What is expense reimbursement and how to simplify it?
Management, tracking, and reconciliation of expense reimbursements take finance teams hours of extra effort. In the meantime, your employees have to rush to complete all of the paperwork formalities to claim reimbursement.
Additionally, the waiting time for repayments is agonizingly lengthy. So, it becomes both your trouble and theirs! Reimbursements of expenses do not have to take a long time or be difficult.
These obstacles can be overcome with the help of expense management.
What is expense reimbursement?
Pay, indemnify, compensate, and return are all synonyms for reimbursement. When employees spend their funds for the company's benefit, they are reimbursed for it by the employer.
An expense reimbursement refers to the payment that the business repays to employees when they spend from their pocket to pay for company expenses. The repayment sum ought to precisely match how much the cost is.
To put it another way, expense reimbursement is a way for employers to reimburse employees for expenses related to the business.
More often than not, representatives who get repaid for costs don't need to report these installments as wages or pay.
Such reimbursements to employees might differ in light of constraints given by the association in the expense-related policies.
Which expenses can be reimbursed?
The specific policies and guidelines of an organization or the terms of an agreement between the employer & the employee determine which expenses can be reimbursed. However, there are a few standard expenses that frequently qualify for reimbursement:
1. Travel costs
This includes expenses for transportation like train tickets, airfare, and mileage reimbursement for personal vehicles. It might likewise cover dwelling costs, dinners, and accidental costs incurred during business travels.
Related read: Travel and expense (T&E) management challenges for businesses
2. Entertainment and meals for business
Meals at restaurants, for example, can sometimes be reimbursed for expenses incurred while meeting with clients, business partners, or coworkers.
However, the kinds of expenses that can be reimbursed and the maximum amount that can be paid back may be limited by rules or restrictions.
3. Professional development expenses
It's possible to get reimbursed for expenses related to professional development activities like conferences, workshops, seminars, and training courses. This could include things like registration fees, travel expenses, lodging, and meals.
4. Office supplies and equipment
Reimbursable expenses may include those for purchasing office supplies, equipment, or software that are directly related to work responsibilities.
This could include things like office supplies, computer accessories, or specialized tools that are necessary for the job.
5. Cost of communication
Costs for business-related calls, internet providers, or cell phone utilization that is important for work purposes can frequently be repaid.
6. Expenses related to the client or the customer
When doing business with clients or customers, an employee may be eligible for reimbursement for expenses such as printing or shipping costs
7. Miscellaneous expenses
Based on the agreements or policies of the organization, there may also be specific costs like parking fees, tolls, and fees for conference calls that can be reimbursed.
It's important to remember that reimbursement policies can be very different from one company to the next. If you want to know which expenses are eligible for reimbursement in a particular situation, you should check the guidelines provided by your employer or the specific agreement that is in place.
Experience hassle-free reimbursements
What is an expense report?
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.
Understanding the expense reimbursement process
The steps involved in the submission, review, approval, and reimbursement of expenses incurred by employees on behalf of the company are referred to as the expense reimbursement process.
The specific procedure can vary based on the policies of the organization, but the following is a general outline of how it usually works:
1. Establish a clear expense policy
To ensure transparency, accountability, and consistency in the management of expenses within an organization, it is essential to establish a clear expense policy. Lay out unambiguous cutoff points or rules for various types of costs.
This may include daily allowances for per diem expenses or maximum amounts for meals, transportation, or lodging.
2. Educating employees about the reimbursement process
Organize workshops or training sessions to inform employees about the reimbursement policy. Online training modules, in-person sessions, or webinars are all options for these sessions.
Discuss topics like expense categories, the requirements for documentation, submission deadlines, and approval workflow procedures.
3. Costs incurred
During business-related activities, the individual or employee incurs a cost. According to the policies of the organization, this could include things like travel, meals, office supplies, or any other eligible expense.
4. Preparing expense reports
To record the specifics of the expenses, the individual uses a designated expense management system or fills out a form for an expense report. This incorporates recording the date, depiction, sum, and classification of each cost.
The expense report comes with receipts and invoices as supporting documentation.
5. Submission of the expense report
The finished cost report, alongside the supporting documentation, is submitted to the fitting office or individual inside the association liable for handling cost repayments.
This could be the bookkeeping division, finance group, or an assigned director.
6. Examine the expense report
The submitted cost report is assessed for precision, culmination, and adherence to the association's cost arrangements. An administrative staff member, a manager, or a designated approver can carry out this review.
7. Approval of expenses
An approval procedure is carried out after the expense report has been reviewed. The designated approver verifies the expenses to be legitimate and reasonable and follows the organization's reimbursement guidelines.
The approver may ask the submitter for clarification or additional information if any issues or discrepancies are discovered.
8. Repayment processing
The reimbursement procedure begins when the expense report is approved. When it comes to processing reimbursements, the organization may have a particular processing timeline or frequency, such as weekly or monthly.
The organization's accounting system typically records the approved expenses, and payment is initiated to reimburse the individual or employee.
9. Repayment to the employees
The individual can be reimbursed in a variety of ways, including by sending money to a designated payment platform, writing a check, or having the money deposited directly into their bank account.
To complete the payment process, the company adheres to its established procedures.
10. Documentation for reimbursement
The organization keeps a record of the reimbursement for financial and auditing purposes. This includes keeping track of the reimbursement amount, the date, and the details of the associated expense report.
It is essential to keep in mind that the particular steps and requirements of the expense reimbursement procedure may significantly differ from organization to organization.
For precise information on your organization's reimbursement process and any particular procedures to follow when submitting expenses, it is recommended to consult the policies or guidelines of your organization.
What causes delays in expense reimbursement?
A few variables can create setbacks for cost repayment. Common reasons include:
1. Expense reports that are not complete or accurate
The expense report will likely be returned to the employee for correction if it contains errors, is incomplete, or lacks proper documentation. The reimbursement procedure may suffer as a result of this.
2. Late submissions
Employees who submit expense reports late may cause delays. Laying out clear accommodation cutoff times and imparting them to representatives can assist with keeping away from such deferrals.
3. Obstacles to approval
If there is a barrier in the endorsement cycle, for example, the finance team being inaccessible or over-burden with different obligations, it can prompt defers in supporting cost reports.
Carrying out a productive endorsement work process and guaranteeing reinforcement approvers are accessible can assist with easing this issue.
4. Lack of documentation
Delays in the reimbursement process can be caused by inadequate or insufficient supporting documentation, such as incomplete invoices or receipts that are missing.
Employees should be taught how important it is for them to include accurate and complete documentation with their expense reports.
5. Non-compliance with policy
Further clarification may be required if an employee submits expenses that do not conform to the organization's expense policy, resulting in reimbursement delays.
Clear correspondence of the approach and customary preparation can assist with limiting strategy rebelliousness.
Organizations should concentrate on streamlining their expense reimbursement procedures, providing employees with clear guidelines, effective communication, and training on the reimbursement procedure and policy compliance to address and minimize these delays.
Related read: How to ensure expense report compliance for your business?
What are the challenges in expense reimbursement?
For both employers and employees, reimbursement procedures for expenses can be complicated and demanding. Here are a few normal difficulties related to cost repayment:
1. Policy compliance
Employees are required to adhere to the expense policy of the company, which frequently includes guidelines regarding spending limits, eligible expenses, and required documentation.
It can be difficult to ensure that policies are followed, especially if employees have different interpretations or are unaware of the policy's specifics.
2. Management of receipts
It can be time-consuming to keep track of and collect receipts for every expense. Employees can misplace receipts, forget to submit them, or provide incorrect information. This can make it difficult to verify expenses and cause delays.
3. Workflow and approval of expenses
The repayment cycle, for the most part, includes different advances, for example, cost accommodation, administrator endorsement, finance office audit, and installment handling.
Deferrals can happen if any of these means are not followed immediately or, on the other hand, assuming there are bottlenecks in the work process.
4. Prevention of fraud
Employers are responsible for ensuring that submitted expenses are legitimate and following the policy. When there are a lot of submissions, verifying expenses can take a lot of time.
Furthermore, there is a gamble of deceitful cases, expecting businesses to execute strong controls and misrepresentation recognition measures.
5. Paperwork and manual processes
For expense reimbursement, many organizations still use paper-based processes and documentation. Inefficiencies, mistakes, and difficulties in tracking and reporting expenses may result from this.
Digital solutions and automation can assist in overcoming these obstacles.
6. Currency conversion and worldwide costs
Currency conversions and exchange rates can be tricky to manage for businesses with global operations or employees who spend in multiple currencies.
Dealing with worldwide costs, different expense guidelines, and compliance prerequisites adds extra layers of intricacy to the repayment cycle.
7. Reliability and cash flow
Employees frequently anticipate prompt expense reimbursement. Employee contentment and financial security can be impacted by processing and payment delays.
Employers must strike a balance between timely reimbursements, effective financial controls, and management of cash flow.
A cash management solution can be a valuable asset in achieving this balance. It can streamline the expense reimbursement process, automate approvals, and provide real-time insights into cash flow.
Also, do check out our article on how to increase cash flow to get a complete idea on what cash flow is and what are the best practices your organization can follow in order to increase your business cash flow.
8. Innovation and coordination
It can be hard to set up and keep up an effective system for managing expenses that works with accounting software and other financial systems.
System compatibility, data accuracy, and security necessitate effective planning and technology infrastructure.
Establishing clear expense policies, providing employees with training and direction, automating processes, utilizing digital tools for expense tracking and receipt management, and putting in place robust internal controls and fraud prevention measures are all common ways to address these issues.
Streamline your reimbursement process
How to streamline the employee expense reimbursement process?
To ensure productivity, accuracy, and employee contentment, the reimbursement procedure for employee expenses must be simplified.
Organizations can improve the process and overcome common obstacles by implementing the following strategies:
1. Clearly define your expenses
Clearly define eligible expenses, documentation requirements, spending limits, and submission deadlines in comprehensive expense policies. Make sure that all employees can easily access policies and regularly inform them of policy updates or changes.
2. Set up an online system for managing expenses
Use a digital system for managing expenses that lets employees submit expenses online. By eliminating paperwork, reducing manual errors, and providing a centralized platform for expense tracking and reporting, this makes the procedure more efficient.
Related read: Paperless expense reporting to streamline expense management
3. Make expense submission easier
Create an interface that is easy to use for employees to enter information, attach receipts, and classify expenses for expense submission. Reduce the number of required fields to a minimum to simplify the procedure and ensure that essential data is recorded.
4. Accessibility on the go
For expense submission, provide a mobile app or platform that is mobile-responsive. Employees can track reimbursement status, submit expenses, and capture receipts while on the go, thanks to this, which reduces delays and increases convenience.
5. Set up automated approval processes
Implement rules-based automation of approval workflows in the expense management system. This guarantees reliable and convenient endorsement processes, dispenses with bottlenecks, and decreases the managerial weight on administrators.
6. Work with accounting software
Integrate the ERP or accounting software of the company with the expense management system. This empowers consistent exchange of cost information, disposes of manual information passage, and further develops precision in monetary revealing.
Also, check out our article on the best payroll and accounting software to know some of the best-rated and popular software in Singapore, suitable for small businesses.
7. Authorize ideal cost accommodation
Employees should be informed of the precise submission deadlines for expenses. Support convenient accommodation by carrying out a strategy that underscores the significance of sticking to cut-off times.
Late submissions can impede cash flow and cause reimbursement delays.
8. Provide expense tracking in real time
Facilitate real-time tracking of reimbursement requests by employees. This can be accomplished using self-service portals, status updates, or automated notifications.
Straightforwardness in the process further develops worker fulfillment and diminishes requests.
9. Make the approval procedures easier
Standardize and simplify approval procedures to speed up reimbursement. Think about putting in place rules for delegation that let managers delegate approval authority when they're not there. This prevents interruptions and ensures continuity.
10. Implement mechanisms for pre-approval
Consider implementing pre-approval procedures for significant or exceptional expenditures. This reduces the likelihood of disputes and rejections of reimbursements by ensuring that expenses are reviewed and approved before they are incurred.
11. Utilize digital receipt management
Rather than using paper receipts, encourage employees to capture and submit digital receipts. Digital receipt management software can make it simple to store, retrieve, and submit receipts, eliminating the need for paper copies.
12. Provide support and training to employees
Employees can learn about the policy guidelines, the expense reimbursement process, and how to use the expense management system effectively by attending training sessions or utilizing resources.
Provide direction, answer frequently asked questions, and raise awareness of the procedure.
13. Consistently audit and update procedures
Evaluate the reimbursement procedure regularly to find areas for improvement. Gather input from employees and employers to comprehend problem areas and make important changes.
Keep up with the latest developments in technology and industry best practices.
By executing these techniques, associations can smooth out the worker cost repayment process, lessen regulatory weights, further develop compliance, and upgrade representative fulfillment.
A reimbursement procedure that is more efficient and streamlined can result from the combination of clear policies, effective systems, automation, and ongoing process optimization.
How can corporate cards solve the challenges of expense reimbursement?
Several issues with expense reimbursement can be addressed with the assistance of corporate cards. This is the way corporate cards can tackle these difficulties:
1. Simplified submission of expenses
The corporate cards smooth out the cost accommodation process by taking out the requirement for employees to utilize their assets for operational expenses.
The corporate card, on the other hand, can be used by employees for authorized expenses, reducing the need for reimbursement requests.
2. Tracking expenses in real-time
Transactions are recorded in real-time with corporate cards, providing current and accurate expense data. Through the corporate card program's online platforms or mobile apps, managers and employees can easily track expenses.
3. Reduced control of receipts
Corporate cards frequently give itemized exchange data, including seller names, dates, and sums.
Employees and finance teams will find it simpler to reconcile expenses as a result of this, which makes it less necessary to rely on actual receipts for expense verification.
4. Conformity to policy
The corporate cards can be programmed with spending limits and merchant category restrictions as it ensures compliance with the company's policies. The employees are automatically prevented from using the card for unauthorized expenses in an attempt to reduce violations of policies.
5. Facilitated approval processes
Automation of work processes can be done by coordinating corporate card exchanges with a cost administration framework.
Using predefined rules, transactions can be routed automatically to the appropriate managers for approval, easing the approval process.
6. Accelerated payment
Employees do not need to wait for reimbursement because the business already covers corporate card transactions.
This fundamentally diminishes the repayment process duration, further developing income for the two workers and the association.
7. Fraud detection and anticipation
Frequently, fraud detection mechanisms that flag suspicious transactions are built into corporate card programs. These systems can help stop fraudulent activities by identifying unusual spending patterns or unauthorized charges.
8. Currency exchange and international expenses
By handling currency conversions, corporate cards can make it easier to manage international expenses by removing employees' need to carry cash and handling reimbursement for foreign currency transactions.
For international transactions, some corporate card programs offer competitive exchange rates, cutting costs.
9. Reporting and integration of data
The seamless transfer of data is made possible by corporate card programs' ability to integrate with accounting or expense management systems.
Because corporate card expenses are automatically recorded and categorized, this integration eliminates the need for manual data entry and enhances the accuracy of financial reporting.
10. Improved control
Programs for corporate cards give businesses more control over and visibility into their expenses.
To gain insight into overall spending trends and make informed decisions, managers can generate reports, monitor spending patterns, track compliance with policies, and monitor spending patterns.
Corporate cards can help with many problems with expense reimbursement, but they might not be right for all organizations or types of expenses. Reimbursement may still be required for certain expenses, such as those paid with cash or personal funds.
Corporate cards should be considered as part of a comprehensive strategy for managing expenses as part of each organization's evaluation of its particular requirements.
Volopay — The best way to manage all your business expenses
Expense reimbursement is just one part of the larger expense management function of a business. So, instead of focusing on just one element, why not automate the whole system with a smart solution — Volopay.
Volopay is an all-in-one expense management solution that can take over all the tedious and repetitive tasks of your business's financial management functions.
Not just this, but you also get extra benefits from the advanced analytics and corporate card capabilities of the platform. Aside from the basic automation features like data gathering and real-time expense tracking, other Volopay benefits include:
● Direct accounting integration and smart triggers for automatic data entry
● Corporate cards, both virtual and physical, for better spend control and easy spending
● Automatic expense report creation with graphs and charts to access advanced analytics and make better data-driven decision
● A dedicated expense reimbursement software to streamline your reimbursement workflow with multi-level approvers to ensure all expense claims are valid and completed successfully
● Multi-currency digital wallets to store and make payments in more than 130 countries using both SWIFT and non=SWIFT methods, along with the lowest FX rates
FAQ's
Employees save their expense receipts and documents, which are submitted with the expense claim. The manager or approver rejects or approvers the expense claim. The accepted ones are sent to the accounting team to ensure compliance with expense policies. Once everything checks out, the claim is fulfilled by transferring the amount to the employee’s bank account.
Reimbursement guidelines are a set of rules and regulations describing how the expense reimbursement process works, what the requirements are, and what is not allowed.
In loose terms, yes, but a synonym for reimbursement is compensation. You are not being refunded for the payment — rather, the amount is compensated by your company or organization.
Expense reporting tools are used to manage all expense activity like transaction detail capturing, sorting information for a centric database, checking expenses against company policy, etc.
Absolutely. Volopay has a specialized reimbursement algorithm that deals with the whole process. From expense claims submission to transferring money to employees' bank accounts, Volopay can take of everything.
Volopay is an all-in-one expense management platform, and one of its amazing features is reimbursement workflow. The Volopay reimbursement workflow allows your employees to submit expense claims with pictures of the receipts and upload them through their mobile devices. Managers can easily approve or reject these claims with a simple click on their systems, All information is automatically checked against the company policies and rules, and money can be easily transferred.