What’s in your wallet (to cover expenses)? – Part I
When running a business, one of the things you definitely need to deal with is expenses of all types: travel expenses, equipment expenses, facility expenses, subscription and association fees, payroll expenses, and much more! A couple of expenses are predictable and handled directly by Accounting such as facility and payroll expense. Perhaps even subscription and association membership fees are handled directly by Accounting since it’s a corporate expense to benefit all employees and the corporate standing within the marketplace. So taking those out of the equation, how do you handle and track travel expenses and those pesky ad-hoc costs such as equipment rentals/replacements, conference registrations, printing and reproduction for customer deliverables, and a million other little things that can add up.
What it comes down to is 2 distinct requirement sets for expense tracking
1) Accounting tracking costs to the company for payment by bill type
2) Employees tracking reimbursement by type of payment used
Today we’ll focus on the common requirement handled in companies which is Accounting tracking costs to the company for payment by bill type. How much of your employee expenses are handled as vendor bills? As a small business owner, my team pays for almost all items upfront and they get reimbursed as receipts are submitted. Some employees may struggle with the Prepay/Reimburse policy which is where corporate cards come in handy. I’ve seen two approaches to corporate cards:
1) The employee is solely responsible for the payment of the corporate card bill which means timely submission of receipts to Accounting to get reimbursed in order to handle the bill each month. Any personal charges are taken care of by the employee and not seen by corporate.
- The pros of this approach is the employee fiscal responsibility for the corporate card while the corporation gains advantages through the corporate card program (and who knows what credit card companies are doing today to entice business owners to use their cards!! I know I get a minimum of 1 to 2 credit card advertisement/applications for TOP Step each day and we’re a small company! )
- The cons of this approach is still re/quiring employee to manage the fiscal responsibility of a credit card that impacts their personal credit record and may have an impact on the business should a person default on payment. Personal charges are a ‘grey line’ which I’ve had companies state is a strict no-no and others that don’t mind as long as you can pay the bill. The other corporate centered con is the dependency on employees to submit expenses for reimbursement in a timely manner which may be rebilled to clients. If an employee handles their bills over 3 months then does a catch-up expense report, it is very difficult to rebill client expenses that are over 3 months old at that point.
2) The company pays for the credit card purchases made by the employee. This complicates any personal charges, made on purposes or accidentally, as now the employee must reimburse the company.
- The pros of this approach is that the company sees all purchases and will be able to enforce strict usage of business expenses only (to some extent).
- The cons is that expenses are usually reviewed after the fact so anything not acceptable now becomes an employee/company conversation about payment responsibilities, policy enforcement, and potentially the removal of the corporate card from the employee altogether.
Between the two approaches, self responsibility of a corporate card seems to work better for both the company and the employee.
Some companies prefer more control such as having a travel agency which handles the payment of all travel expenses such as airfare, train tickets, etc. I find this approach driven by items such as agreements with the agency to find the lowest prices for travel or corporate rates, removing the dependency on employees to submit expense for cash flow tracking and client billing, and so forth. The difficulty I personally have with this approach is that many companies going this direction still require employees to complete expense reports for the corporate paid travel even though they may never see a receipt or gain any benefit from submitting the non-reimbursable expense. This forces the Accounting department to track down which expenses belong to which project and user – a service which may be offered by travel agency companies (for an additional fee) but still requires internal processing efforts of your Accounting team. And you always hear about those ‘deals’ the travel agency finds that don’t appear to be deals at all.
All in all, tracking corporate cards and corporate travel agencies provide a way to record and reconcile expenses using a bill statement approach vs. ad-hoc expenses entered directly into the General Ledger. Which one is right for you? Well, you probably have a few envelopes in your mailbox even today that will explain the benefits and advantages of using a new corporate card or going with a travel agency so read carefully and take a look at ‘What should be in your wallet!’….I’m just sayin.
