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Streamlining Employee Reimbursements: Why and How to Avoid Them

By May 30, 2024No Comments

Employee reimbursements can be a cumbersome process for startups. While covering out-of-pocket expenses is essential, managing reimbursements effectively can save time and reduce administrative burdens. Here’s why you should try to avoid reimbursements and strategies to streamline the process:

Why Avoid Employee Reimbursements?

Relying on employee reimbursements often indicates a lack of structured purchasing management within the company. It can lead to:

  • Inconsistent Expense Tracking: Reimbursements can create discrepancies in financial records and complicate expense tracking.
  • Employee Discomfort: Asking employees to use their own money for business expenses can be inconvenient and potentially stressful.
  • Cash Flow Issues: Reimbursements can disrupt cash flow management, especially if not handled promptly.

How to Avoid Reimbursements:

  • Use Corporate Cards: Providing employees with corporate credit cards ensures that all business expenses are directly linked to the company, simplifying tracking and reporting. However, not all companies can easily obtain traditional credit cards.
  • Implement Virtual Cards: Systems like Float Cards (Canada) or Brex (US) offer a flexible alternative. These virtual cards can be issued instantly with customized spending limits and pre-approval requirements, giving you control over expenses without burdening employees. They provide the nimbleness needed for managing various business expenses efficiently.
  • Set Clear Expense Policies: Establish detailed expense policies to guide employees on what is reimbursable. Clear policies reduce the number of reimbursement requests and ensure compliance.
  • Pre-Approval for Expenses: Require pre-approval for significant expenses to prevent unauthorized or unnecessary spending. This helps maintain control over business expenditures.

When Reimbursements Are Unavoidable:

Despite best efforts, there may be situations where reimbursements are necessary. To manage these effectively:

  • Leverage Expense Management Software: Tools like Xero Expenses, Expensify, Dext (and many others)  automate the reimbursement process, making it faster and more accurate while providing real-time insights into spending.
  • Simplify Reporting: Make it easy for employees to log and submit expenses. Streamlined reporting processes can alleviate the administrative burden on both employees and the finance team.

Action Item: Audit Your Reimbursement Process

Take a moment to audit your current reimbursement process. Identify inefficiencies and areas for improvement. Streamlining these processes not only saves time but also reduces administrative burdens, allowing you to focus on growing your business.