Business expenses add up fast, especially without a clear system in place. Manually tracking transactions gets messy, approvals drag on, and finance teams end up drowning in paperwork.

Meanwhile, employees are unsure what they can expense, managers get stuck in back-and-forth approvals, and leadership has little visibility into how company funds are being spent. 

It’s a frustrating cycle that slows everything down.

That’s why it's critical to have an expense policy in your business. 

In this guide, I’ll show you how to create a policy that’s easy to follow and actually works in practice. To simplify things, there’s a customizable template at the end of this guide to help you get started.

Whether you’re building a policy from scratch or refining an existing one, having a structured approach will save time, reduce confusion, and give your business better control over spending.

But first, the basics. 

What is an expense policy?

An expense policy is a document that sets clear rules on how company money can be spent. It ensures business expenses are tracked, controlled, and aligned with company budgets. It also helps prevent unnecessary spending, streamlines approval workflows, and provides a structured reimbursement process.

It answers key questions about company spending:

• What expenses are allowed? (Expense categories such as travel, client meals, office supplies, and software subscriptions)
• How do employees get approvals before making a purchase? (Pre-approval steps and requirements, spending thresholds, and designated approvers.)
• What documentation is required for reimbursements? (Receipts, invoices, and expense reports.)
• What are the spending limits for different expense types? (Caps on travel costs, per diem rates, or department-specific budgets.)
• Who is responsible for reviewing and approving expenses? (Managers, department heads, or finance teams.)
• When and where should expense reports be submitted? (Deadlines for reimbursement requests, processing timelines, and any restrictions on late submissions.)

Why a company expense policy matters 

An expense policy is important because it puts the rules front and center. It helps businesses maintain control by preventing unnecessary costs, reducing the risk of fraud, and ensuring compliance with tax laws and company regulations. 

At the same time, it provides employees with clear guidance on what they can expense, how to get approvals, and what documentation they need to provide. 

When a policy is well-defined, everyone—employees, finance teams, and leadership—knows what to expect. There’s less confusion, fewer back-and-forth questions, and a smoother process from submission to approval. 

Key components of a company expense policy

Now that you know what an expense policy is and why it’s important, let’s look at the key components that make up a strong policy. 

These sections lay the foundation for clear guidelines that everyone can follow.

1. Purpose and scope

The purpose of your expense policy is to set clear expectations around how company funds should be used. This section defines the goals of the policy and explains to whom it applies. Typically, it covers all employees, but you may have exceptions for specific departments or roles. By establishing the scope, you make it clear who needs to follow the policy and what your company’s priorities are when it comes to spending.

2. Expense categories

This part of the policy specifies what types of expenses are eligible for reimbursement, such as travel, meals, office supplies, and software subscriptions. It’s just as important to highlight non-reimbursable expenses, like personal fines or unauthorized purchases. By being specific, you help employees avoid confusion and ensure that spending follows company guidelines.

3. Approval process

Every expense policy needs to explain how employees get approval before making a purchase. Here, you’ll outline the approval process, whether through a manager, department head, or finance team. You’ll also want to explain the approval hierarchy—for instance, what happens if an employee’s expense exceeds a certain amount and who needs to give final approval.

4. Documentation requirements

Clear documentation is key to smooth reimbursements. This section outlines what employees need to submit, whether it’s itemized receipts, invoices, or an expense report. It removes any guesswork and helps ensure that employees provide the necessary information for timely and compliant processing.

5. Reimbursement process

Finally, your policy should cover how reimbursements are handled. This includes timelines (e.g., when employees can expect to be reimbursed), methods (direct deposit or checks), and any restrictions (deadlines for submitting expense reports). It’s important to make sure employees know what’s expected when it comes to submitting expenses and what happens if they miss the deadline.

Expense policy best practices

Now, let’s talk about how to make your expense policy even more effective. 

Here are some best practices to help you build and maintain an expense policy that works for everyone.

• Keep it clear and simple: The goal is to provide clear guidance, not to overwhelm employees with complicated language or dense legal terms. Keep things simple and direct. Avoid jargon and ensure all employees can easily understand what’s expected of them—the more straightforward the policy, the less room for confusion or misinterpretation.
• Update regularly: An expense policy shouldn’t be set in stone. As your business grows, your spending habits and financial regulations may change, and your policy should reflect that. Review your policy regularly to ensure it stays aligned with your company’s goals, evolving needs, and any new compliance requirements. Keep employees informed about changes to avoid misunderstandings.
• Make it accessible: Your policy is only useful if employees can easily access it when they need it. Post it on the company’s wiki or integrate it with your expense management software. The easier it is for employees to find, the more likely they’ll reference it before making any purchases. You might also consider having the policy in printable format for those who prefer a hard copy.
• Use technology: Expense management software can streamline the process significantly. Automate the tracking, approval workflows, and reporting to save valuable time. With the right tools, employees can submit expenses and track approvals all in one place, and finance teams can easily review and process reimbursements. Using the right tech will be key to saving time and reducing the chances of human error. 
• Involve stakeholders: Your finance team may not be the only group involved in spending. For example, employees who frequently travel or make regular purchases will likely have insight into what works (and what doesn’t) in the policy. Involve them in the process when drafting or updating your policy to ensure that it’s practical and addresses the needs of everyone impacted by it.

Common pitfalls to avoid

As you build your expense policy, watch out for these common mistakes that can make the process more complicated than it needs to be. 

• Inadequate training: A policy is only effective if employees know how to follow it. Conduct proper training and equip your employees with the resources to help them understand the process. Consider holding periodic refresher sessions to reinforce the key points of the policy.
• Lack of enforcement: If expense rules are ignored or approvals are given arbitrarily, employees won’t take the policy seriously. Ensure managers and finance teams uphold the guidelines and address violations appropriately to maintain fairness and control over spending.
• Not considering the employee experience: A policy that’s too restrictive or difficult to follow can frustrate employees and lead to workarounds or non-compliance. If the process is too slow, employees may hesitate to make necessary purchases, impacting productivity. Balancing control with ease of use ensures employees can follow the rules without unnecessary roadblocks.

Modernizing expense policies for business success

Contrary to popular belief, creating an effective expense policy isn’t a one-time task; it’s an ongoing effort that needs to be adapted as your business grows. To keep things running smoothly, remember to focus on three main things: clarity, regular updates, and leveraging the right technology.

To make this process easier, make sure to download and make a copy of our customizable expense policy template below. It'll be a good starting point, but don't hesitate to reach out if you need more help creating and automating an expense policy that truly fits your business.