Reimbursable expenses: What they are and how to categorize them

Well-run organizations are careful about tracking and accounting for every dollar spent, and that diligence extends to personal funds spent by employees on behalf of their employer. This kind of spending, whether related to travel, office supplies, client dinners, or professional development, can be promptly paid back if these expenses are properly categorized and managed. 

That last part is crucial. Without the right strategy for categorization, you miss opportunities and run the risk of falling out of compliance. Good categorization isn't a mere accounting practice, but an ongoing strategic initiative that benefits workers and the organization. Do it right, and you'll have faster employee reimbursements, transparent and accurate accounting and reporting, and fewer compliance issues.  

Now that we've set the table, let's show you everything you need to know to categorize effectively. 

What are reimbursable expenses? 

A reimbursable expense is a legitimate business cost that is paid with personal funds and expected to be reimbursed by the organization. These are not personal expenses or employee benefits, but company expenses paid upfront by workers. They must be necessary for business operations and documented thoroughly to be eligible for reimbursement. Other requirements are that they be reasonable in amount and compliant with stated company policies. 

An essential aspect of reimbursement is categorization. It's not as simple as ticking a box and releasing a payment. If done well, proper categorization can impact multiple layers of a business:  

• First, it ensures that all paid expenses are aligned with organizational policies that dictate what is eligible and what is not. If expenses are categorized correctly, you can flag patterns, find policy violations, and keep spending controls in place. A comprehensive categorization program can keep unauthorized expenses from being reimbursed and help maintain compliance and corporate integrity. 
• Proper categorization helps ensure financial reporting is accurate. It offers deep and detailed data needed for budget analysis and financial statements. Your finance team can track spending across all categories and pinpoint cost centers, budget overruns (or surpluses), and then make more informed resource allocation decisions. Annual audits, quarterly reports, and monthly closes all rely on clean categorization data. 
• Categorization also helps with taxes, as various categories have different tax rules and deductions. If categorized correctly, organizations can reap the benefit of every available deduction without running the risk of compliance issues flaring up. Different expense types, whether meals, development courses, equipment purchases or travel and accommodations, have specific tax implications that necessitate proper categorization. 
• Finally, employees appreciate when their expenses are paid back quickly. They also get very frustrated by delays. If you categorize correctly, you minimize delays and rejections and workers get their money back quickly. This creates good feelings and higher morale. 

What are the main reimbursable expense categories? 

Let's walk through the most common categories that organizations will encounter. 

• Transportation and travel is perhaps the broadest and most frequently used category, and it encompasses everything from hotels and airline tickets to parking costs and public transportation charges. It's common for travel expenses to be the largest reimbursable expense category annually for most organizations, and there are also subcategories that may include travel by department or project. 
• Meals and entertainment are another common expense category. Taking clients to dinner or shows and team events are some of the most frequent types of expenses here. Tax laws can treat client and employee travel meals differently, so it is important to distinguish between the two. The creation of subcategories can help keep things straight. 
• Office supplies and equipment are another common reimbursable expense category, with everything from laptops and software licenses to pens and paper falling under this umbrella. An organization may separate consumables from durable equipment, as they sometimes require different accounting rules or approval requirements. 
• Anything related to professional development (conference attendance fees, certifications, training courses and educational materials) are another common expense category. These expenses often require pre-approval and documentation is required to make them eligible for reimbursement. 
• Communications is another reimbursable category, featuring mobile device bills, Internet bills, software subscriptions and other tech-related spending. The rise of remote work has made these expenses more common and has given this category more prominence. 
• Finally, legitimate business expenses that do not fit a pre-defined group may be categorized under miscellaneous expenses. This could be a client gift, an unexpected business cost, a bank fee etc. Employees sometimes encounter unusual expenses while performing their duties, so a catch-all category is a must. 

Best categorization practices: What to know 

Let's quickly review some best practices for running your categorization program. 

• Establish clear and comprehensive policies and guidelines that define each category with examples and exclusions. Real world scenarios and edge cases can help workers internalize and apply these policies. 
• Make sure category names are consistent across all systems and documents. Don't use jargon that confuses people. It should be simple and straightforward to minimize errors. 
• Train your workers regularly so they stay on top of any changes and can offer feedback as needed. 
• Create an approval system that routes to the right managers based on things like category and amount. 
• Monitor, review, and audit regularly to identify problem patterns and use data analytics to ensure that categorization is correctly executed across the entire organization. 

How SAP Concur can help 

Today's expense management platforms are an essential tool for proper categorization. SAP Concur solutions use the power of intelligent automation to not only reduce manual work and errors, but greatly improve transparency and accuracy. 

SAP Concur solutions use advanced optical character recognition technology and machine learning to automatically scan receipts and suggest the right expense category. This saves time and improves accuracy. 

Policy enforcement becomes much easier, as it occurs in real time, preventing improperly categorized expenses from submission. This lowers the need for both corrections and manual reviews, which makes reimbursement faster. 

SAP Concur solutions are also flexible, as you can configure expense categories to align with your internal accounting requirements. It's user friendly and intuitive while also supporting the most complex categorization needs. 

Easy integration also ensures that categorized expenses flow appropriately into financial reports. Detailed analytics and reporting make spending patterns easily visible, enhance control over expenses and enables more informed decision-making. 

SAP Concur solutions are also designed for on-the-go receipt capture and categorization, reducing the risk of lost documents. 

The takeaway 

Proper categorization is a cornerstone of smart financial management and essential for employee happiness. Implement the right strategy, follow the best practices, and support it all with an advanced expense management platform like SAP Concur that makes reimbursement vastly easier and more accurate. 

If you'd like more information about the power of SAP Concur solutions, reach out to us directly.