Operating strategically means putting plans in place ahead of time. By creating an expense policy, your finance teams can spend less time reigning in spending and rejecting unallowable expense claims and more time finding smarter ways to optimise your budgets.
As your business scales, you need to spend controls, rules and parameters in place to make informed decisions about where company money should be spent. Plus, you want to give your team the scope to focus on ways to proactively reduce cash burn and wasteful spending and implement smarter spending tactics that help you do more with less.
Ultimately, creating an expense policy is what will set your business up for success, keep your best talent engaged and give your organisation the resilience to ride out economic uncertainty with confidence.
What makes a successful expense policy?
Creating an expense policy is about more than simply defining budgets and expense categories. When done well, it gives you the framework to make proactive, strategic decisions, rather than knee-jerk responses to unexpected economic changes.
We like to think about it as similar to a peace-time vs. war-time mentality. We know that the most successful battles are typically won through the strategies put in place before combat begins.
The same goes for expense policies, especially in today’s context of both rising cost of living and mounting inflationary pressures. Now is the time to plan for and gear up for the changes ahead, and not wait until you’re feeling the pinch to get your policies up-to-scratch.
In broad terms, the best expense policies help businesses to make decisions with confidence by:
- Setting clear categories and budgets: this ensures your entire team is across what kinds of purchases are and aren’t allowable expenses and how much is budgeted for in each category.
- Offering simple rules: the easier your policy is to understand, the better it will be implemented. Make sure your documentation is clear and concise and harnesses automated expense management software that self-polices your policies.
- Ensuring the policy is regularly updated: as your team grows, your expense policy should evolve, too. Keeping these policies updated ensures no excessive spending or fraud slips through the cracks as team roles change and responsibilities shift internally.
- Remaining compliant with regulations: make sure you stay on top of any relevant laws and keep your policy in line with changes in regulations, too.
What core categories should you include in your expense policy?
When building an expense policy from scratch, it can be helpful to know what essential building blocks need to be included. While no two policies are going to be the same, these core categories can help you to cover all your bases when bringing your expense policy to life.
- Introduction to the policy: give a clear statement of purpose that brings your team up to speed on why this policy exists, who it applies to and the date it’s being implemented. Use it to set the tone for the rest of the policy and bring your team on the journey.
- Employee’s and manager’s responsibilities: set the ground rules from the beginning by clearly explaining what’s expected from both employees and managers and what happens if someone doesn’t abide by this expense policy.
- Navigating fraud, bribery and corruption: it’s worth calling out that your organisation has a zero-tolerance policy towards this kind of activity and your stance on fraud, bribery and corruption.
- Allowable expense categories: clearly explain what kinds of expense categories are allowed at your company (remember these need to be directly related to the running of your business).
- Non-allowable expense categories: on the flip side, any expenses related to your employee’s or manager’s personal life can’t be approved as part of an expense policy. Make sure to spell this out clearly for your management team to ensure everyone knows what is and isn’t accepted.
Automation: the best way to power up your people and policies
Once you’ve created an expense policy, it’s time to put it into action. The most effective way to do this is to use an automated expense management platform that does the work of enforcing your policies, limits spending and allows you to catch potential fraud, fast.
Not only does expense automation ensure you’re controlling and monitoring spending before it happens, but it can actually act as a powerful tool to engage and retain your best talent.
With mounting cost of living pressures, making your team pay for expenses with their own money and using them as a line of credit is only going to drive them to start looking elsewhere. But, by having a policy in place, utilising the right type of functional credit and powering up your team with prepaid virtual cards, you can keep your people on board (even in a tough economic environment).
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