Business Central Expense Management & Expense Agent: The Complete Guide (Per Diem, Mileage, Approvals)

For years, expense management was the feature Business Central didn’t have. Mid-market finance teams either limped along on spreadsheets and emailed photos of receipts, or paid for a separate tool — Concur, Expensify, Pleo, Rydoo — bolted on top of BC and reconciled by hand every month.

That changed with 2026 release wave 1 (V28). Microsoft shipped a native Expense Management module in Business Central and an AI Expense Agent on top of it. Expense reports are now a first-class part of the ERP rather than an integration you maintain.

This is the complete guide: what the module does, how itemization, per diem, and mileage actually calculate, what the Expense Agent automates, how licensing works, what V29 adds, and whether it can replace the tool you’re paying for today.

One status note before we start: Microsoft labels Expense Management and the Expense Agent a production-ready preview, and in version 29 that label still applies. You can run it in production, but it’s covered by preview supplemental terms and features are still moving. Plan accordingly.

The Two Ways to Use It

Expense Management works in two modes, and a lot of early coverage conflated them.

1. With the Expense Agent (AI-assisted). Employees submit receipts through the Expense Agent web app, the mobile app, email, or Copilot chat. The agent extracts the data, categorizes and itemizes expenses, creates expense records, and groups them into expense reports. Finance reviews and edits agent-created expenses inside Business Central.

2. Without the Expense Agent (manual). Employees create expense reports in Business Central and add lines by hand. You still get report creation, release and posting, itemization, participants, per diem, mileage, rule validation, approval workflows, and all the setup (categories, rules, posting groups, locations).

The honest difference: without the agent there’s no AI receipt scanning, no automatic categorization, and no standalone “individual expenses” — everything lives as lines on a report. That’s fine for a small team filing a handful of claims a month. It gets tedious fast at volume.

The key point still stands: the module is useful even if you never turn on the AI. The per diem engine, mileage calculation, itemization, and approvals all work manually. The agent is an acceleration layer, not a prerequisite. If you want structured expenses and clean posting now, you can start manual and add the agent later.

What the Module Actually Does

At its core, the module replaces the spreadsheet-and-email workflow with structured records inside BC:

• Expense categories and subcategories — meals, travel, office supplies, and so on, each with default payment methods, posting groups, and detail requirements (“requires itemization”, “is a per diem”)
• Expense Management Rules — measurable constraints: spending limits, justification above a threshold, disallowed expense types, required merchants
• Expense reports — group expenses into one document for approval
• Itemization — break a total into line items (a hotel folio into room, tax, parking)
• Participants — who attended the meal or event, internal or external
• Per diem — fixed daily allowances with location rates, calculation methods, and partial-day rules
• Mileage — distance-based reimbursement with configurable rates and round trips
• Approval workflows — managers review, approve, or reject
• Posting — approved reports post to the G/L, with Posted Expense Reports and Expense Ledger Entries for reporting

Reports move through clear statuses: Open → Pending Approval → Released / Approved (or Rejected) → Processed for Payment → Completed. The output is a proper ledger trail you can query like any other BC data. That’s the difference between “we track expenses” and “expenses live in the ERP.”

Refundable vs. reimbursable

Two words that sound the same and aren’t:

• Refundable — the expense complies with policy and is eligible. Non-refundable items (the minibar on a hotel bill) aren’t posted to the G/L.
• Reimbursable — the employee paid personally and is owed money. An expense paid with a company card is refundable but not reimbursable, because the company already paid.

A single receipt can be partly refundable. This distinction is what lets one module handle both out-of-pocket claims and company-card spend correctly.

Itemization: The Detail That Prevents Lumpy Coding

A receipt for €148.60 means nothing to your G/L until you know what’s in it. Itemization breaks one expense into its components.

For categories that require itemization, two rules apply:

• The total of all itemization lines must exactly match the expense amount
• Each line can carry its own subcategory and amount

This is where the agent earns its keep: it reads the receipt and proposes the itemization — room rate, city tax, parking — instead of the employee typing it. The employee confirms or corrects before submitting.

For finance, itemization is what makes expenses auditable and postable to the right accounts. A hotel bill split into room (travel), minibar (non-refundable), and parking (travel) posts differently. That difference is what a compliant expense process is actually about.

Per Diem: The Receipt-Free Allowance

Per diem reimburses travel as a fixed daily amount instead of individual receipts. It’s the norm for business travel across most of Europe — including Romania’s diurnă — and it’s fiddly to get right. Austria’s rates aren’t Romania’s. Paris isn’t Lyon. A trip that spends three days in one city and two in another needs two rates. The module handles this properly.

Setting up per diem

1. Expense locations. Each destination gets an Expense Location Card: code, description, country/region, and optionally city or state. Locations exist (rather than just country codes) precisely because rates vary within a country.

2. Expense Management Rules. For each per diem category, a rule links a location to a daily rate, optionally with an effective date and a currency if the per diem is paid in a currency other than your local one. Foreign-currency per diem is converted to local currency automatically using your exchange rates.

3. Calculation method. On the Expense Agent Setup page (Allowance FastTab), choose how a full day is defined:

You also set per diem rounding precision and the minimum hours for a full per diem.

Partial days

• Flat percentage of full rate — used with Full Calendar Day
• Based on eligible hours — used with 24-hour Rolling Period or Overnight Stay

You configure the minimum hours for a partial per diem and the partial-day percentage.

Meal reductions

If meals are provided — a conference lunch, a client dinner — the per diem drops. You set a percentage for breakfast, lunch, and dinner, and the employee marks which meals were provided on which days. One detail worth knowing: the reduction is calculated as a percentage of the full daily rate, even on partial days. On a partial day with dinner included, that can take the allowance close to zero. Check that matches your policy and local rules before go-live.

What the module won’t do is keep your rates current. When a tax authority changes its per diem table, someone has to update the rules. The agent uses whatever rates you configure.

Mileage: Distance-Based Reimbursement

For employees who drive their own car, the module calculates reimbursement from distance and rate.

Setup is on the Expense Agent Setup page: a standard mileage rate per distance unit and a default mileage unit (km or miles).

Recording a mileage expense manually:

1. Select a mileage category
2. Enter starting and ending points as descriptions
3. Enter the distance
4. Tick round trip if applicable (the total doubles)

The amount calculates automatically. In the Expense Agent web and mobile apps it’s easier: enter start and end, the agent shows the fastest and alternative routes, the user picks one, and a screenshot of the chosen route is attached to the expense as evidence.

V29 upgrade (public preview): mileage rates by effective date range and vehicle type. No more single flat rate — you can hold different rates for different periods and vehicles, and the system applies the right one.

What the Expense Agent Automates

The module gives you structure. The agent removes the typing.

1. Receipt capture

Employees have four channels:

• Web app (app.expenses.dynamics.com) — drag and drop receipts, build reports, track approvals
• Mobile app for iOS 17+ and Android 14+ — camera scanning with edge detection, multi-page receipts, share-to-app from the photo gallery, and offline queueing that uploads when you reconnect. It’s still in prerelease preview (TestFlight / Play testing track).
• Email — forward receipts or PDFs to a shared expense mailbox; each email becomes an expense
• Microsoft Copilot chat and Teams

JPEG, PNG, and PDF are supported, including handwritten taxi receipts, itineraries, and receipts in multiple languages.

2. Extraction and categorization

The agent reads the receipt and fills category, amount, currency, merchant, payment method, date, receipt number, and a context-based description. Where the category requires it, it itemizes. It detects per diem claims from uploaded itineraries (location, start and end dates and times) and calculates them against your rules.

3. Policy checking before submission

This is the real value for finance. Your Expense Management Rules are checked in real time as expenses are created, and again when the report is submitted:

• Soft warnings — outside policy but allowed with a justification (a meal slightly over the limit)
• Hard blocks — submission stops until fixed (a missing required receipt, a disallowed category)

Each expense shows a compliance badge, and the report summary shows the overall status. The approver sees exceptions highlighted instead of hunting for them.

Alongside hard-number rules, you can write Expense Policies in natural language — when business class is acceptable, what counts as a reasonable client dinner. Those are evaluated by AI policy validation after submission, across lines and across the report. It arrived with V29’s AI-driven approvals, which are in public preview.

4. Reports, approval, posting

The agent groups expenses into reports (monthly by default), submits them, and routes them through your approval workflow. Approvers can approve or send back with comments — in Business Central or the web app (Team Member license minimum to approve). Approved reports post to the G/L, and reimbursement runs through your normal payment process.

The agent’s value is volume. Dozens of receipts a month? It removes a real data-entry bottleneck. A handful? The manual path is fine.

Why Native Beats Bolted-On: The Architecture Argument

Expensify, Pleo, and Rydoo are mature products. The difference isn’t features — it’s where the data lives.

When expense data sits in the same database as your general ledger, the sync, the mapping, and the “why doesn’t this match” conversations at month-end go away.

Licensing and the Honest Cost Math

Licensing depends on how each person uses it:

That first row matters a lot: your field staff and occasional travelers don’t need a BC seat to file expenses.

If you’re paying for a standalone tool, run the numbers. A mid-market company on Concur or Expensify typically pays:

• €6–€12 per user per month for the tool
• Implementation and admin overhead
• The integration between the tool and BC
• Manual reconciliation time every month

For a 50-person company, the tool alone is €3,600–€7,200 per year before integration and reconciliation labor. The native module removes the fee, the integration, and most of the reconciliation. What replaces it is Copilot credit consumption for agent processing — budget for it, and watch it in the first months so you know your real per-receipt cost.

The honest caveat: the native module is newer and thinner at the edges. There’s no documented corporate card transaction feed today — company-card spend is handled through payment methods on submitted expenses, not by importing the bank feed. Concur’s travel booking integration and policy engine are deeper. If heavy corporate card programs or integrated travel booking are central to how you work, a standalone tool may still win. For most mid-market BC customers, the native module covers the 80% and removes a whole category of cost and integration risk.

What’s New in V29 (2026 Release Wave 2)

V29 has been generally available since October 2026, after a public preview on sandboxes in September. Every expense item in it is public preview. For expenses it brings:

• Travel requests (travel requisitions) — plan and pre-approve trips, including multiple travelers. In version 29 you manage them inside Business Central, not in the Expense Agent web or mobile app, and approval goes through the Expense Agent approver setup rather than standard workflow templates
• Mileage rates by date range and vehicle type
• VAT calculation on expense reports — an accountant approves or rejects each VAT reclaim before posting
• Automatic withholding tax calculation in expense reports
• AI-driven approvals — submitted reports are checked against natural-language expense policies, giving approvers extra context; in this first release the controls apply at the level of a single expense line
• Better duplicate prevention — the agent warns about potential duplicates in the current report or among already-posted expenses, catching the receipt that was reimbursed last month
• More countries and languages for the Expense Agent

What Nobody Tells You

A few honest patterns:

1. The per diem setup is the real work, not the agent. Locations, rates, meal reductions, and partial-day rules are a configuration project. Rely on defaults and your per diem numbers will be wrong — and wrong reimbursements erode employee trust fast.

2. Itemization discipline is cultural, not technical. “Itemization total must match the expense amount” is a good rule, but it only produces good G/L coding if someone maintains the subcategories and posting groups. Tools don’t fix sloppy coding; they surface it.

3. Expect to correct the agent early. In the first weeks, categorization and itemization will need a meaningful number of human corrections. Designate someone in finance to review agent-created expenses and tighten categories and rules where it keeps guessing wrong. Don’t assume it will learn on its own — improve the setup it works from.

4. Duplicate detection is the underrated feature. The expensive expense errors aren’t “wrong category” — they’re “paid twice.” V29’s duplicate check against posted expenses (in preview) is worth more than any amount of fancier receipt OCR.

5. Copilot credits are a variable cost. No per-seat fee is great, but agent processing isn’t free. Put a credit budget and a monthly check in place from day one.

Getting Started

The practical path on Business Central online:

1. Decide agent-first or manual-first — manual gets you structure without the AI prerequisites
2. Configure categories, subcategories, and posting groups (half a day with a standard chart of accounts)
3. Set up expense locations, per diem rules, and mileage rates — the real work; budget extra for each additional country
4. Write your Expense Management Rules (limits, receipt requirements, disallowed types) and, if you use the agent, natural-language Expense Policies
5. Configure approval workflows
6. If using the agent, set up the shared mailbox, roll out the web app (and the mobile app if you’re comfortable with a preview), and set up Copilot credits
7. Run one month in parallel with your old process before you switch it off

Checklist

• Decided agent-first or manual-first
• Expense categories mapped to posting groups
• Refundable defaults set on categories that include personal items
• Expense locations created for every destination you travel to
• Per diem daily rates entered per location, with effective dates
• Calculation method, partial-day rule, and meal reductions checked against your local tax rules
• Mileage rate and unit set (by vehicle type from V29)
• Expense Management Rules written: limits, receipt thresholds, disallowed types
• Approval workflow and approvers configured
• Licenses checked: who submits only via web/email, who needs Team Member, who posts
• Copilot credit budget and monthly review in place
• Owner named to review agent-created expenses for the first months

Expense Management is a Business Central online feature. If you’re on-premises or an older version, it’s part of the upgrade conversation.

Want help deciding whether the native module can replace your current expense tool, and setting it up properly? Book a free discovery call and we’ll map it against your actual expense volume and policies. For the broader release, start with What’s New in Business Central 2026 Release Wave 2. If you’re building your own AI integrations on BC data, see our Business Central MCP server guide.

Frequently asked questions

Does Business Central expense management cost extra?

The module itself has no separate fee. What you pay depends on how people use it: employees who only submit through the Expense Agent web app, email, or Microsoft Copilot chat need no Business Central license and consume Copilot credits instead; anyone working on expenses inside Business Central needs at least a Team Member license; posting and paying expense reports needs Essentials or Premium.

Do I need the Expense Agent to use expense management?

No. Without the agent, users create expense reports in Business Central and enter lines manually, and you still get itemization, participants, per diem, mileage, rule validation, approval workflows, and posting. What you lose is AI receipt scanning, automatic categorization, and standalone individual expenses outside a report.

How do employees submit receipts to the Expense Agent?

Four ways: the Expense Agent web app, the Expense Agent mobile app for iOS and Android (in prerelease preview, with camera scanning and offline queueing), forwarding receipts to a shared expense mailbox, or Microsoft Copilot chat and Teams. JPEG, PNG, and PDF receipts are supported.

How does per diem calculation work in Business Central?

You create expense locations, set a daily rate per location in Expense Management Rules, and pick a calculation method on the Expense Agent Setup page: Full Calendar Day, 24-hour Rolling Period, or Overnight Stay. Partial days use a flat percentage or eligible hours, and breakfast, lunch, and dinner reductions are deducted as a percentage of the full daily rate.

How does mileage reimbursement work?

You set a standard mileage rate and a default unit (km or miles). Users enter start and end points and the distance, or pick a route on the map in the Expense Agent app, and tick round trip if needed. The amount is calculated automatically. From V29 (in public preview), rates can vary by effective date range and vehicle type.

How does the Expense Agent enforce company policy?

Expense Management Rules are checked in real time as expenses are created and again at submission. Soft warnings let the employee continue with a justification; hard blocks, such as a missing required receipt or a disallowed category, stop submission. V29 adds AI-driven approvals, in public preview: submitted reports are checked against your natural-language expense policies, and the results are shown to submitters and approvers.

Will the native module replace Concur, Expensify, or Pleo?

For most mid-market Business Central customers, yes: it removes the tool fee, the integration, and most month-end reconciliation because expenses post straight to the G/L. Mature standalone tools still go deeper on corporate card feeds and travel booking. If those are central to your process, keep the standalone tool for now.

What’s new for expenses in Business Central V29?

V29 (2026 release wave 2, generally available since October 2026) adds, all in public preview: mileage rates by date range and vehicle type, VAT calculation on expense reports, automatic withholding tax on expense reports, AI-driven approvals against natural-language policies, better duplicate prevention that also checks already-posted expenses, more countries and languages, and travel requests for pre-approving trips with multiple travelers, managed inside Business Central.

Vanguard 360 Solutions is a Microsoft Dynamics 365 Business Central partner and LS Retail Gold Partner based in Romania, serving clients across Europe, the UK, UAE, and Saudi Arabia. Our work includes LS Central across 120+ stores in Romania, Pharmacy for LS Central across 100+ pharmacies in Norway, and the architecture for a 700-store retailer in 13 countries.