How to manage reimbursable expenses in your business?

Payments and expenses are a part of everyday business operations. Payments like employee trips and online tools are essential costs that the company swallows to get business done.

Ideally, your business and its employees will use company cards connected to comprehensive software to set limits and get visibility over spending. But, when team members pay from their own funds, they will likely need to be reimbursed.

However, not all expenses are reimbursable, and distinguishing them with a robust expense policy is vital but not always straightforward.

What are reimbursable expenses?

Company cards are increasingly replacing reimbursable expenses thanks to the greater governance/control options available. But, some forms of business expenditure will always be in the form of reimbursable expenses, e.g., per diems, mileage, and other ad hoc purchases that employees make on behalf of the company.

What types of expenses are reimbursable?

Well, this largely depends on a) the company and b) any relevant legislation around business reimbursements, tax, etc.

Generous companies competing in a talent war might decide to reimburse travel costs for commuting, even if that's far from standard practice. But, in the UK, for example, these travel costs will need to be in line with relevant legislation, e.g., 45p per mile up to 10000 miles, then 25p after. Anything above this gives rise to tax liabilities for the employee and employer.

Client entertainment is also non-deductible in the UK for VAT and corporation tax. So, it can create a significant source of non-compliance with anti-bribery policies, etc.

The point is that there is no definitive answer to this question. Each company must make up its own mind about what expenses it'll allow within the law. While also considering the consequences this has on employee satisfaction and well-being.

Common expense categories in companies include:

• Travel costs. Travel costs cover petrol, parking, or public transport costs incurred in visiting clients or other workplaces.
• Accommodation. Accommodation costs are incurred by employees who have to travel to a different workplace location and stay over. This travel could include national or international work trips
• Staff entertaining. This category covers many costs associated with team building and well-being efforts to maintain employee morale
• Client entertaining. Similarly, client entertaining covers many initiatives designed to build stronger relations with clients and ultimately increase their value to the company
• Subscriptions. This category covers subscriptions to industry publications, databases, or business tools like Google Analytics

As you can see, all these categories have something in common. They either keep the business running by allowing employees to visit clients, attend training or participate in industry events. Or they deliver some value back to the company through higher employee morale, client retention, or business effectiveness.

What makes an expense reimbursable?

Not all employee expenses are reimbursable.

Companies must be very clear on this point. Employees who submit a claim very much count on its timely reimbursement. The contrary is a sure way to frustration and resentment.

Employees will incur expenses to maintain business operations and drive value into the business. To be eligible for reimbursement, they need to meet the following criteria:

• Employees will incur expenses to maintain business operations and drive value into the business. To be eligible for reimbursement, they need to meet the following criteria:
• They relate to work purposes, not personal ones. Did the expense occur to facilitate the work of the employee submitting the claim?
• It's submitted promptly. Companies can set their own limits; however, about three to six months is standard practice.
• It's evidenced through a receipt when this is reasonably possible to obtain. The receipt must show the amount, the applicable tax amount, time and location, and other critical VAT-related elements. These receipts are not always possible to obtain, however, so companies can choose to exercise leniency in certain circumstances.

What are the best ways for employees to keep track of their reimbursable expenses?

Firstly, we must remind ourselves that these people are getting paid for their time. According to the ONS, the median hourly rate ranges from £11 to £20, depending on the sector.

The figures above reveal that to get the average £123 unclaimed expenses, these employees must put in almost a whole day of work. Shocking when they could do it simply by spending time submitting these claims.

But instead, such is the hassle, as perceived by some of these people; they would rather never see the money again and spend their time carrying out a different task.

The above is the ultimate evidence that company expense management systems (or lack thereof) are painful with a capital P. After all, nobody likes to do repetitive data entry, let alone knowledge workers who are also stressed with deadlines and problems to solve.

So, why allow such a state of affairs to take place?

Modern companies know that their workers must remain focused on their projects and would prefer to let seamless expense management software, and company cards take care of spend management instead.

Leave reimbursements in the past

Instead of letting employees use their own cards and seek reimbursement, work with a spend management company like Payhawk. We help companies empower their employees with company cards and software, which includes vital features including:

• OCR technology. This tech means that people can pay for something and take a picture of their receipt in the Payhawk app. The OCR then automatically pulls the info from the image and uploads it to the portal, so the employee (and admins in the finance team) avoid 95% of manual data entry. This clever tech makes submitting claims a walk in the park, even when on the go
• Request more funds and get approval from their manager, which means they don't need to risk spending their own funds on a claim that won't get approved via a reimbursement model
• Forget about static expense policies; with approval workflows and spend limits built into the app and portal
• Stop doing mental maths to submit mileage claims. With Payhawk, employees only need to add the start and end points (and any other stops), and we will calculate the exact business travel expense and reimbursement amount

What are employees' most common mistakes when submitting expense claims?

When company cards aren't an option, and you have to stick to reimbursements, mistakes can be common, especially when the system people have to use is outdated and manual. Many mistakes are due to human error, either because the process is too complex or because compliance is too hard to remember/ adhere to.

However, other mistakes constitute fraud, which is sadly also very common.

At Payhawk, we make it easy to avoid fraudulent claims and empower employees to get their money back safely and promptly. We also help finance teams stay in control of company spend.

But mistakes are harder to swerve for those companies (and their employees) still not using Payhawk. Here are the most common mistakes employees make when submitting expenses:

The claim is too late

This is one of the most painful mistakes and can lead to untold frustration if the approval chain rejects the claim. It's just a matter of timing.

Finance teams want to remain in control of their accounting and forecasting, so they ask employees to be timely with their claims, perhaps asking for a three or even six months limit. But if the claim process is laborious and employees put it off, claims might come later than ideal.

This scenario makes a seamless and hassle-free expense management tool so appealing. By offering company cards and expense management software with built-in controls, businesses can help their employees submit expenses on the go without breaking compliance.

Forgetting or losing the receipt

Have you ever been travelling for work with your head stuck in the task ahead? Whizzing through the airport with your hands full between the luggage, the passport, and now a triple mocha?

Not much thought is spared by non-finance people when it comes to the humble receipt, which is pushed to the depths of their pockets only to disappear later mysteriously.

Most employees will not submit a small claim for which they lost the receipt, and some of those who do will get their claims rejected.

Submitting the wrong receipt (e.g., credit card strip)

Similarly, employees might keep and attach the wrong receipt. Perhaps an entirely different or irrelevant receipt.

Claims above limits as set out in the expense policy

We've all been there. The business meeting in Paris has gone wonderfully.

Only one of the team has forgotten that the limit for dinner on international travel is £20, even though that doesn't even cover the vin rouge.

One of the biggest problems with this static approach to expense policies is that they disregard taking care of the context.

With Payhawk, updating limits is easy if your colleague uses the company card instead of their personal card and associated reimbursements. If the card user needs more money, they can simply make a fund request via their app, and it will be approved according to the inbuilt workflows. This process means the user doesn't have to go without important funds, but the finance team also gets to keep control and governance.

Claiming for the petrol put in the car, not the petrol used

An employee leaves his home in Reading to visit a client in Brighton. On the way out, he notices the tank is close to empty and, not wanting to worry about it, fills it to the brim for a total of £40.

How much will the employee claim? He can't claim £40 because that's more than what they used to travel; however, how much he used is not that easy to calculate. Not only that but what evidence can they give?

Instead, Payhawk can calculate the correct amount based on the distance travelled. The employee can simply input the start and end points (or more), and we do the rest.

How to reduce costs from employees' business travel

Sometimes, the costs associated with business travel are enormous. But you can reduce a significant portion with some planning and foresight.

Read the below tips for some ideas on cutting travel-related business expenses.

Have a travel expense policy

A specific policy setting out limits and circumstances can really curb spending on travel expenses, especially internationally.

You'll need to consider flight rules, including whether your colleagues should fly economy, business class, etc., often depending on their seniority within the company. You could also include flight times, etc., as these can significantly impact price.

Hotels will also make up a big part of your travel expense policy. You'll need to set boundaries around costs per night, minimum stay, the star quality level of the accommodation, and where the rules can be flexible (if, say, your colleagues want to stay near the office/meeting points when on trips, etc.).

You have to include taxis and rental cars too. And here you'll need to consider things like when you prioritise public transport, for example.

Whatever your approach to business travel expenses is, drafting a policy and sharing it with people before they go on travel can make all the difference. With Payhawk, your people get access to a hard-to-break travel policy and accommodation bookings via our integration to Travelperk and streamlined expense management as provided by us and our software.

Organise travel for big groups

When a big group from work travels together, costs can quickly spiral out of control.

Use the group numbers to your advantage. Ask the office manager or someone else relevant (and capable) to book transport and accommodation for everyone, thereby accessing group discounts and leveraging negotiations. Most hotels will be willing to negotiate for a big group which can mean a 25% discount, just like that.

Look into cards for discounts (e.g., railcard)

If your employees often travel across the country, there might be special cards from train operators or other forms of public transport. For example, Railcard in the UK offers excellent discounts to frequent travellers. Do the maths and see if it would be worth buying one for those most often travelling.

Avoid last-minute booking

Ask employees to sort their travel as soon as they know of commitments that need attending. People tend to be really good at avoiding last-minute bookings for personal expenses, so it's just a case of reminding them not to leave business travel bookings for last too.

Be transparent on the impact of expenses on the company's bottom line

This can be particularly effective for smaller companies running a bonus scheme. If people understand the impact of their last-minute bookings or reliance on taxis on their bonuses, they might be more willing to act responsibly.

How Payhawk can help your business stay on top of its reimbursable expenses

Payhawk helps companies stay on top of reimbursable expenses by facilitating real-time expense management that empowers employees to do their job, not repetitive admin.

Companies can set spending limits and controls, set up an approval chain, apportion budgets to different teams and give visibility to finance teams about what's being spent and where.

Because of its satisfying UX enabling employees to snap pictures of receipts and automate data entry, receipts are submitted without delays, making month-end close easy and painless.

Ready to find out how expense management can help you control your company spending and lead to happier employees? Book a demo today.