Chapter Summary

The handling and control of expense accounts is one of the most sensitive areas in sales management. Expense accounts are strictly regulated by the Internal Revenue Service, which stipulates in some detail what is and is not tax deductible. Management should identify in writing, and in detail, what expenses it will cover for reps. Normally, sales reps are reimbursed for their business expenses plus some personal costs that would not have been necessary if the reps were at home. A sound expense plan should be simple to administer, neither enrich nor impoverish the reps, and control the level of selling expenses.

Management must decide if the company will pay for the sales force’s field-selling costs or if the reps should pay their own expenses. Salespeople working on a straight commission usually pay their own expenses. Under any other compensation plan, however, the company should pay the rep’s expenses as an item separate from the compensation plan.

In the most widely used expense-control plan—the unlimited-payment plan—reps are reimbursed for all legitimate expenses, but they must itemize expenses and document certain large expenditures. Under a limited-payment plan, management either sets limits for certain items (such as food, lodging, and entertainment) or else provides a fixed total allowance for some time period.

A company should develop a plan for controlling the sales force’s transportation costs. When reps travel by car, management must decide whether to own or lease the cars, or to have the reps use their own cars. If reps use their own vehicles, the company should formulate a program to reimburse them. Often some form of fixed allowance per mile or per time period is used. However, the preferred method is to develop some system of flexible allowances that considers the variation in the miles each rep drives and the costs of driving in the rep’s area.

The greatly increased costs of travel and entertainment have encouraged most companies to attack such expenses aggressively by several means. In many cases, entertainment has been curtailed. The Internet and telemarketing have entered the picture because they are less expensive for contacting customers than field sales calls. Travel plans are now more carefully monitored to limit costs than was previously the case.