Prepaid Cards Can Aid Business Expense Management
There's a technology gap in business payments that prepaid cards can help fill.
The Travel and Entertainment (T&E) expense management industry is flourishing with technology companies that aim to reduce processing costs and save time. For example, Chris Farrell, CEO of Tallie, reports that most manual T&E process can cost about $72 to manage. After implementing an automated expense reporting solution, that cost reduces to $25. When you consider the long journey an expense report takes, end-to-end, this is a significant cost savings.
Remaining costs, (non-T&E) don’t have as many simple technical solutions available. The forecasting and variance reporting process can be time consuming to develop, but pays off over time with discipline.
Non-T&E expenses are managed by company business managers through a budgeting process arranged to establish operating goals. These include operating and headcount costs, marketing, cap-ex and G&A (general and administrative), which are typically managed in spreadsheets or accounting software. Alternatively, T&E is handled in an end-to-end process that includes creating, filing, approving, and reimbursing for an expense report.
One option is to enable business clients to deploy prepaid cards rather than charge or credit cards to field employees, which are then funded through a manager by web or mobile apps. This provides managers an opportunity to discuss a purchase before it is made, not after. Getting the purchase done right the first time increases efficiency in budget compliance, and minimizes surprises on a credit card statement.
And being proactive in expense management can yield benefits. Reactive management can cost a company percentage points on the net margin line. In real terms, a $1.5 million revenue business operating at 11.6% net margin will earn $175,000 for the owner.
Let’s say the company’s cost base is $17,000 per month. Closer monitoring and the implementation of technology can result in savings of just 10% on average. The result: the company’s net margin improves to more than 13%, and more than $20,000 drops to the bottom line. That is a dramatic difference for the company simply by being proactive and not relying on traditional accounting methods.
Businesses that take the time to implement proactive cash management methods should consider communicating more openly and frequently to staff about what constitutes necessary purchases and what expenses should be avoided.
Companies that figure this out will be closer to their expense-side cash flow, be more in control of their business, and can make time to improve revenue. It all starts with the right business management philosophy and trying out different ways to make more money. Ultimately, the satisfaction of being a business owner is seeing the fruits of your invested efforts first-hand and putting food on the table. Proactive expense management is a proven method to achieve those goals.
Toffer Grant is CEO & Founder of PEX Card