Why your business needs a detailed expense policy?

Creating an effective expense policy is a cornerstone of sound financial management for any business. It sets clear boundaries and expectations for employee spending, ensuring that every penny spent is aligned with company goals and values. But where do you start?

In this blog, we will cover the different facets of an expense policy, including the challenges of expense management and the steps to create an effective policy. We will also share an expense policy template to help you get started. Read on to learn more.

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What is an expense policy?

An expense policy is a well-defined set of guidelines that defines the permissible and non-permissible expenses within a company. It serves as a roadmap that employees are expected to adhere to when they incur business expenses. 

This policy should widely explain the expense categories that can be approved and the process for documenting and managing these expenses. It acts as a safeguard, ensuring that employees utilise company's money only for approved expenditures and adhere to the specified procedures for documentation and expense reimbursement.

Why do you need an expense policy?

In the UAE's corporate landscape, companies are adopting an active approach towards employees' work-related activities, extending from travel expenses to medical costs. Here is how a well-crafted expense policy can help:  

• Control costs: By defining allowable expenses and setting spending limits, you can effectively manage your cash flow. An expense policy helps you identify specific situations and areas where costs can be reduced and prevent unnecessary costs that act as a drain on company funds.
• Prevent misuse of funds: A well-structured expense policy outlines clear guidelines for employees, reducing the risk of fraudulent activities. By setting expectations and implementing approval processes, you can safeguard your company's assets.
• Ensure compliance: Operating in the UAE, you must adhere to specific financial regulations. For instance, in the UAE, expenses incurred to generate taxable income are deductible. However, the UAE's Corporate Tax Law outlines certain exceptions and restrictions. An expense policy can help your business navigate these regulations effectively.
• Streamline expense management: A clear expense policy simplifies the reimbursement process for employees and reduces administrative burdens for your finance team. Automating expense reports and approvals can improve efficiency and accuracy.

What should you include in an expense policy?

Crafting an effective expense policy requires careful consideration of the following key elements:

• Clear definitions and guidelines: The first step in drafting an expense policy is to provide clear definitions and guidelines. This includes defining a set of rules regarding what constitutes a business expense, the types of expenses that are permissible, and those that are not.
• Permissible expenses: Clearly specify which expenses are eligible for reimbursement. Consider including categories such as travel, accommodation, meals, transportation, client entertainment, and office supplies. Be as detailed as possible to avoid ambiguity.
• Spending limits: To control costs, it is beneficial to specify the spending limits for different expense categories. For instance, you might set a daily limit for meals or a maximum amount that can be spent on hotel accommodations. These limits should be realistic, considering the cost of living in the UAE.

Pro Tip:  Alaan supports setting custom spending limits for each corporate card to enhance your expense management strategy. By effectively controlling costs and preventing expenses from surpassing the set budget, Alaan serves as a strategic tool for maintaining financial discipline.

• Approval processes: Outline the approval hierarchy and general rules for different expense levels. Specify who needs to authorise office expenses and under what circumstances. This helps maintain control and prevent unauthorised spending.
• Reimbursement procedures: Clearly communicate the steps involved in submitting and processing expense reports. Specify required documentation, deadlines, and payment methods to ensure timely reimbursement.
• Documentation requirements: Finally, your expense policy should specify the documentation requirements for expenses. This might include original receipts, invoices, or other proof of purchase. Proper documentation is one of the best practices to be prepared for audit purposes and can also assist your finance team with resolving any subsequent issues.

Expense policy template

Creating a good expense policy from scratch is resource-intensive and time-consuming. To streamline this process, we have developed a free expense policy template tailored to UAE businesses. 

This template includes essential sections and guidelines to help you create a comprehensive policy quickly. You can customise the template to align with your company's specific needs, industry standards, and internal policies.

How to create an expense policy for your company?

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Creating an effective company expense policy is a step-by-step process that requires careful planning and consideration. Here is a guide to help you navigate this process.

1. Define the purpose and scope of the expense policy

The first step is to define the purpose and scope of your expense policy. You will find it beneficial to start by outlining the objectives of the policy - whether it's to streamline expense management, reduce costs, or ensure compliance with company guidelines. 

The scope of your employee expense company policy should specify which employees it applies to and what types of expenses it covers. For instance, does your business travel expense policy apply to all employees or only those in certain roles? Does it cover all types of expenses or only specific categories like travel and meals? 

Defining the scope ensures that everyone knows what the policy covers and to whom it applies.

2. Identify the different expense categories

The next step is to identify the most common expense categories that a great expense policy should cover. Common categories include travel, communication, meals, accommodation, and entertainment. Each category should have clear definitions and guidelines to ensure clarity and compliance.

For example, the travel category might include guidelines for booking flights and hotels, while the meals category might specify the types of meals that are reimbursable and any spending limits. 

Clearly defining these categories within your company's expense policy allows you to maintain control and ensures that expenses are appropriately tracked and reported.

3. Set spending limits and approval processes for each category

Establishing spending limits and approval processes for each expense category is a crucial part of your expense management policy. Spending limits help control costs and prevent overspending. They should be realistic, taking into account the cost of living in the UAE and the nature of your business.

The approval process should be clear and straightforward. It should specify who needs to approve expenses, how they should be submitted for approval, and the timeframe for approval. 

This can help prevent misuse of funds and ensure that all expenses are necessary and reasonable.

4. Develop procedures for expense reporting

Traditional methods like paper-based documentation or maintaining a petty cash box are often fraught with inefficiencies and risks. They can lead to errors, mismanagement, and even potential fraud. To mitigate these risks, consider digitalising the receipt and expense report submission process. 

By implementing digital tools, such as expense management software, you can streamline the submission of receipts and expense reports. This can help minimise errors and reduce the time employees spend on reporting. Digital systems allow for easier tracking and auditing of expenses, making the entire process transparent and efficient.

5. Communicate the policy to employees and reinforce it regularly

Once you have your expense policy in place, it is essential to communicate it effectively to your employees. This can be done through training sessions, email updates, or through an employee handbook. Regular reinforcement is key to ensuring that employees understand and comply with the policy.

An expense policy is only as effective as its implementation. Regular communication and reinforcement ensure that your policy is understood, respected, and followed by all employees.

6. Use corporate cards to improve policy implementation

Corporate cards can be a valuable tool in enhancing the implementation of your expense policy. They offer several benefits, such as real-time tracking, automated expense categorisation, and improved control over spending.

With corporate cards, you can track expenses as they happen, which can help prevent overspending and fraud. Automated expense categorisation can simplify the expense reporting process, while improved control over spending can help ensure compliance with your expense policy.

7. Revisit and update the policy periodically

It is vital to revisit and update your expense policy periodically. This ensures that your policy stays relevant and effective, even as your business needs and regulatory requirements change.

Regular updates help address any new challenges that arise and ensure that your policy continues to serve its purpose effectively. Remember, an expense policy is not a set-and-forget document; it is a living document that should evolve with your business.

How to automate your expense management with corporate cards

Automating your expense management through corporate cards offers several advantages that can streamline your processes and improve financial oversight. Here are some key areas where automation can benefit your company:

• Efficient expense tracking: Corporate cards with an expense management solution bring accuracy and efficiency to your expense management through automatic categorisation and tracking of expenses. This integration can reduce manual entry errors and make sure that your records are always up-to-date, simplifying reconciliation and reporting processes.
• Use mobile apps for instant receipt scanning and reporting: Mobile apps accompanying corporate cards provide a convenient way for your employees to scan and report receipts in real-time. This can significantly reduce the time spent managing paper receipts and ensure that all expenses are captured as they occur. The app allows employees to take a photo of the receipt, which is then automatically linked to the corresponding transaction on their corporate card (through OCR technology). 

• Set spending limits and control over vendor categories: With corporate cards, you can set specific spending limits and restrict expenses to particular vendor categories. This feature might be particularly useful for ensuring that employees only make purchases that are aligned with company policy. By setting these controls, finance departments can prevent overspending and ensure that funds are allocated appropriately.
• Create an auditable approval trail: Automation through corporate cards creates a transparent and auditable approval process. Each transaction is tracked, and approvals are logged within the system, providing a clear trail that can be reviewed at any time. This can help you achieve greater accountability within the company, ensuring that all expenses are approved according to the expense policy.

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• Get real-time notifications and alerts: Corporate cards offer real-time notifications and alerts, providing you with instant updates on transactions. This can help you maintain control over your expenses and quickly identify any unauthorised or suspicious activity. By receiving alerts as soon as a transaction occurs, your finance team can take immediate action as and when needed.

Eliminate employee reimbursements with Alaan

At Alaan, we understand that employee reimbursements can be a time-consuming and tiresome process for your employees and finance teams. That's why our comprehensive solutions are designed to streamline expense management and eliminate the need for traditional reimbursement processes. 

• Corporate cards: Our corporate cards provide a direct way to manage expenses without requiring employees to spend out of pocket. When you issue these cards, employees can make approved purchases that are automatically tracked and categorised through our spend management solution. This eliminates the back-and-forth of submitting and approving reimbursement claims, simplifying the entire process.

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Our corporate cards offer real-time control and oversight, allowing you to set spending limits and define approved vendor categories. This ensures that expenses stay within budget and align with company policies. By using our corporate cards, you can prevent unauthorised spending and gain greater visibility over your company's expenses, reducing the risk of financial discrepancies.

• Mobile app: Using our mobile app, employees can instantly scan and submit receipts, which are linked directly to their transactions. This ensures that all expenses are accurately recorded while reducing the time and effort involved in managing receipts and paperwork. With everything handled digitally, manual intervention is greatly reduced, making the process efficient and less prone to errors.

Get in touch with our experts to learn more about our spend management solutions.