When I joined my present employer four years ago I encountered a new financial quandary: How do you plan for out-of-pocket work expenses until they are reimbursed?
Early in my career I was an eager young marketing rep and quickly volunteered for any business travel I could find. Today I travel more than ever, and love it. But back then, little did I know; business trips would throw a wrench in my finances.
Welcome to the World of Expense Reports
Employers handle business travel and other business expenses in different ways. Some issue employees corporate credit cards, some book and pay for travel through a corporate travel agency, and many others (especially small companies like mine) expect employees to front the cash and later submit an expense report to be reimbursed.
In the age of credit cards, paying for business travel in advance doesn’t present a problem for many employees. They simply charge their airfare, rental cars, hotel, and meals to a credit card and receive a reimbursement check before the statement is due. Hopefully the check comes within the credit card’s grace period and they don’t even pay a penny of interest. They can even claim rewards points for their company’s expenses.
If you have great credit and carry a credit card with an ample limit, paying out-of-pocket for business travel is effortless. It gets even easier if you can dedicate a single credit card for reimbursable expenses and nothing else.
What If You Don’t Have a Credit Card?
Maybe you never got one, choose not to carry one, or cut them up because you maxed them out. Even if you do have a credit card, maybe you don’t have a high limit.
My business trips these days average $1,000 for between three and five days on the road. And that doesn’t include the deposits hotels and rental cars place on my credit card, small cash expenses, and the fact that I often book two or three trips at a time. At one point, I had fronted my company almost $4,000 in travel expenses. Luckily I can do that now, but when I first started I didn’t have the plastic power!
I’ll never forget on my first trip sheepishly asking a coworker only a year or two older than I if he wouldn’t mind paying for my hotel room. I was pretty sure I could afford the room on my credit card but not sure if it would take the “incidental deposit” they would charge.
Until my debt situation improved and I reserved a credit card just for business travel, I learned a few tricks about paying out-of-pocket business travel expenses.
Tips and Tricks for Paying Business Expenses Out-of-Pocket
1. Prepay your hotel. Usually you are not charged when you make a hotel reservation. The hotel takes your credit card number just in case you don’t show up in which case they charge a cancellation fee. Otherwise you pay for the hotel when you check out.
Many hotels offer discount online rates through sites like Priceline and Quikbook if you prepay for your hotel reservation. The catch, of course, is that the reservation is non-refundable. The benefit, however, is you can ask your company to reimburse you for the hotel immediately upon making your reservation.
Ditto for your airfare. If you book your airfare months in advance, get your reimbursement check now, not when you finish traveling. Don’t lend your employer free money!
This can be an advantage if you’re working with a credit card with a limited credit line.
2. You CAN pay for rental cars and hotel rooms with a debit card. A lot of good this does you if your financial situation is tight, but it saves you if you choose not to carry credit cards. (As I understand it, using debit cards for rental cars and hotels is only a recent development).
There is, however, a big downside to paying for hotels or rental cars with a debit card. Hotels and rental car agencies require a deposit of MORE than your anticipated total charges to cover possible damage to the car or room, or charges you make in a hotel such as phone calls or internet use.
If you pay with a credit card, a hold is placed on your account for a certain amount, meaning your available credit is reduced by, say $300 for a rental car that will cost $150. When you return the car safely, the hold is removed and the $150 is charged to your credit card.
When you pay for the same card with a debit card, the company will actually charge your card for $300 at the time you take the car. When you return the car, they will credit your account for the $150 security deposit.
What’s the problem?
Credit card holds are released as soon as the final charge is settled to the account. Not so with debt card refunds. It can take a minimum of two business days and up to seven days for that money to go back into your checking account. Not good!
It can be somewhat easier to pay for a hotel with a debit card. You can opt to pay your anticipated room charges at check in and ask not to leave an “incidental deposit”. The hotel will simply disconnect phone, internet, and movie services to your room. Of course, you won’t be able to charge meals or other items purchased in the hotel to your room.
3. Get an advance. If things were really tight, my company would cut me a check for the anticipated cost of my trip. I always made it a little it less that the trip would actually cost (so I didn’t end up owing the company money), but this tended to work pretty well. When I would get home I would submit the expense report as usual and deduct the advance from what the company owed me.
If you pay for your out-of-pocket business travel expenses with a credit card, there are still a few traps you can fall into. Here are some tips.
1. Get reimbursed as soon as practical. Don’t risk paying interest on a work expense. If you buy airfare for a trip in a month, get that check now. Depending on where you work, checks can take a week or two to process, and they are live checks, meaning you’ll have to trek it to the bank.
2. Pay your credit card as soon as you get reimbursed. Credit card grace periods (the time between when you make a purchase and when interest starts to accrue) are typically a few days less than the 30 days in between your statements. (Tricky, no?)
That means if travel on the 1st of the month, get a reimbursement check from work on the 15th of the month and you pay your credit card bill on its due date on the 8th of the following month, you will actually pay interest on those charges.
You can avoid those interest charges by paying your bill as soon as you get that check.
3. If possible, use a dedicated credit card. I like to keep my work expenses on one card so I always know how much I’m owed and when I get the check, it can go directly to the card with no guesswork.
Plus my credit card statements will be a backup of my work expenses should I ever lose or be challenged on a receipt. (And when I show my CFO the credit card statement it won’t contain the charges I made from last weekend’s bachelor party!)
4. Always use a rewards credit card for out-of-pocket work expenses. If you have to front the cash when you travel for your company, you mind as well get rewarded. Especially if you use a dedicated credit card and ensure you never pay interest, you will really be getting something for nothing.
And those business travel expenses add up fast. Some employers will even reimburse all or part of the annual fees charged by airline credit cards or other cards that carry annual fees. Of course, there are also plenty of fee-free credit cards to choose from.