Taming Corporate Expenses
A best practice guide to managing corporate expenses
Getting to grips with managing expenses is a tough balancing act. The risk of rogue spending necessitates putting controls in place. But while strong centralised expense management can help to rein in expenses; it can be time-consuming and expensive to administer and often limits the ability for employees to do their jobs efficiently.
Keeping a close handle on expenses and being able to forecast them accurately, is critical for cash flow management. Likewise, the time involved in expense management, which is often unaccounted for, adds significantly to organisational overheads. Simplifying the expense management process can result in substantial savings - often in excess of 10% - for the organisation.
This article looks at why companies are increasingly turning to corporate credit-cards and expense management tools to simplify expense management and shave precious dollars off the bottom line.
The pain of managing expenses and cash flow
It's not surprising many organisations struggle to get a good handle on their expenses given the myriad sources of expense transactions, from credit-cards to employee expense claims, per diems and cash advances, charge accounts, fuel cards... the list goes on.
Because of the time required to gather transactional information, review and process transactions and report on them, overworked account teams struggle to turn around claims quickly enough to provide timely reporting. As a result, any picture of expense liability is typically out- dated by the time it reaches the CFO, which is a financial risk that no organisation wants to run.
The cost of managing expenses can also be significant - particularly when you factor in time spent by senior managers reconciling expense claims and reports, for themselves and their departments, which is typically a hidden cost.
According to research from the Aberdeen Group, the three biggest concerns CFOs have in managing their corporate expenses are:
Increasing visibility into spending behaviour
The need to increase compliance with expense policies
The need to reduce the time and cost of processing expense transactions
Increasingly, high performing organisations are looking to credit-cards and expense management tools to help them with these three issues.
The case for more widespread distribution of corporate credit-cards
Because of their ubiquity, credit cards can typically replace a wide variety of expense types - from cash-advances, to fuel cards and more. This lets organisations reduce the number of expense types they process and simplifies processing. But by far the most important benefit of using credit-cards is access to real time transaction information- which allows both a real time view of expenses, and more efficient 'paperless' expense processing.
However, there's a problem; many employees are simply not issued with corporate credit cards. Traditionally, organisations limit corporate credit cards to senior executives to reduce the risk of rogue spending. They reason senior execs have sufficient maturity and skin-in- the-game to spend responsibly and not wantonly.
This has a number of undesirable effects:
Executives with credit cards often wind up being the single purchaser for their entire department. As a result expense reconciliation becomes a time- consuming chore for those senior executives (and therefore expensive to the organisation) due to the sheer volume of transactions on their statements.
Limiting purchasing power to senior executives makes them a bottleneck. Employees are forced to wait to make purchases until the boss is on hand to enter card details. As a result, managers often give their credit-card details to subordinates to make necessary purchases when the boss is absent - thereby introducing the very risk of rogue purchasing that limiting card access was designed to prevent in the first place.
Ad hoc purchasing options for staff members without corporate credit cards are limited to seeking cash- advances or paying for purchases personally and claiming back the expense. There are major problems with both these approaches. For a start, with many purchase types such as event bookings, online purchases and subscriptions - cash is simply not an option. Relying on employees to make personal purchases and recover the money later through expense claims is not a popular option with employees. Understandably, employees don't wish to carry the liability for corporate purchases and they put pressure on accounts teams to settle expense claims quickly. Critically, the organisation also has zero visibility of these expenses until the employee lodges their claim
Making corporate credit cards more widely available within an organisation can help to overcome these issues. But this requires a conscious change in an organisation's approach to expense management; from a strict, centralised, top-down view to a more distributed view, where individuals have direct responsibility for their specific spending.
Organisations are rightly concerned, that this doesn't result in unnecessary increases in expenditure and are anxious to protect against rogue spending. The good news is the benefits of moving more transactions to credit cards often significantly outweigh the risks and can actually help curb rising expenses and ensure policy compliance.
The benefits of corporate credit cards
Corporate cards commonly offer a range of features that help organisations maintain control as well as providing additional benefits such as travel insurance and bonus schemes. The following are some of the benefits of corporate credit card programmes:
1. Access to real-time reporting
The most critical feature credit-card providers offer is real-time access to spending information. This is commonly available online, and can be integrated with Expense Management Systems to deliver a real-time view of expenses as they're incurred. Real-time reporting allows organisations to get insight into liabilities as they are incurred, so that they can take steps to manage spending before it becomes a problem.
Contrast this with traditional expense reporting where expenses may not be visible until days, or even weeks after they have been incurred - when employees finally get around to submitting expense claims and reconciling statements.
Many card providers offer customisable reporting for accounts teams, and Expense Management Systems use credit-card spend data to deliver customisable spend reporting, enforce policy compliance, manage expense authorisation workflows and forecast future OPEX spend.
2. Individualised spending control, centralised account management, pre-paid and debit cards
One size doesn't fit all. Card providers recognise this and allow organisations to set individual credit limits to suit their requirements.
Some go even further, allowing individual cardholder policies to be defined which control where, when and for what that cardholder can use their card - with 'out-of-policy' transactions declined and/or reported back to the accounts team.
Most providers also offer online administration tools to make it easier for account teams to issue or cancel employee cards and provide detailed reporting across the account.
In many countries, pre-paid corporate credit-cards or debit cards are becoming increasingly popular because they offer a way to limit exposure to rogue spending for less trusted employees. They're a safer alternative to cash, and offer all the same benefits in terms of access to spend data as traditional credit-cards.
3) Travel Insurance and Bonus Schemes
Most card providers offer a range of additional benefits such as 'cash-back' rewards, air-points rewards, free travel insurance and extended warranties on purchases.
Depending on the tax laws in your jurisdiction, some of these bonuses may be gifted to employees as additional employee benefits (e.g. Air New Zealand Airpoints), or aggregated for use by the organisation. Be careful to understand the implications of fringe- benefits tax in your jurisdiction however, as this may have tax implications for both your organisation and your employees.
Additional benefits such as free travel insurance may enable you to further reduce expenses by replacing alternative travel insurance policies. It's important
to first look carefully at the policies on offer from credit card providers, to understand your reporting obligations and the levels of cover and ensure they are a satisfactory replacement for any existing policies.
4) Access to interest-free credit
Used carefully, and provided card balances are paid in full before the end of each period, credit cards provide ready access to a potentially large pool of interest-free credit, enabling organisations to gain the benefit of those funds in the interim. Interest free periods vary, but can be up to sixty days.
Doubling down on benefits - introducing Expense Management Systems
The benefits of moving more expense transactions to credit cards can be dramatically increased when coupled with an Expense Management System (EMS). An EMS typically integrates with credit-card providers to access transaction data in real time, and offers a range of features including:
The ability to manage a wide range of expense types from credit-cards to travel allowances, per-diem payments, mileage, cash-advances and more
Robust expense policy management, and out-of-policy spend alerting
Fast, efficient pre-approval workflow to ensure policies are complied with before expenses are incurred
Easy online expense report reconciliation, including mobile applications that allow employees to take a photo of receipts and match the electronic receipt against the relevant expense transaction for a 'paperless' process
Comprehensive spend reporting and forecasting
Tightly coupling an increased use of corporate credit-cards with the addition of a well-featured Expense Management System allows organisations to:
Access real-time spend data so they can see an accurate cash flow position in real-time
Simplify and automate expense transaction processing - reducing costs and speeding up expense management
Identify and deal with rogue or out-of-policy spending quickly, and potentially prevent non-compliant transactions altogether through more efficient policy management and pre-authorisation of expenditure
Analyse spending accurately to determine areas for improvement and savings - such as negotiating improved 'preferred' supplier agreements and leveraging scale
Reduce the overhead on staff of reconciling and submitting expense reports and claims and on the accounts team of processing expense transactions
Encourage frequent 'anytime' expense claim submission rather than monthly 'batched' claims.
Where to from here?
In understanding the cost savings and business efficiencies that can be gained by changing the way you approach expense management, it's important to first understand the real impact that the status quo is having on your business:
How accurate is your view of the organisation's current cash position? How out of date is it?
What are the true current costs of processing expenses - including the often hidden staff costs?
What expenditure policies do you have in place currently, and can/do you adequately enforce these?
Are your current expense management processes efficient, or are there bottlenecks? How quickly are expenses processed? What is the processing overhead costing?
How easy is it to ensure that employees follow the
right procedures and processes when making expense purchases? And is it a never-ending chore to ensure that they complete expense claims in a timely manner?
Armed with answers to these questions, you can start to look at the various credit-card providers and see what they offer. Shop around rather than just defaulting to your existing banking partner as functionality, interest rates, bonuses and fees vary widely between providers.
And with a card-provider identified, look at the advantages that can be gained by introducing an Expense Management Solution at the same time. It's critical that whatever solution you choose, not only delivers what your finance team needs, but also makes it easy for employees to manage their expenses with the minimum of time- and-effort. If you get this right, they'll adopt the system enthusiastically because it makes their job easier - and removes the monthly manual drudgery of completing expense reports.