Why Do You Need an Expense Policy for Your Company?

by Thomas | Jun 23, 2022 | Accounts Payable

Any business with workers who expend costs should have a robust plan in place to manage these charges. Even if you only have a few employees piling up expenses, you’ll need a guide to clarify what is and isn’t compensable. You can keep costs under control while keeping your staff motivated and productive by drafting an expense management strategy and revising it as necessary as your company expands.

We believe having a valid written expenditure policy is essential for any company. The idea is to assist you in creating an approach that benefits everyone in the company and doesn’t take several weeks to develop. Let us clarify why you need a company expense policy and tell you everything you should look for in a reasonable cost policy.

What Is the Meaning of a Company Expense Policy?

An expense policy is a collection of guidelines that specify what a company’s employees can do with the organization’s funds. They’re usually spelled out in paperwork that workers must sign after entering their employment contract.

This agreement should clearly state how your organization handles business costs and describe how employees can be compensated.

While each company’s expenditure policy is different, the majority of them include the following essential elements:

● A list of all expenses that can be reimbursed that is precisely specified.

● A step-by-step approach to filing a claim for expenditures.

● What happens if there’s a disagreement over expenses?

Many things influence the particular language of your policy. For example, if you’ve recently raised funding, it makes sense to be a little more flexible, but the company could choose to stick to a stricter budget.

What Is The Purpose Of A Company Expense Policy?

It’s easy to overlook an expense policy during the initial stages of a business, but every expanding company should consider implementing one.

When numerous employees purchase items for commercial purposes, the cost of these purchases can quickly become out of hand. In addition, people may wind up overspending or buying unneeded products if the restrictions are ambiguous (or do not exist), producing a drain on corporate funds.

Worse yet, they may abuse the system by making personal or unauthorized purchases with the employer’s funds. Therefore, expense report forgery, whether deliberate or unintentional, is a significant issue.

Even if you currently have guidelines for employee spending, formalizing them with an expenditure policy might be beneficial. Everyone remains on the same page when information is written in an official statement, making the compensation process easier and faster.

What is the best way to make an expense policy?

Although it may appear complex, setting your first expenditure policy does not have to be complicated. Start with these six suggestions:

Identify Costs, Budgets, And Groups Because you’re providing a sustainable strategy. It should have been based on the financial status of your firm. It’s a good idea to consult your CFO or, if you don’t have one yet, get professional advice if necessary to prepare reasonable budgets.

Establishing the different expense types that employees are allowed to claim is the. 

Please take into account what they’ll need to succeed in their career and what they won’t be able to afford.

As far as ordinary employee expenses go, we recommend:

● Ticket prices for planes and trains are examples of transportation costs

● Mileage reimbursement when driving their car during work, business trips, hospitality, and recreation (networking )

● ‘Meals and drinks,’ or food and water

● Seminars and resources for training

● The price of a hotel

● Fees charged by credit cards

1. Practice Impartiality

It’s critical to be ethical to your staff when implementing your new policy. Classify all employees reasonably and don’t make exemptions; this will help everybody feel more appreciated.

Keep an eye on how long it is required to execute employee compensation. You would not ask your relatives or friends for an interest-free line of credit, and you should never ask your coworkers.

The effect of treating team members with respect is a well-functioning working environment.

1. Maintain A Straightforward Approach

A good expense policy must be simple to read. Examine your language to see if it’s simple enough for everybody to grasp. When it’s unnecessary, you shouldn’t go too far into detail – you would not want to end up with a 50-page booklet that no one else will finish.

And when you’re at, make your expenditure report processes as simple as possible. 

1. Continue To Update Your Information.

An out-of-date policy may not cover increasingly prevalent business travel methods like carpooling and staying in a shared economy hotel. It may also underestimate any changes in your group’s total budget.

Treat your expenditure policy as you would the rest of your company. Your firm’s status is continually shifting, and the regulations must represent that.

For instance, the restrictions and exemptions you establish in year one are unlikely to apply in year five. Your staff will have developed, and the expense policy must be modified to accommodate this.

1. Use Technology To Your Advantage

Finally, think about how technology might help you improve your expenditure management workflow. Many previously time-consuming procedures can now be streamlined and simplified thanks to the integration of expenditure management systems and accounting software, sparing your finance staff from manually handling expense data. The issue in the past has always been that an expenditure plan was often a static concept that was likely to be glimpsed at and then forgotten about by an employee. A guideline becomes an interactive element of employees’ everyday workflow with the correct digital management setup. Not only would this save you and your staff time and energy, but it will also enhance the reliability and uniformity of your documents, putting you in a better position to deal with an examination.

What Should A Company Expense Policy Contain?

Let’s get right down to business. What are the requirements for an expense policy?

Budgets for each category of expense

To begin, you must describe who creates and controls the finances for each group or category of spending. Then, when workers are hesitant, they need to recognize who to go to. Even better, the policy can attempt to contain particular budgets for every expenditure category, such as travelling, office equipment, advertising, marketing, etc.

This may not be viable since funds vary in months and when new requirements arise. So instead, try also to include fundamental budgeting rules and standards.

A Reimbursement Strategy

When it comes to reimbursements, there are two things to keep in mind:

1. Employees must be compensated. This is both a respectful thing to do and a lawful necessity.
2. The staff has more important tasks than filing expense reports. Most people would put it off or neglect to do it even though it is their money!

You must be clear about what they must do to claim expenses. For example, what is the procedure, who is in charge, and is a deadline given?

These elements should be clearly stated inside the policy manual, and workers should be aware that they must be taken seriously.

Now Is The Time To Get Down To Business

Developing an expense policy is a critical duty that will undoubtedly aid you in avoiding future problems.

It’s also not overly burdensome. All you have to do now is figure out what to include and consider the unique issues your company faces.

Verifying and Controlling Expenses in the Accounts Payable Process

by Thomas | Jun 15, 2022 | Accounts Payable

Accounts payable is among the most critical duties in every modern organization. Indeed, every company must pay its debts; you can’t afford to make a mistake here.

Before processing a vendor payment, your company’s accounts payable department will have a series of procedures to follow. A company’s principles and practices are critical because of the amount and frequency of transactions that occur over time.

Maintaining excellent relationships with suppliers requires timely and accurate invoice management. A strong accounts payable structure also guarantees that you don’t have debts on your records for an extended period, reducing the danger of losing business confidence.

If any of this worries you, don’t worry – we’re here to help!

Accounts Payable: The Ins And Outs

Accounts payable and management is a vital business procedure allowing an organization to handle its financial responsibilities successfully. For example, the amount due by a company to its distributors for products and services received is called accounts payable. To clarify, a business should register a liability in its accounting records depending on the invoice value once it orders items and receives them before paying for them. Accounts payable focuses on short-term liabilities owed to suppliers, contractors, and others.

The equivalent amount is deducted from the accounts payable number once compensation has been made to the supplier for the overdue purchases.

Long-term borrowings, such as mortgages and other loans with a payback period of more than a year, are usually listed as separate debts and are not contained in accounts payable.

The Ap Process Flow’s Most Important Steps

The accounts payable process is often broken down into these parts for most businesses:

Approval of Purchase Orders

A purchase order, often known as a PO, is a document a corporation uses to convey and record precisely what it purchases from a supplier. Purchase order on paper is a multi-copy document distributed to multiple parties. For example, the following people or departments will receive a copy of the PO:

● the person who requests a purchase order for goods or services

● the office of accounts payable

● the receiving section, the seller, and the person who is putting together the person who formed the purchase request

A PO number, date generated, brand, supplier name, contact details of a signatory, a specification of the goods being purchased, amount, item costs, shipment method, date requested, and other essential information will be listed on the purchase order.

Every purchase is documented by a purchase order issued by the purchasing department. Thereby, the procurement department effectively approves all expenses before making them, potentially preventing some payments from ever taking place. Because this control necessitates a significant amount of effort on the part of the purchasing team, they would most likely ask staff to report purchase requests on a retail requisition form.

Creating A Receiving Report

A receiving report is a record of a company’s receipt of products. A paper form or a computer entry can be used to submit the receiving information. The receiving report’s amount and description of items should be matched to the firm’s purchase order data.

The vendor invoice must be examined once the receiving report and purchase order details have been reconciled. The provider enters information about the products or services given as well as the amount owing to them. Incoming announcements contain much essential information, so reviewing them carefully is crucial.

Receiving And Processing Invoices From Suppliers

The supplier or contractor will issue a bill to the business that got the products or services on credit. When clients receive an invoice or statement, they will refer to it as a supplier invoice. Accounts payable receives each vendor invoice and processes it. The payment will be made to the business’s Accounts Payable record and withdrawn from another account once the invoice has been checked and approved. 

The three-way match is a standard method for checking a vendor invoice.

Three-way match

Before approving payment, the payables team compares the supplier invoice against the relevant purchase order and confirmation of receipt. This technique eliminates the requirement for each invoice approval because clearance is dependent upon that purchase order rather than individual invoices. It’s also preferable to approve just based on the purchase order because it confirms receipt of the products. It is, however, excruciatingly sluggish and susceptible to breakdown if paperwork is absent. The deadline is determined by the terms on the invoice and the group’s payment policy.

Finally, to avoid a repeated transaction, the paperwork should be branded or perforated to show that they have been recorded into the accounting information system.

Accounts Payable: Best Practices

Sadly, accounts payable is among the most vulnerable sections of a company to fraud. The large volume of money that leaves a company via accounts payable renders it a tempting target for scammers.

Then there’s the possibility of making trivial errors along the route. Even if everyone engaged is doing their best, tiny mistakes might seep in and end up being costly in the long run.

As a result, delegating responsibilities for the various steps is critical. Scamming the system is challenging when many people have signed off on invoices.

Payments For Invoices To Be Centralized

It’s critical to centralize payments while reviewing supplier invoices. When all business payments are made from a specific account, tracking how much money is going out the door is much easier.

Settling invoices on an occasional basis or with several accounts or credit cards is something you should avoid at all costs.

Dividing invoice payments makes it difficult to track how much your firm pays each month and exposes you to the danger of fraud.

In reality, the ideal condition is to manage all of the company’s expenditures from a single location. That includes office expenses, travel charges, and a variety of other payments made regularly by firms.

Keep A Detailed Record Of All Past-Due Payments

Knowing precisely what is due, who you owe it to, and when bills are due for revenue, planning, and decision-making is critical.

Ensure that every payment due is accurately logged in your accountancy department or expense software solutions to do so.

Establishing a recurring payment for many regular, recurrent charges (for example, fruit delivery for the office fridge or digital solutions fees) may be more straightforward.

The burden and bother of coordinating repetitive payments can be eliminated with regular payments. Nevertheless, it would be best if you struck a balance between the requirement for transparency in your purchases and the risk of paying for items you no longer require.

Track Vendor Invoices

Vendors frequently issue notifications to their clients detailing the unpaid payments. When a vendor invoice is received, the information on it should be checked against the company’s financial statements.

The possibility of a repeat payment exists because a corporation may get bills and reports from a supplier. Therefore, companies frequently create the following guideline to prevent making multiple payments: Avoid paying from vendor reports; only pay from sales invoices.

Conclusion: Making A Mistake In Accounts Payable Is Unaffordable

The stakes are too high to take chances with. A shoddy accounts payable process might jeopardize your supplier base while increasing the risk of theft.

Consider the suggestions in this post and consider how you may strengthen your processes to give yourself the most excellent chance at a smooth and timely accounts payable process.

The correct techniques may make a massive difference in this situation, allowing you to track and handle invoices with ease and accuracy.