
● Real-time expense tracking
● Corporate cards, both virtual and physical
● Direct accounting integration
● Lowest possible FX rate for international transfers
● Automatic expense report creation and analytics
● Reimbursement workflow with 4-5 levels of approvers
● Fraud protection