The Purpose of Expense Approval Limits: Balancing Efficiency and Expense Management

In case you haven’t already learned this lesson, keeping a business up and running can be a costly endeavor. When that business has dozens or even hundreds of mobile workforce employees, though, it’s not uncommon for expenses to get out of hand between the mileage, meals, and other needs your workers may have on the road. To help you manage expenses more efficiently, you’ve likely created some kind of expense approval process, but even then, having to approve every expense individually can quickly become overwhelming. The purpose of expense approval limits is to streamline the approval process for smaller expenses, eliminating hidden costs and complications.

For the uninitiated, an expense approval limit refers to the maximum dollar amount that an individual, or a department, is authorized to spend without seeking internal approval from a higher-up. Expense approval limits vary widely depending on an organization’s size, industry, and financial policies. Even different departments within the same company could have different limits, depending on their needs. If an individual’s or a department’s expenses exceed an established approval limit, those expenses must be reviewed and approved.

Establishing expense approval limits can help companies control and manage their expenses and maintain expense report compliance, but to ensure this approach succeeds, you must strike the right balance between financial oversight and employee autonomy. When done right, you’ll discover that they both empower your employees to make responsible purchasing decisions while still allowing you to maintain control over finances. 

The Purpose of Expense Approval Limits

One primary purpose of expense approval limits is the ability to give your employees more autonomy. After all, you must spend money to make money, and oftentimes, it’s employees who make these purchases as part of their daily responsibilities. Recurring costs accrued by your employees might include driving costs, T&E expenses (if an employee takes a client out to lunch, someone has to foot the bill), office supplies, software subscriptions, and any number of other things. 

If employees have to request permission prior to every single purchase they make, this will slow down their work, and the work of your organization. It’s both easier and more efficient to give them the freedom to make their own purchases, at their discretion, and then report them afterwards. However, letting employees spend company money without any oversight at all could result in fraud, misappropriation of funds, or overspending. 

The purpose of expense approval limits is to allow employees to make necessary purchases or complete other tasks that cost money—up to a certain point. Introducing limits ensures that finances are managed within budget constraints and in accordance with the organization’s expense policies, without micromanaging employees. 

Benefits of Expense Approval Limits

Cost Control

Through the use of expense approval limits, your organization can keep control over costs, and also make sure that business expenses are managed within set, pre-approved limits. This will help prevent accidental (or purposeful) overspending, and will help with overall financial management.

Accountability

Employees with expense limits are aware that they have autonomy over certain business purchases they make, while also being cognizant of their limits, and that they must have approval for any expenses that may exceed the limit. Besides making them more cost conscious, this accountability promotes transparency among employees, and that transparency can help curtail misuse of company funds or fraud. 

Time-Saving

Who doesn’t love efficiency? By using expense approval limits to delegate authority over smaller purchases to employees, instead of making all expenses subject to approval by management, you can seriously streamline the approval process. This will help avoid delays and bottlenecks, as well as reduce the administration burden of approval, allowing employees at every level greater focus on their core tasks and responsibilities within the company. 

Flexibility

Expense approval limits aren’t set in stone. You can adjust them based on the needs of your business or the ever changing financial and economic landscape. Expense approval limits also provide flexibility by allowing companies to adapt their spending policies on a case-by-case basis as required, without sacrificing control over business finances. For example, you can adjust limits up during higher-spending periods of the year, and during times when budgets may be tighter, you can lower limits accordingly. 

Challenges of Expense Approval Limits

Although expense approval limits can serve as a financial asset for businesses, every change comes with its own unique challenges that need to be addressed. While the intended purpose of expense approval limits is to help manage costs and promote accountability, they must be implemented carefully to avoid potential risks and any unintended consequences.

One such unintended consequence might be accidental inflexibility. If expense approval limits are set too strictly, it might limit employees’ ability to make spending decisions, which could cause frustration among employees who might feel like the limit is keeping them from making necessary business purchases. Another consequence could be extra administrative burden. While expense approval limits save time by eliminating the need to approve every single expense, management and supervisors still need to verify that expenses did not exceed the limit, and in some cases monitoring and enforcing expense approval limits could be time-consuming.

As with any change to a company’s financial policies, there can also be a lot of complexity involved during implementation. Especially for larger organizations with several departments or business units, setting and managing expense approval limits could prove complex. Coordinating approval across different levels of management could also create confusion or opportunities for miscommunitation. 

Finally, there is, as proves true with any significant business venture, the risk of employee mileage reimbursement fraud. Expense approval limits do create increased financial transparency, but they can also create a false sense of security, as employees may start to think that expenses within the expense approval limit will not be closely scrutinized. 

CompanyMileage Makes Expense Approval Simple & Secure

The purpose of expense approval limits is to give your employees autonomy over day-to-day financial decisions, while still maintaining oversight within your business. Implementing these limits may pose some challenges, but utilizing the right workforce planning tools will help you meet and mitigate those risks. Luckily, CompanyMileage and its suite of expense management solutions, SureMobile, SureMileage, and SureExpense, are specifically designed to allow you to streamline expense management on your terms, regardless of how many mobile employees you manage every day. 

Our point-to-point calculations ensure that you’ll never reimburse disallowed mileage, our easy-to-use mobile app allows employees to quickly submit expenses from anywhere, and our software even gives you the ability to flag behaviors in the system, so errors get caught and corrected quickly. CompanyMileage also features an electronic approval system, so reports are always reviewed smoothly and bottlenecks are avoided, and when it comes time to issue a reimbursement payment, our technology integrates with your organization’s payroll and accounting software.

To learn more about how CompanyMileage can help you manage expenses within your business, contact us for a demo today or download our free expense policy template!