Expense
Management
Guide
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
How to Enforce Expense Management Policy
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SMSM
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.
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SMEmployee Expense
Management Solutions
While Employee Expense Management
Solutions are necessary for all business
models, each type of solution carries its
own benefits and risks.
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.
Reimbursement Petty Cash
Corporate Credit Cards
Business Expense Prepaid Cards Hybrid Card Solutions
Reimbursement
Reimbursement EEM solutions rely on up
front use of employee funds to make business
purchases.
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.
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
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
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Petty Cash
Petty Cash EEM solutions function by providing
funds for expenses in cash form.
Petty cash funds are budgeted and then distributed to employees 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.
Pros:
Simple process for small businesses with few expenses/employees
Does not burden staff with fronting funds for expenses
No credit risk
No interest charges or bank fees
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
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.
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.
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
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
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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 need and expected spend. Employees make necessary purchases and keep their receipts, which are then tallied and measured against expected spend.
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.
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
Cons:
May be unnecessary for businesses with few employees
Not required for businesses with a very low volume of easily traceable expenses
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
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SMEmployee 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.
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.
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.
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What happens if an employee does not return correct change?
What happens if an employee loses a receipt?
What if an employee’s funds are stolen from them?
Who is responsible for any missing funds?
If you have chosen to implement one of these systems into your business, you should first answer important questions like:
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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.
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Who controls the cards, and where are they stored?
How often will the balances and transactions be checked?
Who is responsible for approving the distribution of cards and funds?
How can employees acquire additional funds if the funds on their card are insufficient?
If your company has chosen a card-based system as their EEM solution, you should be able to answer the following questions:
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.
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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.
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Generally, your expense report should catalogue the following information:
Continue Reading
Take a look at the following example expense report to
learn how to effectively report organization expenses.
Then go to
www.pexcard.com/expensereport
for your
own printable version.
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
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.
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SMHow 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.
In most cases, there are 7 steps for requesting, distributing, and reporting
employee expenses.
The employee submits a request for funds.
The request is approved by a supervisor, and sent to the finance department.
The financial department receives the request and approves it.
Funds are distributed via cash or card.
a. If a card-based solution has been implemented, the finance department pre-approves and directly pays for the expense, or the employee is given the corporate credit or debit card.
The employee uses the distributed funds to pay for the business expense.
Depending on the system used, either the employee, supervisor, or finance department fills out and submits an expense report.
The finance department approves the expense report and processes it.
a. If a reimbursement EEM solution is used, the employee is then refunded for purchases.
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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.
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
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.
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
GET FACT SHEET
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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.
