Managing business expenses efficiently is crucial for financial stability, cost control, and overall operational success. For CFOs and finance leaders, creating a clear and enforceable expense policy is a key step in ensuring transparency, compliance, and financial discipline within an organisation.
Without clear guidelines, companies risk overspending, employee misunderstandings, and even potential fraud.
A well-defined expense policy sets expectations for employees, ensures accountability, and streamlines reimbursement processes. In this article, we’ll explore the eight essential steps to build an effective expense policy, and look at the best tools to simplify expense tracking and enforcement.
What is a corporate expense policy?
A corporate expense policy is a set of rules and guidelines that define how employees can spend company money for business-related purposes. It typically outlines what types of expenses are allowed (like travel, meals, or client entertainment), spending limits, required documentation, and the process for reimbursement.
The goal is to control costs, ensure compliance with tax and accounting standards, and prevent misuse of company funds. A well-crafted expense policy helps create transparency, protects the company’s financial health, and makes it easier for employees to understand expectations.
This kind of documentation becomes valuable as the company grows. With only a handful of employees, it’s relatively easy to keep spending in check. In most cases, only the founder or CEO has access to the company card or cash anyway.
But with more people, more teams, and more objectives, you can’t keep absolute control over every penny. You need to empower others to spend, but always with the right principles and restrictions in mind.
Why so many corporate expense policies fail
Company expense policies are notorious for being disrespected or ignored altogether by employees. Finance and HR teams spend days preparing (what should be) concrete rules for spenders, but constantly find that people either don’t know the rules or can’t stick to them.
Here are the most common reasons why this phenomenon persists:
- Vague or confusing rules: Policies must be written in short, plain language so employees can quickly understand what’s allowed and what’s required of them. And crucially, you should start from the assumption that your policy will be skim-read, at best.
- Overly complex processes: When the process for submitting or approving expenses is too complicated, employees make mistakes or try to bypass the system altogether.
- Lack of enforcement: If you don’t consistently apply the rules, employees lose trust in the policy and may ignore it altogether. Even experienced, well-intentioned players may feel that they know best.
- Poor communication: If employees are not properly trained or updated about expense policies, they may inadvertently violate them without realising it. (More on training shortly.)
- Unrealistic limits or restrictions: Setting spending limits that are too low, or creating rules that don’t reflect real business needs, can force employees into uncomfortable situations or lead to non-compliance.
- No regular review or updates: Expense policies that are not reviewed regularly may become outdated and irrelevant as business operations, technology, and travel norms change.
- Failure to use proper tools: Without modern spend management software, manual reporting processes can cause errors, delays, and frustration for both employees and finance teams.
- Cultural disconnect: Policies that don’t match the company’s actual working style or values can seem unfair or arbitrary, leading employees to disregard them.
As mentioned above, you must assume that most people will skim through your policy, just looking for the key information that applies to them. Which means long, overly detailed documents are destined to fail from the outset.
With these common flaws in mind, here’s a simple process to create a company expense policy that actually works.
How to build your business expense policy
- 1. Define the purpose of the expense policy
Before drafting an expense policy, finance leaders need to clearly define why the policy is needed. Key questions to ask include:
- What is our number one objective? Is the policy meant to control costs, prevent fraud, improve financial reporting, or set clear employee guidelines?
- How can we ensure fair and transparent expense management?
- How will we share the policy, and how much training or evangelisation are we prepared to do?
Perhaps most importantly, can you trust team members to make the right decisions with money? Or do you need a policy with absolute limits and no wiggle room?
With these primary objectives, you can create a policy that aligns with your company culture and financial priorities. A well-structured policy should balance cost control and employee convenience, ensuring that legitimate expenses are reimbursed while unnecessary spending is minimised.
- 2. Identify the types of allowable expenses
Team members should only spend company money on business-related costs. And while the definition of “business-related” may seem obvious, different employees may have their own definition.
CRA defines allowable expenses be “reasonable in the circumstances” and incurred to earn business income
An effective policy must clearly outline which expenses are considered business-related and eligible for reimbursement. These typically include:
- Travel expenses (flights, hotels, ground transportation)
- Client meals & entertainment
- Office supplies & equipment
- Software & subscription costs
- Training & development programs
Defining allowable expenses eliminates ambiguity, ensuring employees understand what they can and cannot claim. It also helps finance teams categorise and analyse expenditures more effectively.
- 3. Set spending limits to prevent overspending
The first question any travelling employee will ask you before they book a trip is: how much can I spend? And while you want to view each expense on its own merits, it’s far more efficient and cost-effective to set clear limits. Classic examples include:
- Daily meal allowances for business travel
- Transport and accommodation caps based on location
- Client entertainment budgets per quarter
- Setting spending limits protects the company’s budget and ensures employees make cost-conscious decisions
- Guidelines around taxi/Uber rides versus public transport
To enforce spending rules, choose expense management tools that flag excessive spending and send real-time alerts when limits are exceeded.
And to avoid any doubt, it’s always wise to include specific rules for team lunches, office parties, birthdays, and other manager-led events. It’s very often managers who—with the best intentions for their teams—make overly indulgent decisions.
- 4. Define the approval process
In the early days, the Head of Finance or even CEO can review and validate each expense as it arises. But this quickly becomes unmanageable as your company grows and new costs emerge.
A structured approval process prevents unauthorised expenses and ensures compliance. Your expense policy should outline:
- Who is responsible for approving expenses (usually managers or department heads)
- The documentation required (receipts, justification notes)
- Timeframes for submission and approval
Establishing clear workflows prevents delays and reduces disputes. And as we’ll see, you can now automate approvals using spend management software, reducing administrative workload while maintaining compliance.
- 5. Establish reimbursement procedures
Assuming employees follow your rules and submit expense claims correctly, your next concern should be ensuring they get repaid in full. A transparent reimbursement process ensures employees receive timely payments and keeps financial operations running smoothly.
Key elements of a strong reimbursement framework include:
- Payment timelines (instant, weekly, bi-weekly, or monthly reimbursement cycles)
- Submission deadlines for expense claims
- Receipt and documentation requirements
Ensuring employees are fully informed of the reimbursement process minimizes confusion and improves compliance. Automated reimbursement systems simplify this further by processing payments directly within spend management platforms, ensuring instant, error-free transactions.
- 6. Communicate the policy clearly to employees
A well-crafted policy is ineffective unless employees understand and follow it. Companies should:
- Provide an easily accessible policy document
- Hold training sessions or Q&A meetings
- Ensure managers are equipped to enforce the policy
And while training is valuable, you should never underestimate people’s ability to misunderstand or forget the rules altogether.
That’s why digital spend management tools with built-in policies are so valuable. These automatically guide employees through the approval and submission process, and make it virtually impossible to spend off-policy.
Automated reminders can also alert employees about policy guidelines, improving adherence and reducing compliance risks.
- 7. Monitor and audit expenses regularly
There’s always a level of monitoring and enforcement to manage company expenses effectively. No matter how clear your expense policy, people will go over limits, documents will get lost, and correct processes will be ignored.
Your job is to keep this to a minimum, and to point out the errors that do arise. Finance teams must regularly review company spending to:
- Identify spending trends and inefficiencies
- Detect potential expense fraud or policy violations
- Ensure expenses align with business objectives
By conducting regular audits, you eliminate wasteful spending and improve financial oversight. You also find opportunities to consolidate duplicate costs or make smarter choices about vendors. So there’s a real strategic upside to active monitoring and regular checks.
- 8. Update the policy frequently
Expense policies shouldn’t be treated as set-and-forget documents. Circumstances change, as do your costs. And your overall philosophy towards employee expenses is likely to evolve as you scale.
Periodic reviews and updates help organisations stay aligned with:
- Changing financial regulations
- New business needs (including remote work policies or sustainability goals)
- Industry standards and benchmarks
- Changes to the costs of travel or supplies
Regular feedback from employees and finance teams can highlight areas for improvement. You’ll quickly know what needs updating when you start getting the same questions over and over.
Most importantly, you ensure your policy is always fit for purpose in your current company, not the one from five years ago.
How spend management platforms help enforce expense policies
A well-crafted expense policy ensures compliance and financial discipline. But without proper enforcement, even the best policies can fail. That’s where spend management platforms become invaluable. They set the stage for safe, compliant spending, with processes that ensure employees can’t step out of bounds.
For example, you can issue smart corporate cards, with spending limits and approval flows built in. If a certain expense is pre-approved, the employee can use their card right away. They simply upload their receipt, and all the admin is taken care of.
If a purchase is not pre-approved, their manager is notified immediately and can review the expense before the card spend occurs.
And you have the same system for invoice payments and employee expense claims. Most importantly, every cost is assigned to a spender, with approval from the appropriate manager. Which means there’s never any mystery spending, and you have a clear audit trail at all times.
Spend management platforms automate expense tracking, approval workflows, and reporting, making it easier for finance teams to:
- Gain real-time visibility into company spending
- Reduce manual processing errors
- Improve compliance and accountability
- Prevent overspending and fraud
Additionally, for companies managing multi-currency transactions, integrated FX tools within spend management platforms help minimise foreign exchange fees, improving cost efficiency.
You can both empower employees to work smarter, while also keeping complete control over all costs – and also save time in the process.
Build a dynamic company expense policy today
An effective expense policy isn’t just a list of rules. It’s about establishing clear financial guidelines that support business growth while maintaining control over spending. By defining expense categories, setting spending limits, and automating approval workflows, companies can ensure greater transparency, efficiency, and compliance.
But a policy alone isn’t enough. You need the right tools to enforce and optimise financial processes. Spend management platforms provide the automation, real-time insights, and reporting capabilities needed to ensure compliance and streamline financial operations.
To improve expense tracking, simplify approvals, and enhance cost control, adopting a modern spend management solution is no longer an option—it’s a necessity.
With the right combination of clear expense policy and smart technology, you can confidently control business expenses, optimise cash flow, and drive long-term financial success.
🚀 Ready to optimize your expense process? Get started with OFX today – www.ofx.com/business
This article is purely for informational purposes only and should not be treated as advice. OFX will not be held liable for any losses incurred as a result of individuals or businesses relying on the information contained in this article
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
