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[This article is prerelease documentation and is subject to change.]
Expense categories define how expenses are classified for reporting and processing purposes. Payment methods specify how an expense is paid and reimbursed, distinguishing between employee-paid and company-paid scenarios. Expense rules enforce policy compliance by validating expenses against predefined conditions. This article explains how to set up both in Business Central.
Important
- This is a production-ready preview feature.
- Production-ready previews are subject to supplemental terms of use.
Set up expense payment methods
Payment methods define how expenses were paid, such as cash, credit card, or company bank account, specifying reimbursement types for expenses.
- Select Search (Alt+Q)
in the upper-right corner, enter Expense Payment Methods, and then choose the related link. - Choose New and create entries for each payment method your organization uses.
Note
When creating a new expense payment method, you must assign a Reimbursement Type (Employee Paid, Credit Card, or Company Paid). Each reimbursement type can be used by only one payment method.
Note
Expenses with the Employee Paid reimbursement type are reimbursable, as they are paid out-of-pocket by the employee. Expenses with Credit Card or Company Paid reimbursement types are posted but not reimbursable, as they are covered directly by the company.
Create expense categories
An expense category represents a type of expense or allowance, such as meals, travel, office supplies, per diem, or mileage. Each category can be configured with its own posting group, default payment method, and specific requirements for additional details.
To further refine classification, we recommend using expense subcategories within each category. Subcategories provide more granular distinction and improve reporting clarity and policy readiness. For categories configured for itemization, subcategories are required.
To create the Expense Category, follow next steps:
Select Search (Alt+Q)
in the upper-right corner, enter Expense Categories, and then choose the related link.Choose New to create a category, or open an existing one to modify its setup.
Fill in the following fields:
Field Description Code A short code that identifies the category. Description Specifies the meaning and usage of this category for the Expense Agent. Provide a detailed explanation, as the agent relies on this description for accurate classification. Maximum 250 characters. Posting Description A short description of the category used for posting. Posting Group The posting group used for general ledger accounting. Links the category to the appropriate G/L accounts. Default Payment Method The default expense payment method for expenses in this category. For example, Cash (employee paid personally), Credit Card (company-issued card), or Company Paid (paid directly by the company). Users can still change this setting per expense. To learn more about payment methods, go to Set up expense payment methods. Attachment Enforcement Specifies whether an attachment (receipt) is required when submitting expenses in this category. Refundable Specifies whether expenses in this category are eligible for reimbursement according to company policy. Expense Detail Required Specifies what level of detail is required. Options: None, Itemize requires itemization using subcategories, Participants requires adding guests, Per Diem requires location and travel dates, or Mileage requires distance. Expense Group Groups similar categories for reporting and analysis. Prepayment-Cash Advance Specifies whether the category requires or supports prepayments or cash advances. Inactive Marks the category as inactive. Inactive categories can't be used for new expenses.
Note
Category description is critical, as the accuracy of the agent depends directly on it. When creating your own descriptions, follow these guidelines: the description should clearly explain the primary purpose of the category and include enough detail to help the agent understand the context of extracted receipts and assign the correct category accurately.
For example for the hotel stay you can use this: 'Expenses for hotel and accommodation stays related to business travel. Includes room charges, mandatory hotel fees, city or tourist taxes, and in-stay services charged to the room.'
Or for airline you can use the following example: 'Expenses for commercial air travel, including airline tickets and airfare. Covers flights, passenger names, routes, carriers, booking references, fares, taxes, seat selection, baggage or change fees, and boarding passes.'
Note
A refundable expense is one the company can accept and reimburse according to internal policy. Because employees might occasionally submit nonbusiness expenses, the Refundable toggle helps identify and restrict nonallowable items early in the process.
- To add Expense Subcategories for specific category, select the category you want and choose the Subcategories action and create entries for more specific classifications.
Create expense subcategories
Each expense category can include one or more subcategories. Subcategories are especially important when itemization is required, because they let users break down a single receipt into multiple types of charges (for example, a hotel stay versus a minibar charge).
Open or select the Expense Category you want to add subcategories to.
Choose the Subcategories action.
Add lines for each subcategory and complete the following fields:
Field Description Code A short code that identifies the subcategory. Description Specifies the meaning and usage of this subcategory for the Expense Agent. Provide a detailed explanation, as the agent relies on this description for accurate classification. Maximum 250 characters. Posting Description A short description of the subcategory used for posting. Expense Description Mandatory Requires users to enter a custom description. Standard descriptions can't be used when this toggle is turned on. Refundable Specifies whether the subcategory is refundable by default. Useful when itemizing because some parts of a receipt might be refundable while others aren't. Inactive Marks the subcategory as inactive.
Note
Each subcategory can be configured as refundable or non-refundable. Even if the main category is marked as refundable, it does not guarantee that all expense lines are compliant. Subcategories allow accurate calculation of refundable and non-refundable amounts.
Set up expense locations
Expense locations define the geographic areas used for calculating per diem allowances. A simple country/region definition is often not enough because daily rates can vary due to differences in purchasing power or travel policies. Expense locations let you define country/regional, or city-level areas with distinct per diem rates.
Select Search (Alt+Q)
in the upper-right corner, enter Expense Locations, and then choose the related link.Choose New or open an existing location to modify it.
Fill in the following fields:
Field Description No. The identifier of the location or area. Country/Region Code The country or region the location belongs to. Required. City The city, for more granular definitions. Optional. State The state or province, if relevant. Optional.
When configured, you can use these locations in per diem calculations and reference them in expense management rules.
Set up expense groups
Expense groups let you group categories for reporting and analysis.
- Select Search (Alt+Q)
in the upper-right corner, enter Expense Groups, and then choose the related link.
- Choose New and enter a code and description for each group.
Create expense rules
Expense rules define conditions that expenses must meet based on category and location. Rules can require justification, restrict merchants, or enforce amount limits.
Select Search (Alt+Q)
in the upper-right corner, enter Expense Management Rules, and then choose the related link.Choose New to open the Expense Rule Card page.
Fill in the following fields:
Field Description Expense Category Code The category this rule applies to. Expense Location The location this rule applies to. Leave blank to apply to all locations. Effective Date The date when this rule takes effect. Justification Required Specifies when justification is required for expenses under this rule. Currency Code The required currency. Leave blank to allow any currency. Unit of Measure Code The required unit of measure for mileage expenses. Leave blank to allow any unit. On the Merchant Requirements FastTab, turn on the Required Specific Merchant toggle if only a specific vendor is allowed, and then enter the merchant name. Use this setting when your company has contracts with vendors and doesn't allow alternatives.
On the Rule Conditions FastTab, add one or more conditions. For each condition, choose a Condition Type and enter a Value:
Condition type Description None No condition applies. Fix Amount Only the exact amount specified in Value is allowed. Max Amount The amount in Value is the maximum permitted. Min Amount The amount in Value is the minimum permitted. At Least Justification Needed Amounts above the Value require justification. Daily Rate Used for per diem daily rates. Requires an expense location on the rule.
Tip
You can create multiple rules for the same category with different locations and effective dates. Business Central applies the most specific matching rule.
How rules are applied
To enable rule enforcement, turn on Apply Rules on the Expense Agent Setup page. If this setting isn't turned on, rules aren't applied. The exception is per diem calculations, which are always considered.
When rules are enabled, Business Central automatically checks expenses against the matching rules. If an expense violates a rule, the violation appears in the Rule Violations FactBox on the expense card and the expense report. Violations don't block submission, but they're visible to approvers.
Rules versus policies
Expense management distinguishes between rules and policies:
Rules are amount-based conditions that require exact accuracy. For example, a rule might set a maximum amount for a meal expense or require justification for amounts above a threshold. Rules are stored in Business Central tables and are enforced automatically. Rules are available now.
Policies are language-based conditions that describe expected behavior. For example, a policy might specify:
- When employees can book business class flights.
- What hotel star rating is allowed.
- Whether to permit alcohol at a business lunch.
Policies use AI to evaluate compliance and are part of the full approval experience.
Note
Policies are a planned capability and aren't yet available in the current release. Rules are fully implemented and available today.