August 8, 2023
Finance Basics

Everything to Know About Creating a Company Expense Policy

Whether your company has an expense policy or not, if your policy isn't clear or enforceable, you're losing out. According to a 2022 study, 79% of finance professionals believe employees at their company don't know the purchase policy. (Material Research on behalf of Teampay)

That lack of knowledge has a cost. According to these same respondents, 72% reported that their company experiences purchases made out of policy.

In this guide, we'll share everything you need to know about creating an expense policy:

  • What an expense policy is
  • The benefits of an expense policy
  • When as a business you should create a policy
  • What to consider when building out your policy
  • How to share your policy with your team
  • How to enforce your policy

What is an expense policy

An expense policy outlines what employees can do with company funds. This may include guidelines around:

  • Types of acceptable business expenses (i.e. software subscriptions, travel expenses)
  • Acceptable methods of purchasing (i.e. company credit card, employee expense reimbursements)
  • Spend limits
  • Approval processes for company spend
  • Legal requirements around spend (i.e. gift policy?)
  • Practices around spend issues (i.e. fraud)

These guidelines all contribute to a healthier financial profile for your company.

Benefits of a company expense policy

A company expense policy keeps spend aligned with company financial plans and prevents unnecessary purchases. It can also empower employees to buy what they need. They can make purchases knowing that they have company support, either by using a company-provided payment method or through reimbursement. Ultimately, you want your employees to treat company money like their own funds.

Expense policies benefit the finance and accounting team too. Well-written policies make it easier to handle expense reports and reconcile spend. Your finance and accounting teams may be having awkward conversations with employees about their spend. With the right expense policy in place, the finance team no longer has to be the only policy enforcers.

When do you need to create a company expense policy?

If you're reading this, you need an expense policy. Most companies establish their policies too late, after they have onboarded new hires with no guidance. You'll want to establish a spend policy that fits the stage of your company. Don't forget to regularly update the policy as your company continues to change.

Creating a policy isn't straightforward and depends heavily on your company's unique situation. In the following sections, we'll share what thought-starters for creating your policy. Take notes with the prompts, and consolidate after.

How does your company currently spend money?

Before creating or revamping your expense policy, think through how employees currently spend money.

Here are some questions to guide you:

  1. Do you have a company expense policy in place?
  2. If so, what's working? What isn't working?
  3. Does your company use corporate physical credit cards?
  4. Does your company use virtual credit cards?
  5. Does your company use Accounts Payable for vendors?
  6. Does your company currently reimburse employees for their purchases?
  7. Does your company require any pre-approval for spend?
  8. If so, what's working? What isn't working?

These questions serve three purposes.

  • Questions 1-2 help you understand if you have a baseline for your expense policy. If you have something that's working in your current policy, be sure to note that in your planning.
  • Questions 3-6 help you establish the methods of spend your company is using. If you can think of any baseline rules associated with those methods, be sure to note that in your planning. For example, you may want employees with physical corporate cards not to share their cards with other team members. You may also want employees to submit reimbursement requests within a certain time period.
  • Questions 7-8 help you identify any processes for spend approval. If what you have is working, include that in your planning. If it's not, the next section will help you map this process out.

Who spends money at your company?

You want to think about your audience when you're creating this policy. In this case, your audience is the employees of your company.

Your employees are probably already spending money within their departments, so take a look at your company's org chart. You can start to create policies and approval processes around departments. For example, you can say that department heads must pre-approve all department-specific expenses.

You also may know that some departments have different spend patterns than others. For example, your marketing team may spend more than other teams. Is there an amount that your finance team would need to sign off on even after marketing lead approval?

What types of expenses does your business incur?

You can pull these categories from any previous tax documents as a start. However, you'll likely want to get more detailed as you think through your expense policy.

Common work-related expenses include:

  • Software
  • Ad and marketing spend
  • Office rent
  • Office services
  • Office supplies
  • Employee stipends (such as work-from-home, wellness, meals)
  • Contractor expenses

Using that list, you can go ahead and think through some policies you'll want around these categories. Let's take a look at this expense category list again with some example rules:

  • Software: A department lead must pre-approve all new software subscriptions.
  • Ad and marketing spend: You cannot reimburse ad and marketing purchases.
  • Office rent: You must report and changes in rent before payment.
  • Office services: All office services require approval from the office manager.
  • Office supplies: Office supplies above $X require approval from a manager
  • Employee stipends (such as work-from-home, wellness, meals): You must submit for reimbursement by the end of the calendar year.
  • Contractor expenses: A department lead must pre-approve all contractor expenses.

You may note that this list of categories is incomplete. We'll cover Travel and Expense Policies in the next section.

Nailing your travel and expenses Policy (T&E)

Business travel is back in full force, so your travel and expense policy should match that. Here are some topics to think through when creating your T&E policy:

  • Flight or rail booking guidelines (i.e. specific booking tools, types of tickets employees can purchase, rough cost guidelines)
  • Lodging booking guidelines (i.e. budget for hotel, lodging rental policy)
  • Travel itinerary approval processes
  • A per diem limit and what that covers
  • Ground transportation guidelines (i.e. rental cars, rideshare, taxis)
  • T&E reimbursement policies

For more information and best practices on creating a travel and expense policy, check out TravelPerk's guide to corporate travel policies.

Vendor-specific policies

Lastly, consider how you want your employees to approach specific vendors with the following prompts.

  • Do you have any preferred vendors employees should use?
  • Do you want extra approval layers when employees are looking to onboard a new vendor?
  • Should all of your accounts payable for vendors run through an added approval process?

Translating your Notes into an expense policy

Now it's time to take your brainstorming and turn your notes into a policy. The more direct and easy-to-understand your policy is, the more likely employees are to follow it.

Start by dividing your policy up by categories, such as payment method, approval process, or spend category. Be sure to create headers and sub-headers for each section so employees can easily reference the policy they need.

You can also create a clickable table of contents to make your policy more accessible. If you're completely stuck, you can also use an expense policy template, which is easily available online.

Part of making your expense policy easy to understand is considering the brevity of your policy. You want to be clear and direct with your policy but not tedious. Consider your audience–they may not be as interested in your expense policy.

Distributing your expense policy to employees

A successful expense policy is only as good as the communication surrounding it. Your expense policy needs to be easy to find.

You should store it where employees can find other company resources digitally. Invest time in training leadership or approvers to ensure that everyone is fully committed to the policy. Be sure to distribute and go over the policy with all new hires as well.

Enforcing your expense policy: You have options

With greater distribution, visibility, and buy-in for your expense policy, your employees will be more likely to follow it.

There's an easier way to enforce your expense policy, and that is through an expense management platform.

With Teampay, you don't have to worry about employees knowing your expense policy because Teampay automatically enforces it. Teampay's automated workflows get employees pre-approval on spend and access to payment methods when they need them. There's no need to submit expense reports because Teampay automatically records purchase information and prompts receipt upload. In 2022, Teampay helped companies prevent X in out-of-policy spend and up to ten days on month-end close.

To learn more about Teampay and how we can help you with an expense policy without all the effort, click here.

Get the Teampay newsletter

Thank you!
Oops! Something went wrong while submitting the form.

Search for something