Finding The Right Expense Management Solution For Your Company

In recent times, initiatives such as the Sarbannes Oxley Act in the US have dramatically raised the profile of compliance within the corporate world. As a key element of any corporate compliance policy, expense management has shared some of the limelight. As a result, an Expense Management Solution (EMS) is now critical to any business concerned with corporate compliance. But what is an Expense Management Solution (EMS)? Does your company need one? And where do you find a good one? Just as importantly, how do you successfully implement and integrate an Expense Management Solution (EMS) into your corporate environment. This article sheds some light on these issues.

What is an Expense Management Solution (EMS)?

The term 揺xpense management solution?has been used to describe quite different commercial products and services. In the context of this article, an expense management solution is defined as a technology based system that processes:

(i) transaction records received from a credit card issuer (detailing employee use of corporate credit cards0; and

(ii) cash reimbursement claims originated by an employee.

In practice the target application is Travel and Entertainment expenditure. A robust Expense Management Solution (EMS) will also support procurement (pCard) activities as part of a broader strategy of effectively managing lower value, high volume business-to-business transactions.

The three core steps of any expense management process are:

1. the acceptance/input of validated source data;
2. the application of predetermined rules of handling expense records; and
3. the posting of transactions to a corporate repository such as an ERP system.

What is the purpose of an Expense Management Solution (EMS)?

The objectives of an expense management solution implementation should include the following:

1. to automate the preparation, submission, approval, and auditing of travel & entertainment claims, thus improving the productivity of account holders and reducing the time and cost of accounts staff;

2. to support the implementation of a standardized best practice method of managing high volume expenses through the use of corporate credit cards; and

3. to increase the transparency and enhance the governance of financial transactions conducted on behalf of the enterprise.

Sources of Expense Management Solutions

Australian and international organizations now have access to a range of quality expense management solutions which are well suited to driving down administration cost whilst meeting corporate compliance requirements. There are essentially three sources of 揺xpense management solutions?

1. ERP systems;
2. systems offered by card issuers; and
3. best-of-breed solutions.

Each will have their own merits and will suit organizations in different circumstances.

Enterprise Resource Planning (ERP) Systems

ERP sourced expense management has the attraction of being fully integrated within the financial suite of software, therefore offering a standard look and feel to all users of the ERP. With ERP sourced expense management functionality, the ERP supplies the core software, and the enterprise needs to customize and configure the system to reflect its own structures and rules regarding the management of staff expenses. If you're considering the option of using their ERP for expense management, you need to be conscious of a number of factors, including:

?the actual functionality available within their specific installed ERP system;
?the backlog of work on the ERP system accumulated for the IT department; and
?the deployment time and the cost of the project (which will usually be substantial).
License costs can be an issue if an enterprise if your company has not paid a license fee that will cover all card account holders and cash claimants.

Card Issuer Systems

Some card issuers promote 揺xpense management?solutions which can range from a computer generated report through to an online system with some embedded workflow concepts. The attraction of card issuer expense management solutions is that they are offered as part of a card deal, sometimes (apparently) for free. If you're considering a card issuer expense management solution, you need to know:

?will you be 'locked in' to the card issuer?; and
?will you be able to configure the expense management solution to adequately reflect internal requirements?

Best-of-Breed Solutions

Best-of-breed expense management solutions from specialist providers can be relatively seamlessly interfaced to an organization's internal systems such as HR and ERP, but will not present a common look and feel to the ERP system. You would usually choose a best-of-breed expense management solution if you want:

1. your company to be independent of a particular card issuer;
2. to achieve a fast implementation; and/or
3. to configure the solution to its own unique rules and policies of expense administration.

Best-of-breed expense management solutions are typically deployed as either an ASP (Application Service Provider) or self hosted solution. Although exceptions are common, small to medium enterprises tend to appreciate the lower up-front cost of an ASP expense management solution, and larger enterprises are attracted to the control available through a self-hosted expense management solution. ASP expense management solutions are typically paid for on a per statement per month basis, and self-hosted expense management solutions have a range of options available from up-front license fees to monthly license rentals.

Overcoming the Cultural Resistance to Expense Management Solutions

Some Finance Directors still have an aversion to corporate credit cards. It's not uncommon to hear a finance director say 搃f I give everyone a card, they'll spend us broke!?

However, the benefits of an Expense Management Solution are apparent as soon as the Finance Director considers the difficulties of controlling the expenditure behavior of thousands of employees using a manual system of reimbursements which is largely based around a set of uncoordinated spreadsheets. Basic activities such as enforcing travel policies, calculating tax implications, reconciling, posting to a chart of accounts at a detailed level and auditing, are so difficult as to be more honored in the breach than the observance...

Viewed from a different perspective, a company with revenues of $700m $50m in EBITDA, and $20m in annual employee business expenses, can make a dramatic impact on its bottom line using an expense management solution without increasing revenue. If automation reduces these expenses by only five per cent in the first year, the savings alone have the same impact on the bottom line as $14m in new revenue. It isn抰 surprising that the return on investment of an expense management project is often achieved within its first 12 months of operation.

Expense Management Solutions also play a vital role in Fraud Control. 揊raud?in this context takes many guises, not all of which are the sort that land perpetrators in court. Information taken from our own customer experience and from publications of the USA Association of Certified Fraud Examiners identify the top four categories of fraud:

1. Mischaracterized expenses
2. Overstated (exaggerated) payments
3. Fictitious expenses
4. Multiple reimbursements

Research in the USA has pointed to as much as 1% of company revenues being lost to employee expense mismanagement. Expense Management Systems will not, in their own right, eliminate this but they are a vital tool in creating an environment that drives down the level of mismanagement.

Conclusion

Over the past 18 months, our company has observed a change in motivation for expense management projects. Whereas formerly expense management solutions were an exercise solely in the reduction of administration costs, now governance is equally a driver to implement technology based controls around high volume expenditure. The Sarbannes Oxley (SOX) act in the USA has captured the attention of any enterprise active in the USA. However, inside or outside the USA, the senior executives must warrant that their company has implemented adequate financial controls that prevent fraud and give a true and correct record of the enterprise抯 financial activities. As a result, the Corporate Travel Manager who pitches a proposal on expense management to the senior executive team currently finds a willing audience.

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Employee Retention: What Employee Turnover Really Costs Your Company

It抯 one of the largest costs in all different types of organizations, yet it抯 also one of the most unknown costs. It抯 employee turnover.

Companies routinely record and report costs such as wages and benefits, Workman抯 Compensation Insurance, utilities, materials, and space, yet most companies have no and report the cost of employee turnover. It can be much higher than you think.

How Much is it Costing You?

Several well-regarded studies have recently estimated the cost of losing an employee:

?SHRM, the Society for Human Resource Management, estimated that it costs $3,500.00 to replace one $8.00 per hour employee when all costs -- recruiting, interviewing, hiring, training, reduced productivity, et cetera, were considered. SHRM抯 estimate was the lowest of 17 nationally respected companies who calculate this cost!

?Other sources provide these estimates: It costs you 30-50% of the annual salary of entry-level employees, 150% of middle level employees, and up to 400% for specialized, high level employees!

?Do a quick calculation: Think of a job in your organization where there has been some turnover, perhaps supervisors. Estimate their annual average pay and the number of supervisors you lose annually. For example, if their average annual pay is $40,000, multiply this by .125% (or 125% of their annual pay, a reasonable cost estimate for supervisors). This means it costs $50,000 to replace just one supervisor. If this company loses ten supervisors a year, then 10 times $50,000 equals $500,000 in replacement costs for just supervisors. This is the bottom line cost. The top line cost? If the company抯 profit margin is 10%, then it costs $5,000,000 in revenues to replace these ten supervisors.

Do These Numbers Seem Unbelievable?

Here抯 an actual calculation from a well-regarded organization in my community. The HR Manager of this human services organization (housing for disabled persons, sheltered workshops, etc.), estimated that 30 entry level people leave his organization on average every quarter.

This averages out to ten people per month. Let抯 be extra conservative and shave SHRM抯 estimate (see above) down to $3,000.00 to replace each employee.

This amounts to $30,000 per month, or $1,000.00 in employee turnover costs every day of the month! Annually, this totals $360,000.00.

Actual turnover costs are usually much higher than we think they are -- until we estimate them.

You may be thinking, 揝ome employee turnover is unavoidable, even desirable.?You抮e right. Some turnover is necessary, to replace marginal or poor employees with more productive ones and to bring in people with new ideas and expertise. However, high turnover costs are both avoidable and unnecessary.

This is where companies need to focus their efforts. The goal is to retain valued performers while replacing poor ones.

Most companies group both types of performers together when looking at turnover. By doing so, they抮e missing the cost and significance of replacing the good performers.

Why Don抰 More Companies See This as a Costly Problem?

There are a variety of reasons this is not seen as a problem, all of which cost companies in expertise and dollars. How many of these occur in your organization?

1. No process is in place to tabulate costs. One survey found that only 44% of its respondents had a process in place to estimate turnover costs; 43% of companies relied on intuition, and 13% had no process at all. (1)

2. Costs are not reported to top management. It抯 a business axiom that one of the best ways to get top management抯 attention is to show them what something costs. However, most top management never gets to see turnover cost estimates because most companies don抰 measure them -- or if they do, they don抰 report them to top management.

3. It抯 an inescapable cost of doing business. Except, it抯 not! While some turnover is unavoidable and desirable, most turnover, especially among your better and top performers, is largely avoidable. Thinking that turnover is just a normal cost of doing business is the same quality of thinking which says that accidents are just an inescapable part of being in the construction business.

4. It抯 an HR problem. While HR needs to be a key partner in reducing turnover cost, this is a strategic issue requiring top management抯 attention and actions, in addition to HR抯 efforts, to resolve it.

5. Costs are underestimated, and so they register less concern. If costs are underestimated because the organization doesn抰 agree on or know what to measure, the statistics generated either register less concern than they should, or are disputed and held in disregard.

What Costs Need to be Fully Estimated?

A comprehensive program measures the following costs:

Exit costs
Recruiting
Interviewing
Hiring
Orientation
Training
Compensation & benefits while training
Lost productivity
Customer dissatisfaction
Reduced or lost business
Administrative costs
Lost expertise
Temporary workers

There needs to be advance agreement among Human Resources, Finance, and Operations as to which cost measures will be considered valid. Then, it has to be measured and reported.

6. Waiting until there抯 a crisis. I was amazed when the executive director of one organization told me she knew that one of her capable managers was unhappy, but decided it wasn抰 necessary to take action because she hadn抰 received a letter of resignation yet.

Prevention is what works best. Begin to measure your turnover costs and, very importantly, look at who is leaving so you抣l know if you抮e retaining your best people.

The time to do this is now. Waiting until there抯 a crisis to take action limits your options and success rate. It also often triggers the common response of offering more money to get someone to stay, instead of fixing the original problem.
Why Do So Many Retention Efforts Fail?

These are among the most common reasons company retention efforts fail, even when they抮e implemented by capable people.

1. No assessment, so ineffective solutions are chosen. In their hurry to correct a costly problem, companies often forgo conducting a relatively brief and cost-efficient assessment in order to correct the situation faster. However, implementing a solution without diagnosing who is leaving, and why they抮e leaving often results in solutions that are incapable of solving the root causes behind turnover.

Diagnosing the reasons behind turnover always pays for itself. Don抰 start without an assessment.

2. Implementing too many solutions instead of the most effective solutions. Managers often brainstorm a number of plausible solutions, then implement many of them -- especially those favored by top management. However, what is most needed is to select and implement a limited number of solutions which will be most effective at solving the problem. Implementing too many solutions, even good ones, will diffuse your resources and weaken your efforts and success.

3. No way of measuring success to know what works. How do you know which retention solutions you抳e implemented are working effectively and which aren抰, where you need to make refinements, and what strategies you need to drop if you don抰 have a way of measuring your results?

How Do We Do a Better Job of Retaining Employees -- Especially Our Most Valuable Ones?

First, rank your employees in three categories: best performers, middle performers, and lowest performers. Your objective is to retain your top performers; develop and retain your middle performers, turning them into near-top or top performers if possible; and potentially replace your lowest performers.

Second, agree internally on the measures you抣l use to calculate turnover costs. Be certain you抮e taking all costs into consideration. Most organizations greatly underestimate them.

Third, report turnover costs to top management on a monthly, quarterly, and annual basis.

When turnover costs are unacceptably high, or higher than your industry抯 average, do an assessment. Find out who is leaving and why they抮e leaving. Exit interviews can help you find out why.

You need to know if it is your top, middle, or lowest performers who are leaving so you can gauge the expertise level leaving your organization. You抮e obviously going to employ (and pay for) different strategies if your top performers are voluntarily leaving, compared to middle or lowest level performers.

Develop solutions capable of solving the problems you uncover, and only implement a limited number of them.

Measure the success of your retention efforts, and refine them.

Two Very Key Strategies to Save a Large Amount of Time and Money.

Very key strategy # 1: Don抰 wait until turnover costs become unacceptably high before you implement an ongoing retention program. Put a retention program in place before you have crisis situation. You not only must find out why employees leave your organization, you must also find out why others stay.

Very key strategy # 2: Survey your top performers now in order to find out what keeps them there, why they might leave, what type of competitive offers they may find attractive, and what they need to be happier and more productive in their jobs. You抣l do a better job of keeping them (along with their expertise and value). You抣l also find out highly beneficial information about improvements your organization needs.

This means driving improvements in your organization by what your best people tell you, instead of focusing on taking care of the ever-present complainers in every organization.

Just How Valuable are Retention Efforts? One source estimated that a 10% reduction in employee turnover was worth more money than a 10% increase in productivity, or a 10% increase in sales!

Retain and gain.

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Financing Your Security Guard Company

In other words, it抯 a great time to be the owner of a security guard agency. Provided, of course, your company has the necessary financing resources to meet your payroll and business expenses.

But meeting payroll can be very tough. Especially since commercial and government clients usually pay their invoices in 30 to 60 days. How can you pay employees every week if your clients take that long to pay? The math just doesn抰 work.

The solution to the problem is to get financing. But I am not talking about getting a business loan. Business loans are hard to get. There is a better solution that is easy to qualify for and quick to set up. This financing tool is called invoice factoring and your bank does not offer it. Rather, you get it through a factoring company.

The premise behind factoring is very simple. Your invoices from good (but slow) paying customers are an asset ?a valuable one. The factoring company is willing to provide you with financing using them as collateral. Factoring is easy to use and works as follows:

1. You do your work, as usual. You bill your customer but then submit a copy of the invoice to the factoring company for financing

2. The factoring company provides you an immediate advance on 90% of the invoice. You can use that money to meet payroll and pay expenses

3. The factoring company waits to get paid by your customer

4. Once they are paid, they rebate the remaining 10%, less their fees

As you can see, factoring eliminates waiting for payment and gives you funds to run and grow your business. Factoring provides peace of mind, enabling you to meet payroll easily. It also allows you to take on new big clients with confidence, knowing that you抣l have the resources to pay your employees.

If you own a security guard company or security agency, be sure to consider factoring as a tool to grow your business.

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