What is a Reimbursement?

Definition: A reimbursement is a monetary compensation received to cover for a transaction made previously. In other words, it means to get money back from a given purchase.

What Does Reimbursement Mean in Business?

Reimbursements are present in many of our daily routines. It is an action where you get back money that you have already spent on a given product or service. It happens mostly when you pay for something on behalf of a third party or someone else has the responsibility to cover for that particular expense.

The word reimbursement is very similar to the word refund since they both mean that you get money back, the difference between them is that refunds are mostly associated with damaged items or dissatisfaction with the result of the transaction.

On the other hand, the term reimbursement is most commonly used for situations where the money should have not been spent by that person, and that’s what causes the reimbursement to happen. Some situations for a reimbursement might be: travel expenses that a company reimburses to an employee, an insurance company reimbursing for a medication bought by an insured individual or a purchase made for someone else that has to be paid back.

Let’s take a look at this example for further illustration.

Example

Mr. Coleman is the National Sales Manager of Caribbean Coffee Co. a company that produces coffee for the retail market. As part of his regular duties he has to travel to many different cities within the U.S. to supervise the Regional Sales Managers. The company normally pays Mr. Coleman travel expenses upfront but this time he had a last-time travel and there wasn’t enough time to issue the payment to cover for his expenses. Mr. Coleman gathered all the receipts from these expenses and gave them to the company. Is this a reimbursement situation?

The term reimbursement, according to our definition, is a monetary compensation received to cover for a transaction made previously. These travel expenses should have been covered by the company. That means that the company must reimburse all expenses incurred by Mr. Coleman during the travel, according to the company’s reimbursement policies.