How to set up a formal travel and entertainment expenses policy
Why an employee expenses policy so important
Editor’s note: This post was originally published in March 2020 and has been revamped and updated for accuracy and comprehensiveness.
Setting up a formal travel and entertainment (T and E) expenses policy is something that many businesses tend to place on the back burner, and it’s easy to understand why.
With many business managers focused on the day-to-day work of delivering products and support services, it can be tempting to leave the processes involved in claiming and reimbursing travel expenses to look after themselves.
At first, it may feel as though this task doesn’t need to be a priority, but over time it becomes clear that an inconsistent or unclear expense policy can lead to frustration and inefficiency. It’s often not until a thorough audit reveals the amount of time and money which is being wasted due to an inefficient approach to T and E expenses that the decision is made to instigate a formal policy.
By this time, of course, three damaging things have happened.
The first is that a huge amount of cash may have already been wasted, either directly or through inefficient management of expenses.
The second is that the inefficient practices and habits which have led to this waste have become ingrained in the habitual core operations of the business.
The third, and less talked about negative affect of informal policies, is employee frustration. Employees become confused as to what they can claim as expenses and may sometimes not claim (leaving them out of pocket) or try to submit non-compliant claims, which leads to slow reimbursement and (potentially) out-of-pocket staff members. According to a recent study conducted by Airwallex, employees are spending an average of £4,000 a year on expenses (Startups), so slow reimbursement can become a serious problem.
A look at the evidence
It’s quite simple to pull up statistics that support these claims, and which point to the inefficiency of standard travel expenses processes.
Studies have shown that finance teams spend an average of 30 minutes processing each expense report, with 19% of reports containing errors, leading to additional rework (Wallester).
In addition, according to a study by PayHawks, over a quarter of companies lack real-time visibility into data. In simple terms, a flood of claims, receipts, and expense forms is processed at the end of every month and it’s only at this point that any kind of picture of the expense landscape begins to appear, making it difficult, if not impossible, to take a strategic approach to expense policy. Real-time visibility of finance is basically unachievable in this workflow, which makes financial decision making much harder as teams must work from vague figures and projections.
Finally, a survey by Soldo found that even though 69% of finance leaders believe their expense rules are clear, only 39% of employees feel confident about what can be expensed (HR News).
It’s clear that a formal expense policy that is consistently enforced reduces frustration for both employees and finance teams alike. Enforcing this at the point of submission is the most effective means of ensuring submitters understand the policy and get reimbursed as quickly as possible.
Where to start
It might be tempting to deal with the issue in a piecemeal manner, revising the approach to expenses either one category or even one individual claim at a time, but any improvement brought about in this manner is likely to be painfully slow.
A far more effective approach is to devise and instigate a formal T and E expenses policy in a way that ensures buy-in from every part of the business.
Utilizing an expense management platform like Zetadocs Expenses renders this process quick and simple, as the heavy lifting of creating the framework of the T and E expenses policy has already been carried out. In addition to enabling easier set up of a formal expense policy, Zetadocs Expenses flags up non-compliant claims in real-time so that any spend that is not in line with company policy is stopped (or at least carries a warning) before it can be submitted to the finance team. This speeds up the process of reimbursement for the finance team as approvals are easier to make, and it helps reinforce the adoption of company policy by employees.
Once Zetadocs Expenses is in place and being used across all departments of your business, the following building blocks will be an everyday part of your operational expense management processes.
Expenses classified by category
Calculating expenses as a single company-wide category makes it impossible to analyze by department or activity and thus identify where expenses are being incurred or wasted.
Zetadocs Expenses, on the other hand, allows you to create specific expense categories such as ‘subsistence’, ‘travel’ and ‘entertainment’. Managers can then analyze the expenses claimed under each category. The numbers in each category can be broken down across a particular time frame, within a certain department or even with reference to an individual member of staff.
The rich analysis enabled by using categories, and their easy interpretation, enables managers to spot anomalies and to take action to address areas which are costing more in expenses than they should.
Setting limits
When expense claims are approved one at a time it can be difficult to keep track of how much a particular activity is costing.
Relying on the judgment of your finance team to keep claims within limits opens the possibility of costs rising through either error or deliberate fraud.
Using Zetadocs Expenses makes it possible to set concrete limits for each specific type of expense, meaning that no claims which exceed those limits can be approved.
Policing approval
Many businesses face the issue of expense fraud, often driven by a casual approach to who can approve a claim. In fact, a recent study by the Association of Certified Fraud Examiners found that UK businesses are facing losses of over £2 billion every year due to fraudulent expense claims (SME today).
Overclaiming on expenses and claiming for costs that fall outside normal expense policy can come about because an approver is either a party to a fraud or too busy working on other matters to notice the discrepancy. It also happens when informal expense policies leave both the submitter and the approver confused as to what expenses are covered by company policy.
The reporting and approval processes that form part of Zetadocs Expenses offer two advantages. First, they create a detailed and accessible record of which claim has been approved and by whom, and secondly, they make it quick and simple to alert an approver if any problem has been spotted.
Regular reporting
The sheer volume of data generated by multiple expense claims can make in-depth analysis difficult.
It is this analysis, however, which will help to uncover any long-term patterns in your expense profiles, enabling you to refine processes and, ultimately, save time and money.
The regular reports created by Zetadocs Expenses will perform exactly that role and can be created to parameters set by each individual business.
Set the timetable for report delivery as well as custom parameters for the information you want to be included, and you’ll derive a full picture of both the general expense trends of your business and the expense profile of individual sectors, departments, categories, and even individuals.
Google Maps
In the past, anyone wishing to claim more in expenses than was due might be tempted to do so by ramping up the number of miles driven over a particular period or for a certain journey.
With expenses paid on a ’per mile’ basis, a small addition of a few miles here and there by multiple employees could, over time, result in a significant extra expense.
Zetadocs Expenses closes this potential loophole by integrating with Google Maps. This technology enables a fixed mileage to be set in advance of any trip and changes such as those caused by road works to be noted and incorporated.
In summary
By incorporating your expense policy into Zetadocs Expenses, expense management is no longer a burdensome overhead. Instead, it becomes a clear, simple and user-friendly process, capable of transforming the way you work daily, whilst at the same time enabling a strategic and long-term approach to the management of expenses across the business.
Learn more about how Zetadocs Expenses can help you to enforce your expense policy here or see Zetadocs Expenses in action by booking a demo today.