Expense Management Guide. Scroll Down to Start

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1 Expense Management Guide Scroll Down to Start

2 03 Introduction to Employee Expense Management Employee Expense Management Solutions Reimbursement Petty Cash Corporate Credit Cards Business Expense Prepaid Cards Hybrid Card Solutions Employee Expense Management Tactics Cash-Based Systems Card-Based Systems How to Craft an Expense Report Template Report SM 16 How to Enforce Expense Management Policy

3 Introduction to Employee Expense Management All businesses, no matter what industry or size, have one thing in common the need for an Employee Expense Management Solution (EEM). Your EEM Solution is how your employees receive funds to make purchases on behalf of the company. Whether the system is cash-based or card-based, any employee expected to make a purchase to complete a job, go on business trips, or who may need funds in case of an emergency, should have access to the appropriate resources. There are several types of EEM Solutions that work for a variety of industries and business sizes. Which system your business implements will depend upon your available resources, and the system s ease of implementation within your company. SM 3

4 Employee Expense Management Solutions Solutions: Reimbursement Petty Cash While Employee Expense Management Solutions are necessary for all business models, each type of solution carries its own benefits and risks. Corporate Credit Cards Business Expense Prepaid Cards Hybrid Card Solutions SM Not all EEM solutions are one-size-fits-all, so it s essential to consider which system satisfies your company s unique needs and which will reduce the hassle and risk inherent in all financial transactions. 4

5 Reimbursement Reimbursement EEM solutions rely on up front use of employee funds to make business purchases. Pros: Frees up liquid capital for the business Allows employees to make purchases on the fly No credit risk to the company Easy to vet fraudulent expenses Allows employees to pay for unexpected expenses Employees can accumulate reward points for business expenses Employees who are out on business, whether making a delivery or traveling across the country, will purchase items needed for the job with their own debit or credit cards. These purchases are then refunded at a later date by the employer s finance department. This EEM solution is practical for small businesses and when small purchases are made. Although it s inconvenient to the employee, it allows finance departments to reliably process reimbursement receipts. Although this is time consuming, reimbursement solutions return accurate transactions and reports. Reimbursement solutions are also among the least risky EEM solutions for a business, as all funds and reimbursements are vetted by your financial department. Cons: Control on unauthorized (not necessarily fraudulent ) purchases comes after the transaction occurs Requires employees to spend their own money Employees may not have access to enough credit to make purchases Employees who carry balances on their personal credit cards pay finance charges on company expenses Multiple levels of approval can cause delays in reimbursement to employees Potential for reimbursement issues resulting from lost receipts Not a scalable solution for large businesses 5

6 Petty Cash Petty Cash EEM solutions function by providing funds for expenses in cash form. Pros: Simple process for small businesses with few expenses/employees Does not burden staff with fronting funds for expenses No credit risk Petty cash funds are budgeted and then distributed to employees No interest charges or bank fees based on projected expenses for each job, event, or trip. The employee is responsible for handling the cash, making purchases, and keeping receipts. After a job is completed, the receipts and change are given back to the finance department, which ensures the purchases were legitimate and the correct change was returned. While petty cash makes sense for some small businesses, this EEM solution is plagued with many security risks, and depends heavily upon employees to keep receipts. Fraudulent spending and the loss of receipts or change make accurate reporting difficult. In addition, distributed funds should always be higher than projected expenses, to ensure the employee has what they need. This results in less liquid capital for other business purposes. Cons: Creates opportunities for overspending and theft Difficult to manage, especially for remote employees Errors in accounting are common Causes delays and inefficiencies if employee does not have funds on hand Not feasible or secure for large purchases, such as employee travel 6

7 Corporate Credit Cards Corporate Credit Card EEM solutions require the business to establish a line of credit with a credit card company, the amount of which will depend on the company s revenue and credit history. Pros: Can improve your company s credit rating if used responsibly Easier to track expenses through bank account Enables a business to spend more than liquid capital would allow The company may receive credit card rewards Company credit cards are distributed for employee use, usually with lower set spending limits to deter large fraudulent charges. The company is then responsible for paying off the balance at the end of each month. This solution carries large risks associated with your company s credit, as the company is ultimately responsible for all employee charges. In addition, there are fees associated with overspending and making late payments, making it a potentially expensive solution. The risk for fraud is present as well. Employees may make illegitimate charges, or may have their cards stolen and charged. Cons: High interest rates for when carrying balances from month-to-month High fees for late payment or over limit spending Opportunities for employee misuse of card Reduces overall credit available Credit line may not be high enough for all business spending Receipts still needed for expense reporting, a cumbersome manual process 7

8 Business Expense Prepaid Card Business Expense Prepaid Card EEM solutions utilize a prepaid card system for employees to make charges on the company s behalf. Typically, a company will distribute individual cards, or department cards, funded with different amounts, depending on Pros: Fast, flexible funding Simplify expense reporting by syncing with accounting software Allow control over spending in specific merchant categories (ie: yes for gas, no for restaurants) Control occurs before transactions take place, not after Allow daily spending limits No credit risk or potential extra fees need and expected spend. Employees make necessary purchases and keep their receipts, which are then tallied and measured against expected spend. Cons: For many companies, a business expense prepaid card solution provides more control than other EEM options. That s because employee expenses are restricted to the amount of money that the company has placed on the card as opposed to less specific credit or spending limits. In addition, spending may be tracked through proprietary software, meaning that the hassle of receipt collection and reconciliation is easier. May be unnecessary for businesses with few employees Not required for businesses with a very low volume of easily traceable expenses Capital must be on hand to fund employee cards 8

9 Hybrid Card Solutions Hybrid solutions enable companies to provide corporate credit cards to senior management employees while using business expense prepaid cards for other employees that may need to spend on behalf of the company. This solution allows companies who have already invested in corporate credit cards to diversify and take their first step toward transitioning into a more efficient business expense prepaid card solution. Pros: Reduces risk of employee misuse, as only select senior employees are provided credit cards Increases efficiency of expense management and reporting for the vast majority of staff Provides the stated advantages of corporate credit cards and business expense prepaid cards Cons: Potential for fees and interest charges still existing on credit cards in use Provides the other stated disadvantages of corporate credit cards and business expense prepaid cards Scroll Down to View EEM Tactics 9

10 Employee Expense Management Tactics Once you choose an expense management solution, how do you go about implementing it, and more importantly, how do you enforce it? Ensuring all of your employees, including management, follow the guidelines of your new Expense Management Solution is essential for its success. See our tactic guidelines below. SM Scroll Down to View Our EEM Solutions 10

11 Cash-Based Systems While businesses can certainly get by utilizing a petty cash or reimbursement system, these solutions put undue pressure on employees to manage a part of your company s expense management system. If you have chosen to implement one of these systems into your business, you should first answer important questions like: 1 What happens if an employee does not return correct change? 3 What if an employee s funds are stolen from them? 2 What happens if an employee loses a receipt? 4 Who is responsible for any missing funds? Understanding the level of financial responsibilities placed on employees while utilizing these EEM solutions is imperative for successfully running a responsible and fair petty cash or reimbursement system. Where employees responsibilities end and management s begins should be clearly stated in a document and distributed to all who have access to the system. To ensure that your cash-based system runs smoothly, there should be documented procedures toward the distribution and collection of cash, and the reimbursement of employees as necessary. As long as everyone understands the rules and processes and follows them, your EEM solution will run smoothly. 11

12 Card-Based Systems All card-based employee expense management solutions reduce the responsibility of the individual employee, as funds can be managed and tracked more accurately than a cash-based system. Still, especially with a corporate credit card solution, guidelines should be put into place to instruct employees on proper use, as the company is ultimately responsible for paying off balances. If your company has chosen a card-based system as their EEM solution, you should be able to answer the following questions: 1 Who controls the cards, and where are they stored? 3 Who is responsible for approving the distribution of cards and funds? 2 How often will the balances and transactions be checked? 4 How can employees acquire additional funds if the funds on their card are insufficient? Whether your funds are distributed through a debit card solution, or tallied and double-checked through a corporate credit card solution, you should have processes in place to deal with the dissemination of funds and to ensure spend does not surpass limits. Implementing an EEM solution doesn t end with giving employees their cards. Resources have to be dedicated to ensuring the system is running smoothly, and both company and employee needs are met. 12

13 How to Craft an Expense Report For most employee expense management systems, expense reporting is the necessary final step in recording your transactions. Your expense report should take into account the industry your business falls under, and the necessary information required to accurately record all transactions to be in compliance with governmental standards for record keeping. SM Scroll Down to View More 13

14 Generally, your expense report should catalogue the following information: Name of Employee Name of Supervisor Phone Number of Supervisor Distributing Department Date of Expense Type of Expense Description of Expense Employee and Supervisor s Signature Type of Distribution Amount of Expense Take a look at the following example expense report to learn how to effectively report organization expenses. Then go to for your own printable version. Continue Reading 14

15 Although most card-based EEM solutions follow this same process for expense reporting, some business expense prepaid cards offer reporting features that drastically reduce reporting time by eliminating many of these steps. There are several automated expense reporting solutions available in the market, which significantly reduce the amount of employee and management review time associated with managing employee expenses. Although many will work with expenses on any cards, others are specific to a card brand. Most charge fees so they often work better for mid-size or larger companies rather than small businesses. Scroll Down to View How to Enforce EM Policy 15

16 How to Enforce Expense Management Policy As stated before, the enforcement of Expense Management policy is essential for the function of the EEM solution. If your company is able to answer the previous questions in your chosen solution s section, you re one step closer to more accurately tracking and managing employee expenses. Enforcing EEM policy begins with management and moves down to individual employees. Policies and rules should be decided by your finance department, approved by upper management, and distributed to all employees who will have access to funds. Strict adherence to these processes is essential to accurate reporting and minimization of risk. SM Continue Reading 16

17 In most cases, there are 7 steps for requesting, distributing, and reporting employee expenses. 1 The employee submits a request for funds. 5 The employee uses the distributed funds to pay for the business expense. 2 The request is approved by a supervisor, and sent to the finance department. 6 Depending on the system used, either the employee, supervisor, or finance department fills out and submits an expense report. 3 The financial department receives the request and approves it. 7 The finance department approves the expense report and processes it. a. If a reimbursement EEM solution is used, the employee is 4 Funds are distributed via cash or card. a. If a card-based solution has been implemented, the finance then refunded for purchases. department pre-approves and directly pays for the expense, or the employee is given the corporate credit or debit card. Your company s expense management process should be streamlined for the efficient distribution of company funds, and flexible enough to allow immediate distribution in the case of an emergency expense. 17

18 PEX is Here to Help PEX Card, a prepaid business expense solution, takes the hassle out of enforcing expense management policy. When PEX Visa Prepaid Cards are issued to employees, they may spend funds only at pre-selected merchant categories (like gas stations), while declining payments in other categories (like restaurants). In addition, each card may be assigned its own spending rules, giving business owners specific control over each employee s ability to PEX Card allows employers to: Add and remove funds on the fly Track expenses in real time on desktop or mobile Avoid interest charges and overdraft fees Export transactions to accounting software for faster reporting Suspend and reactivate card use temporarily Place daily maximums on spending The PEX Visa Prepaid Card is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. The Bancorp Bank; Member FDIC. To learn more about how PEX can save your business time and money with a better expense management solution, get your PEX Fact Sheet now. GET FACT SHEET 18