How to Define and Automate Expense Approvals
Learn the steps of an efficient expense approval process, the importance of automation, and how you can optimize your company's expense approvals.
Expense approval is one of the most important workflows in a company. After all, it’s critical for controlling spending and compensating workers for their personal purchases. Having an optimized and automated expense approval process is essential for maintaining operations and keeping workers happy. It also helps organizations avoid complications during routine audits.
Despite this, companies everywhere still struggle with outdated and inefficient expense approvals. Keep reading to learn the steps in an expense approval process, what a well-oiled approval process looks like, and an overview of how to define an expense approval process that works for your company.
"Having an optimized and automated expense approval process is essential for maintaining operations and keeping workers happy. It also helps organizations avoid complications during routine audits."
What Are the Steps in an Expense Approval Process?
Companies tend to have different strategies for managing expense approvals. For example, some organizations rely heavily on automation, while others prefer to process them manually. With this in mind, expense approvals typically involve the following steps.
1. An Employee Submits an Expense Approval or Reimbursement Form
First, an employee submits an expense approval or reimbursement form for approval. The form must clearly state basic identifying information—like the employee’s name, department, and supervising manager. In addition, each request must include a comprehensive list of all itemized transactions. The transactions have to correlate with the organization’s official expenditure approval chart.
Some companies also require employees to submit receipts along with expense approval forms. This greatly improves transparency and reduces cases of fraud. Asking employees to submit receipts is a standard practice that most companies adhere to. If your company isn’t asking for receipts, it’s probably time to reexamine your process.
2. A Manager Reviews the Request
Department managers are typically responsible for receiving and reviewing expense approvals. Each manager must closely inspect requests to make sure they're legitimate before moving them forward to other key decision makers.
During this stage, the manager analyzes the request for basic accuracy by verifying things like the reason for the expense approval request. Then, the manager either provides initial approval or rejects the request. If the manager rejects the request, they'll usually provide an explanation.
3. Finance Reviews the Request
Once a manager approves a request, they typically pass it along to finance for further processing. At this point, finance has the right to reject the request if they deem the report to be inappropriate. For example, an employee or manager might see nothing wrong with taking a client out for a $2,000 dinner—but finance might think otherwise.
To avoid this type of issue, it’s critical for team members to submit requests for large expenses in advance. Management can also help by clearly communicating expense policies. This strategy reduces friction and makes policies easier to understand.
What Steps Can an Approver Take During the Expense Approval Process?
There are three outcomes during an expense approval process. An approver can decide to approve and pay the request, send the form back for more information, or reject the claim outright. In select cases involving potential fraud, an approver must also notify HR for disciplinary action.
If finance decides to approve the request, the department notifies the payroll team and authorizes the transaction.
What a Fluid Expense Approval Process Looks Like
Employees submit expense approval requests for a variety of reasons. For example, someone might submit a request for technology reimbursement or for a team-building exercise. One of the most common reasons for expense approval is reimbursement for personal expenses during a business trip.
In this example, the worker requesting the approval compiles a list of reasonable expenses, including transportation costs, hotel accommodations, and food expenses, along with all of their receipts. Unreasonable expenses typically include items like personal entertainment and extraneous purchases.
Ideally, the company will use a cloud-based portal to submit expense reports for processing. In such a scenario, the worker enters all documentation in that portal, which automatically routes the data to the appropriate managers and approvers. The entire process—including submission, approval, and notification—all takes place in one convenient and secure location.
With this type of centralized approval system, expense management workflows can occur in a matter of hours instead of days or weeks. This results in faster payments with fewer backlogs. At the same time, worker happiness improves because folks get repaid quicker.
How to Define an Expense Approval Process
While expense approvals may seem straightforward, companies often struggle with logistics. For example, it’s common for team members to miss notifications, which forces approvals to idle for long periods.
To build an efficient system and avoid complications, it’s necessary to first define an expense approval process and standardize your strategy. Here’s how:
1. Pick Your Tools
One of the most important parts of setting up an expense approval process involves picking the right tools. Some companies choose to submit expense approvals via email, while others choose to integrate third-party SaaS platforms like Zoho Expense, Teampay, and TripActions. If you’re using Slack as your communication platform, Wrangle provides templates for expense management that allow you to create, manage, and review expenses in Slack.
Before you make a decision, consult with your team and ask for their input. Determine what platforms they use daily and build your expense approval process around their preferences and needs.
2. Establish a Submission Workflow
Once you pick a tool, the next step is to create a submission workflow that details exactly how employees submit approvals. As a best practice, document the submission instructions and store them in a location that everyone can access and review.
It’s critical to have a standardized process with clearly defined rules and procedures across your organization. In other words, if you decide to use a specific SaaS platform for submitting expense reports, it’s best to restrict other channels like email or paper to avoid confusion and prevent complications.
The process also needs to be flexible and responsive enough to adjust to different types of requests as they arise. Using rigid tools can lead to slowdowns and create backlogs.
Also note that your expense approval process has to closely align with your company’s formal written expense reimbursement policy.
3. Determine an Approval Hierarchy
When defining an expense approval process, it’s also necessary to outline an approval hierarchy and routing plan. Establishing an approval hierarchy ensures that requests go through appropriate team members. At the same time, it also prevents unauthorized individuals from reviewing and approving expenses.
4. Automate Your Workflows
Expense approvals can take considerable time and pull team members away from important work. In light of this, it’s a good idea to automate the process as much as possible.
To automate your expense approval workflows, consult with your IT department to identify specific opportunities to eliminate manual work—like automatically routing approvals and distributing automatic notifications for team members instead of sending manual emails. And of course, if you’re using Slack, Wrangle might be a great fit for automating your expense reviews and approvals.
5. Monitor and Optimize Your Process
After you deploy your expense approval process, keep an eye on the system to track performance. For example, you may want to track KPIs like average time to approval and the average number of approvals over time.
Monitoring the expense approval process and optimizing your workflows will ensure it continues to operate smoothly and efficiently. Companies often run into trouble when they set and forget their expense approvals.
Make the Expense Approval Process Work for You
Your organization's approval process can benefit from using the right tools for every step.
Wrangle is the ultimate workflow automation companion for Slack. With Wrangle, you can automatically assign tasks and approvals and receive timely status updates. Wrangle reduces channel babysitting and enables faster and more efficient processing.
To learn how Wrangle can enhance approval and ticketing in Slack, request a demo today or add Wrangle to your Slack channel for free.
This post was written by Justin Reynolds. Justin is a freelance writer who enjoys telling stories about how technology, science, and creativity can help workers be more productive. In his spare time, he likes seeing or playing live music, hiking, and traveling.
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