Having a corporate credit card is great. You can tap away, and purchases are charged directly to your company’s account.
But sometimes — especially if you run a smaller business — you won’t have corporate cards, and in that case, you’ll have to pay for business expenses yourself (or “out-of-pocket”).
The downside of paying for things out of pocket (besides the obvious) is that the logging, tracking and reimbursing of these costs can be time consuming.
That’s why you need to have a good system in place, so all these little expenses don’t turn into big headaches down the line.
Let’s start with a definition for out-of-pocket expenses and work our way to successfully managing them.
What are out-of-pocket expenses?
Out-of-pocket expenses are costs you pay yourself for work-related activities. Think of them as money you spend upfront, often with the expectation of being reimbursed later.
Common examples of out-of-pocket expenses
Here are some common examples of out-of-pocket expenses:
- Work-related travel costs: like paying for fuel, parking, or tolls during a business trip.
- Meals: grabbing lunch or dinner for a client, or while travelling for work.
- Office supplies: picking up stationary, notebooks, or other essentials when your company runs out.
- Accommodation: costs for hotel stays or other forms of accommodation during business trips.
Basically, it’s anything you pay for upfront that someone else is supposed to cover later! That’s right, the examples are endless.
Let’s look at a real-world scenario
Imagine you’re travelling for a work conference in another city. Your company’s travel department has booked your flight and hotel, but when you arrive at the airport, you realise you’ll need to take a taxi to the hotel. You pull out your wallet and pay for the ride yourself since it’s not prepaid.
Later, you keep the receipt and submit it to the travel department for reimbursement. That taxi fare is an out-of-pocket expense because you paid for it upfront, even though it’s technically a business expense.
How to manage out–of–pocket expenses
First things first, you need to ask yourself whether you plan on managing your out-of-pocket expenses digitally or manually. There are pros and cons to each method (which we’ll cover shortly) but generally if you can digitise any part of your workflow, it’s usually worth doing.
Digital vs manual: how should you manage your out–of–pocket expenses?
Managing your out–of–pocket expenses digitally
| Pros | Cons |
| Convenience: you can track your expenses on the go with just a few taps on your phone. No need to carry around notebooks or receipts. | Costs: while many apps are free, some of the more advanced features or premium versions come with subscription fees. |
| Organisation: digital tools often categorise expenses automatically (e.g., meals, travel), making it easier to understand where your money is going. | Learning curve: some apps can be tricky to set up or use, especially if you’re not tech-savvy. |
| Accuracy: you’re less likely to forget an expense since you can log it in real time. Plus, the calculations are automated, so no human errors. | Potential for overcomplication: if you’re not careful, you might end up spending more time fiddling with the app than actually managing your finances effectively. |
| Access to insights: many apps provide spending trends, budgeting tools, or even advice to help you save money. | |
| Eco-friendly: less reliance on paper receipts or physical records is better for the environment — which is always a bonus. |
Managing your out–of–pocket expenses manually
| Pros | Cons |
| No tech needed: no need for apps, phones, or internet. A pen and notebook (or even receipts in an envelope) are all you need. | Time-consuming: let’s face it—tracking everything by hand can be a bit tedious, especially if you have a lot of small transactions. |
| Simplicity: for some, writing things down feels more straightforward than navigating through digital menus and options. | Prone to errors: it’s easier to miscalculate or forget to log an expense if you’re doing it manually. |
| Mindful spending: the act of writing each expense down can make you more conscious of your spending habits. | No automated insights: you miss out on features like expense categorisation, or spending trends that digital tools provide effortlessly. |
| Not portable: carrying a notebook everywhere can be inconvenient compared to using a smart device. |
Let’s look at the steps you need to take to manage your out-of-pocket expenses effectively:
Step 1: Record your out-of-pocket expenses as soon as they happen
Don’t let your receipts stack up—it’s a disaster waiting to happen.
If you’re using a sophisticated expense management platform like Capture Expense, all you have to do is snap a photo of your receipt, and let the software do the heavy lifting for you. It’ll extract all the necessary details and send them straight to your accounting system.
Prefer manual entry? That’s okay too! Just make it a habit to jot down expenses as soon as you can—whether in a notebook or spreadsheet.
If immediate logging isn’t realistic (even if it’s just a case of taking a quick picture), set a weekly or monthly calendar reminder to process your expenses.
Step 2: Categorise your business expenses
Categorising your business expenses is key. Think of it like sorting your clothes into different drawers. You wouldn’t just throw everything into one pile, right?
Here’s how to categorise your expenses:
- Create a system: divide your expenses into different categories that are specific to your industry and the way you do things.
- Stay consistent: once you’ve established your categories, stick to them. This will make it easier to track your spending and identify trends.
- Use software to automate the entire process: while some providers offer this service, Capture Expense’s AI-powered matching feature is a game-changer when it comes to categorising your expenses. Whenever you upload receipts, or process corporate card transactions in the app, it automatically assigns the correct expense category.
Some common examples of business expense categories
Here are some of the most common business expense categories. Pick and choose which ones you think will be a good fit for your specific company:
- Travel
- Meals and entertainment
- Advertising and marketing
- Office supplies
- Utilities
- Employee benefits
- Training and development
Step 3: Keep track of all your receipts
Don’t let your receipts slip through the cracks! Whether it’s a physical receipt or a digital one, make sure to keep them safe.
They’re your proof of purchase and are crucial for:
- Reimbursements: if you’ve paid out of pocket, the receipt is what you’ll use to get your money back.
- Tax time: if you’re deducting business expenses, HMRC might ask to see proof. Without receipts, you could lose out on valid deductions.
- Audits: no one likes the word, but audits happen. Keeping receipts guarantees you’ve got all your ducks in a row if your finances are ever questioned.
Step 4: Consider prepaid or company credit cards
Let’s talk about why prepaid or company credit cards can be a game-changer for managing out-of-pocket expenses.
Here’s the thing: paying for work-related stuff with your own money can get messy. You’re dipping into your personal funds, trying to remember what needs reimbursement, and it can take forever to reconcile everything. That’s where prepaid or company credit cards come in.
Here are 4 reasons why you should consider them:
No more out-of-pocket spending
Imagine this, instead of paying for that client lunch or travel ticket from your own pocket, you just use the company card. No personal funds are involved, so there’s no waiting around for reimbursement.
Better cash flow management
Prepaid cards, in particular, let you load a set amount of money each month. It’s like giving yourself or your employees a spending allowance that’s easy to track. Plus, since it’s prepaid, there’s no risk of overspending.
Simpler tracking
Every transaction on the card is automatically recorded. You can pull up the statements to see exactly what’s been spent and where—no more hunting through receipts or cross-referencing expenses with personal accounts.
Reduces admin burden
If you’re managing a team, prepaid or company credit cards eliminate the need for employees to pay out of pocket and then submit reimbursement forms. It streamlines the whole process.
For example
Say you run a small business and one of your employees needs to buy materials for a project. If they use their own money, they’ll need to file an expense claim, provide receipts, and wait for reimbursement—meanwhile, you’re stuck processing all of it.
Now, if they have a prepaid card loaded with £500 for project expenses, they can use that directly. No personal money involved, no reimbursement headaches, and you’ve already capped how much they can spend.
Things to watch out for
- For prepaid cards: make sure you top them up as needed and monitor balances to avoid any “insufficient funds” hiccups.
- For credit cards: pay the balance in full each month to avoid interest charges. And if multiple employees are using them, set clear spending guidelines to prevent misuse.
Step 5: Review your out-of-pocket expenses
Reviewing your out-of-pocket expenses regularly is like giving your finances a quick health check—it helps you stay on top of things and avoid surprises.
Catch forgotten expenses
It’s easy to forget small things like a coffee for a client meeting or a parking fee. When you sit down regularly (say, once a month), you can check receipts, bank statements, or your expense management app to make sure nothing’s been missed.
Spot patterns in spending
When you review expenses, you start to see where your money’s going. Are you spending more than expected on travel? Is your coffee budget out of control? Regular reviews let you spot trends and decide if adjustments are needed.
Stay prepared for taxes or audits
Keeping everything up to date means that when tax season rolls around (or if there’s ever an audit), you’ve got your expenses clearly documented. No scrambling for receipts or trying to remember what that £30 charge was for six months ago.
Are you on the lookout for an app that can simplify and automate your out-of-pocket expenses?
If managing out-of-pocket expenses feels like a chore, Capture Expense is here to change that. With our app, you can snap receipts, categorise expenses, and let the automation handle the rest—no more manual logging or misplaced receipts.
Book a demo today to see how we can save you time, simplify your process, and give you back control of your finances.