Every month a bound volume of credit-card bills lands with a thud on Dan Marchetti’s desk. “I look at every one of them,” says the CFO of Urschel Laboratories, a 100-year-old family business that dominates the industrial food-cutting business.
However, because Marchetti trusts the managers who sign off on the expenses his people incur, and his employees not to take advantage of the corporate credit cards (and because they know about the bound volume on his desk), his review, he admits, is somewhat cursory. Even so, “It may not be the best use of my time,” he says.
To be sure, Urschel’s travel and entertainment spending is just a little less than 10% of its total annual operating expenses. That’s in line with a 2012 Aberdeen Group study that found “expenses related to Travel and Entertainment (T&E) encompasses 8% to 12% of the average organization’s total budget.”
For that reason, says Aberdeen senior research analyst Christopher Dwyer, “anything that smaller businesses can do to get their arms around T&E is huge. Organizations are seeing dollars going out the door and asking if they can drive down costs. They’re asking how much it costs to process a single expense form [Marchetti estimates that, adding interest and fees, it’s about $15 for Urschel], and they’re asking what value they’re getting.”
Best-in-class companies, says Dwyer, lower their expense-processing costs. They manage their business travel spending, and their workers comply with corporate expense policies. Effectively managing your T&E spending “means that it’s accounted for in the budget so you’re able to forecast spending that includes T&E,” he explains. “Most companies can’t do that.”
In other words, most companies cannot accurately forecast 8% to 12% of their total annual spending. And as the economy improves, and more organizations put more money into travel, that means their budgets will grow seriously out of whack.
When you think about it that way, T&E seems less a back-office nuisance than a strategic area finance really should get its arms around.
Taking T&E Seriously
Certify, a T&E expense-management software company, recently posted a humorous but purportedly real list of some of the things employees tried to expense in 2012, including deer urine (to lure deer during a hunting trip with a client), a baby giraffe (brought to an office party), laser tattoo removal (the employee didn’t think the tats conveyed a professional image), and a $1,300 after-dinner snifter of Henry IV cognac (perhaps to celebrate a $1,200 sale).
Pretty funny, yes?
Pretty funny, no, if any one of those expenses landed on your desk, especially if you weren’t expecting it and it had already been approved and paid.
T&E management is generally viewed as a hassle, both for employees collecting receipts, filling out expense forms, and trying to get reimbursed, and for accounting departments attempting to gain visibility into how much is being spent each month so it can close the business’s books.
“Tracking receipts is not the average salesperson’s thing,” says Marchetti. Her or his expense receipts can sit in desk drawers until the third Monday of the following month in which the expense was incurred. After that, he says, “they don’t get reimbursed.”
Marchetti wants to implement a system that will get those receipts out of his salespeople’s drawers, off his desk, and move them to the Internet, where they can be integrated with Urschel’s general ledger, thereby allowing reporting to be automated.
He is looking into Concur, which provides a web-based interface for T&E management. But there are dozens of other T&E software providers — Abukai, Coupa, Cybershift, Expenditure, Expensify, ExpensAble, ExpenseWatch, and ProOnGo, to name just a few — that can be used to manage corporate credit cards and impose credit limits and spending policies.
Most are focused on small business, many are cloud-based, and some provide mobile functionality. All may reduce the processing costs associated with expense reports, and free employees from paper expense forms and finance departments from receipts and spreadsheets. They all can allow organizations to gain greater visibility into their T&E spending.
But corporate credit-card programs are funded either by the company or the employees. In the former case, the company assumes the credit risk, guaranteeing that the bank issuing the card will be paid; in the latter case, it’s the employees. But for some smaller companies, especially those employing hourly-wage workers, the employer’s risk is high and its resources aren’t. And for employees without great cash flow, paying for their credit cards simply may not be possible.
Debit Cards for T&E
Transmarine Propulsion Systems, a private company currently carrying just under 30 full-time employees (with 2 in finance), has between $1 million and $10 million in annual revenue. It sends crews all over the world to analyze, fix, and maintain diesel engines on large, ocean-going cruisers, and can scale to 100 employees.
Two years ago, T&E became an issue when employees began using their Transmarine-issued corporate credit cards for personal purposes, sometimes even as loans, and then couldn’t cover the charges. “It was a drain on finance,” says Transmarine president Shane Roeser. “We had to pay the credit-card company and couldn’t always get money from the employee. It was our responsibility. We had to chase after the money.”
Transmarine tried cutting checks for anticipated employee expenses, “but then the guys would run out of money and there’d be no way to get money to them easily,” recalls Transmarine controller Angela Bauer.
The issue of getting money to people easily is what inspired PEX Card chief executive officer and founder Toffer Grant to develop its prepaid expense card as a T&E tool, and the one Transmarine chose. The PEX Card, says Grant, “offers a hybrid of a cash-advance system that’s card-based. The card piece helps track money that leaves the company [thereby facilitating more accurate budgeting, planning, and reporting], while the prepaid piece helps eliminate the risk of issuing a credit card with high spend availability [limiting the employer’s risk].
“Companies with fleets, or people on the road,” Grant continues, “can allocate all their purchases on an ad hoc basis. The business owner can limit the card to gas only, blocking any other purchase. The owner can issue the card without his personal credit being affected, or having to pay late fees.”
“We have a master account,” Bauer explains. “We wire money to the account, go to the [online] platform, log in, and we can see each employee’s card. We can add money to the card or remove it. We can determine later if Transmarine is paying for it or do it as a payroll deduction.” Of course, the employee cannot spend more than what Bauer loads on to the card. “It definitely gives us better budgeting capability,” Bauer says. “It simplified our expense-management process quite drastically and gives instant visibility into our spend.”
Bauer recalls an employee who bought a $400 camera with his card. But since the PEX Card had a limit, that employee suddenly had a card that was empty. “They have to choose between making a personal purchase or eating,” she says bluntly.
Last week PEX Card released a new mobile application (PEX Mobile) that will run on both Apple’s iOS and Google’s Android systems, allowing workers to manage their cards with their phones, joining the increasing number of expense-management tools that have gone mobile.
The traditional corporate credit card integrates more easily with enterprise financial systems. But any managed system, whether prepaid or employer or employee funded credit card, needs to be aggressively managed. “A finance executive can tap into the system and say, ‘Oh, no, it’s August 1 and we’ve already spent our whole travel budget!’” says Dwyer. “Then the executive has the ability to say, ‘Maybe we don’t need to go to that conference.’
“Visibility in T&E,” Dwyer concludes, “allows finance to control the future.”