Expense Approval Process and Why You Should Automate It

expense approval process

Businesses spend money in many ways, from payroll, to purchasing equipment, paying for vendors and services, and more. The process of managing payments for goods and services falls under the broad category of spend management.

To manage your company’s spend effectively, you’ll need a process for approving and reimbursing employees for expenses, from payments employees make while traveling, to expenses they may incur dealing with clients and customers, or everyday incidental payments.

Managing the process by which expenses are approved often demands significant time and resources from finance teams. Current workflows often rely on outdated tools and technologies and involve time consuming, repetitive manual tasks.

New tools have emerged that can help finance teams automate this process. Below, we’ll provide an overview and the expense approval process and provide an introduction to ways you can automate it at your business.

Clear Policies That Employees Can Follow

The starting point for any expense approval process is a clear, defined, and documented expense policy. This can be divided into a general expense policy and a more specific travel policy, but this will depend on the specific needs of your business.

Some companies chose simplified policies that give a large amount of leeway to their employees to determine what they can spend. However, don’t be surprised if you encounter unusual expense claims. Ultimately, the policy needs to be inline with the unique culture of your company.

What needs to be included in the policy

The policy needs to contain clear criteria so employees understand what they can spend. Consider the following questions:

  • When does the policy apply?
  • For which business purposes?
  • Who does it apply to?
  • What limits are in place in terms of amounts employees can spend?
  • What products or services can they be reimbursed for?

Make it work for your business

The list above is not exhaustive. Your business may require unique criteria depending on use cases. This may apply to categories such as:

  • Entertaining clients or customers
  • Fuel expenses
  • Reimbursement for training or education
  • Remote workplace expenses

Make it accessible and get input from your team

No matter how detailed your expense policy is, it won’t do any good if your employees aren’t consulting it. Make sure it’s easily available to employees and that it is also incorporated into training and onboarding.

Additionally, involving employees and other stakeholders in the creation of the policy will help make sure it serves the needs of your business and will secure buy-in from other departments.

Current Expense Approval Processes

The process of approving an expense involves several key steps:

  • Submitting a report of the expense along with the relevant receipt
  • Checking that the expense is inline with the company policy
  • Having the expense approved by the relevant budget holder
  • Reviewing and reconciling the receipts in the company’s accounting system
  • Reimbursing the employee for the expense

Currently, companies are completing this process along a few lines.

Manual tools and processes

For many companies, the process of reimbursement doesn’t follow a documented process at all. This is common at smaller companies where ad hoc processes are in place to approve expenses as they happen. This may work at small businesses, but it quickly fails as businesses scale.

Spreadsheets and physical receipts

At small businesses and even some medium sized companies, spreadsheets alongside physical receipts are still a common sight. While a spreadsheet is easy enough to share, it’s not a specialized tool and doesn’t open any pathways to accelerate the process of approval and reimbursement.

Custom tools and reporting systems

At the opposite end of the spectrum from spreadsheets are custom platforms that some companies have built to handle expense reporting. This is more common at some of the largest multinational enterprises that can afford bespoke systems.

Expense management software

This solution has become more commonplace over the last few years. New platforms that are specifically designed to help companies with expense approval and reimbursement can provide smaller companies with some of the benefits that only larger enterprises were able to enjoy until now.

These platforms provide tools to help companies gather policies, approval processes, and receipt collection into one solution. However, many of these solutions are narrowly focused on replacing existing workflows and aren’t aimed at the larger spend management problem.

Why You Should Automate Expense Approval

Many current expense approval workflows place heavy demands on finance teams in terms of time and effort they spend on the process. Automating this task can help free up finance professionals to focus on strategic goals.

Beyond that, it can provide a number of other benefits for your organization.

Help employees stay on policy

Automation tools can provide built-in limits and controls that will keep employee spending in line with your company’s policies. This not only streamlines the process for employees but also saves time the finance team spends having to review out of policy expenses.

Helps finance teams manage the process

This is of course the core benefit of automation. Automation can help bring together approval, receipt collection, and reconciliation into one platform and eliminate many of the repetitive manual tasks that have traditionally been involved.

Helps employees get reimbursed faster or avoid reimbursement altogether

An additional pain point involved in reimbursement is the time employees spend waiting for their funds. It can be a challenge for employees to lay out large amounts of money and wait for reimbursement. Automation can significantly streamline the process and help employees get their money back faster.

In some cases, other platforms and models can provide an alternative to traditional expense reimbursement so employees don’t need to make payments at all.

Tips to Help You Automate Expense Approval

Updating your expense approval workflow to take advantage of automation is a decision that will impact multiple parts of your business and requires your employees to buy-in to any system you implement.

Here are some steps you can take to make the process as seamless as possible.

Automation is a platform choice

First and foremost, automating expenses means adopting new tools and platforms. There are multiple solutions on the market, so consider the following when exploring your options:

  • The size of your company
  • The kinds of expenses you make such as general vs travel expenses
  • What part of the process is most challenging for you – reimbursing employees or reconciling receipts during your monthly close