Expense Reports Best Practices - A Guide

If your business has employees, it’s likely to have some system for managing expenses. You’ll need a way of controlling, tracking and analysing expenses, to make sure you’re on top of business spending.

This is where expense reports come in. In this guide, we’ll take a look at what expense reports are and why they’re so useful. And crucially, we’ll run through some best practice tips on how to create an expense report.

And while you’re looking into better ways to manage expenses, make sure you check out Wise Business expense cards. These offer full control on international employee spending in multiple currencies, and even pay cashback on purchases.

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What is an expense report?

An expense report itemises all of an employee’s business-related spending for the previous month. It’ll contain details of what was purchased, the date, the amount and payment method. You can also create expense reports which cover multiple employees and longer time periods.

The purpose of expense reports is to give you oversight over business spending, as well as making it easier to manage reimbursement (where employees have paid business expenses out of their own money and need to be paid back).

For example, let’s imagine you have a small team of sales representatives with access to company cars. Within a month, they’ll have expenses relating to fuel, and may also need to purchase food, drink and other sundries while out on the road. These expenses will all need to be itemised on an expense report, so that you can keep track of spending and be able to provide timely reimbursement.

Here’s how it works in a nutshell:¹

1. The employee incurs an expense
2. At the end of the reporting period, the employee generates an expense report
3. This report is submitted for review, along with receipts/invoices for the relevant purchases
4. The report is approved (or rejected if there are errors or discrepancies)
5. The business reimburses the employee.

Why are expense reports important?

If you run a business, you’ll know how important it is to keep track of every penny of business spending. You need to know exactly how much is going out each month, as well as how much is coming in.

This is one of the reasons that having a proper expense reporting system in place is so crucial. It allows you to track spending, especially if it increases over time. If there are adjustments or savings you need to make, you’ll have up-to-date expenses information to hand.

Expense reports are also important for employees. They provide transparency on how much is being spent and form the basis of a system for employees to receive reimbursement where they’ve covered expenses out of their own pocket.

They also help to improve transparency and honesty surrounding expenses, especially where employees have their own company cards.

Types of expense reports

There are a few different types of expense reports, each serving a different purpose. Let’s take a look:

• Travel - these are specifically to cover travel expenses, such as train tickets and flights
• Mileage - these reports track expenses for businesses which have company vehicles
• One-time - for occasional (usually larger) purchases, for employees who don’t usually submit expense reports.
• Recurring - monthly expenses reports covering a range of business expenses
• Quarterly or yearly - these reports are most often generated for the use of the business in preparing tax or accounting statements.

There are also international travel expense reports, designed to cover expenses incurred when employees go abroad for work. They can be complex, especially with multi-stage trips and expenses generated in different currencies. This can make reimbursement more complicated too, as it may involve currency conversion.

One way to make it easier is to provide employees with their own expense cards, then reimbursement won’t be necessary.

Wise Business expense cards could be the ideal solution, as they work in 150+ countries worldwide and automatically convert currency at the mid-market exchange rate.

Get started with Wise Business 🚀

How to create an expense report? Step-by-step process

Ready to create your first expense report? Here’s exactly how to do it, from the perspective of the employee:

1. Choose a template - most companies provide employees with a template for each type of report, to standardise the process and make it both quicker and easier.
2. List your expenses, itemising each purchase one by one. Take a look below for the information that should be included on an expense report.
3. Gather your receipts, to be submitted along with your expense report. Before submitting, double-check that the totals on the receipts exactly match those you’ve included on the report.
4. Calculate the grand total of all expenses on the report.
5. Submit the report to the relevant person/department for approval.

This process covers how an expense report is created and submitted manually. But it’s likely that your company will have accounting software or automation tools to speed it up. This includes tools like automatic receipt capture, which let you scan receipts to be submitted digitally.

What should an expense report include?

While it may vary between companies, a typical expense report should include the following information:¹

• Description of purchase
• Date of purchase
• Total purchase cost, including taxes and fees
• Details of the retailer, vendor or supplier
• The business expense category the purchase falls under
• The account the expense should be charged to - this may be tied to a particular department or project, for example.

Receipts and other documentation should be provided alongside the report, for each purchase detailed within it.

FAQs - Creating expense reports

How to add international expenses to my report?

Each business will have its own processes and policies for recording and managing international expenses.

However, a common practice with automated expense management systems is for the purchase to be recorded in the foreign currency it was paid in, without converting it to GBP. The system will then convert the currency using current exchange rates.²

This rate may differ to the rate which applied at the time of the purchase, leading to inaccuracies when it comes to reimbursement. In this case, it may be preferable for the employee to enter the actual amount charged according to their bank or credit card statement.²

Who should create and submit the expense report?

It’s usually the case that employees will create and submit their own expense reports. However, they may be submitted by team or department heads on behalf of all their employees who are spending on behalf of the company.

Reports will be reviewed and approved by the company’s finances or accounting department, possibly with additional sign-off by senior members of the business.

How to improve the expense report process?

Accounting tools with expenses management features can improve and streamline the expense reporting process considerably. They automate many of the tasks involved, including digital receipt capture, automated approvals, issuing reimbursements and generating monthly reports.

You can also improve the process by cutting out the need for reimbursement altogether. Get Wise Business expense cards for all your team members and they can spend in multiple currencies at the mid-market exchange rate, all while you retain full control of spending limits.

Get started with Wise Business 🚀

How do you categorise expense reports?

For more efficient reporting, it’s a good idea for expenses to be reported under specific categories. This allows the business to track spending in particular areas, such as travel, fuel and mileage for example.

Here are some of the most common categories used for expense reports:

• Travel expenses, including fuel and mileage
• Meal and entertainment expenses
• Office supplies and equipment
• Professional services
• Software or professional subscriptions
• Telecommunications
• Training and education
• Marketing and advertising
• Maintenance and repairs
• Miscellaneous expenses.

Are receipts required for expense reports?

Receipts are a crucial part of expense reporting. They essentially verify purchases, and provide a clear paper trail for accounting purposes.

They can be difficult to manage, however. This is why it’s recommended to use accounting software with apps which let employees digitally capture receipts on the move.

Wise Business expense cards: international expenses made easy

If your business operates internationally and your employees are regularly spending time abroad for work, Wise Business expense cards could be the ideal solution.

These contactless international debit cards work for spending and cash withdrawals in 150+ countries worldwide, with no foreign transaction fees or subscription fees.

Whenever someone spends or withdraws cash overseas, the currency is converted at the mid-market exchange rate, with just a small conversion fee to pay.

There’s also 0.5% cashback paid on all eligible spending.

Once you have a Wise Business account, you can order unlimited expense cards for just a one-off fee of £3 a card. You can add employees to your account, with controlled access - and you get full control over spending their limits.

What’s more, it’s easy to integrate Wise with your accounting tools, and your accountant can view team spending for smarter collaboration.

Get started with Wise Business 🚀

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And that’s it - our guide to expense report best practices, covering everything you and your employees need to know. After reading this, you should have a better idea of how to set up and manage your company’s system for reporting and reimbursing expenses.

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Sources used:

1. Ramp - What is an expense report?
2. FreeAgent - How to create a foreign currency expense

Sources last checked on date: 23-Aug-2024