How Should a Business Manage Employee Expenses?

Your business is like a swan. On the surface, it’s the very model of operational grace and serenity. But this belies the frenzy of activity going on behind the scenes. Aside from your operational activities, you also need to keep your business finances carefully balanced, accounting for every penny that comes into and out of your business. This helps to ensure a harmonious cash flow, get vendors and employees paid on time, and reduce the risk of fines, fees and charges. 

This applies to internal costs like managing your employee expenses. Employee expenses are often overlooked, but they are an integral part of your cash flow, and need to be carefully accounted for if you are to get the bigger picture of your company’s financial wellbeing.

Let’s take a close look at how to manage your employees’ expenses.

Avoid leaving employees out of pocket

For a long time the pervasive method of handling employee expenses has been for the employee to pay their expenses out of their own pockets, to be later reimbursed by the company. However, this can create issues for employees, and potentially damage their morale. They may be left out of pocket in ways that affect their personal budgets. What’s more, keeping hold of receipts is not always easy.

Many businesses also pay sundry employee expenses out of petty cash. But this can also be a problem as petty cash is (by its very nature) often quickly depleted. 

Wherever possible you should budget in advance for employee expenses in order to avoid leaving employees out of pocket. But if your business struggles to maintain liquidity, don’t worry, there are ways around this.

Use business credit cards to your advantage

If you don’t have the ready cash to pay employee expenses on their behalf, the use of business credit cards can be advantageous. When employees use them to cover the cost of business lunches, employee travel expenses or fuel you can quickly gain rewards like cash back or air miles. 

However, business credit cards also come with caveats. Their use can be difficult to supervise, especially for employees who spend most of their time on the road. What’s more, if a credit card has been illegitimately used, you won’t find out about it until it’s too late. 

It’s vital to pay off business credit cards quickly so that your cash flow is not compromised by interest payments.

The benefits of prepaid cards

A prepaid company credit card can be a valuable alternative to a conventional credit card. It can provide the convenience of a credit card and prevent out-of-pocket expenses for the employee. It also mitigates some of the risks associated with conventional credit cards. With these cards, you can allocate a specific amount to each employees’ card in advance. Not only can this prevent misuse, it can also make bookkeeping and cash flow projections much simpler.

Keep track of your employee expenses and know what you can write off

Finally, good bookkeeping is essential when managing employee expenses. You need to understand exactly what HMRC does and does not consider to be a legitimate business expense for employees. The better you know what can and cannot be written off, the better placed you are to calculate your tax liability for each financial year. You’ll also need to keep records and receipts in the event that you are audited by the tax office. 

Managing this can take time and effort. Fortunately, there are software platforms like Receipt Bank that can make this easier. You may also want to consider outsourcing your bookkeeping. This can give you peace of mind should HMRC wish to take a closer look at your books. 

We can help

If you’re interested in finding out more about managing employee expenses, cash flow, or any other aspect of your business finances then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.