Relocation Funding Options

December 10, 2014

Relocation requires specialized funding and payment methods, and corporate clients should understand their funding options, especially when creating or evaluating a Request for Proposal (RFP) for relocation or global mobility services. We’ve provided a checklist of questions to ask and areas to evaluate in an RFP.

Employee relocation is an intense process that involves the completion of many different activities and the expenditure of a significant amount of money, all compressed into a short period of time. In addition, relocation expenditures require specialized accounting treatment because some, but not all, are considered income to the relocating employee and affect payroll and income tax calculations.

One of the most important services provided by a Relocation Management Company (RMC) is the timely, accurate, and secure management of client funds. Let’s explore the funding requirements that are essential for the efficient management of the relocation process.

In short, the funding and accounting services offered by an RMC should meet three basic requirements:

  1. Provide the client with accurate information in a timely and secure manner
  2. Accommodate the client’s cash flow management needs
  3. Meet the time-sensitive requirements of any type of employee relocation

Many Relocation Expenditures Require Immediate Payment
Most corporate Payroll and Accounts Payable departments are structured to process payments in a systematic, consistent, and predictable manner. This is as it should be. However, when it comes to relocation, the payment process needs to be much more flexible and responsive to the immediate needs of the employee who is going through a stressful and sometimes confusing process. In other words, some payments can be made in the “normal course of business,” but most cannot.

Relocation expenditures are based primarily on the time sensitivity of the expenditure and the appropriate payment schedule for each. For example, real estate transactions for the purchase or sale of a home, typically have an immediate time sensitivity and funds are wired within 1 day. Activities with moderate time sensitivities include employee reimbursements, supplier payments, miscellaneous expense allowances, and lump sums. Payments are typically made within 5 days. RMC service fees and employee gross-up payments have a normal time sensitivity and are paid within 15 to 30 days.

Funding Alternatives
An RMC typically offers a variety of methods for a corporate client to fund relocation expenditures. The method selected is usually based on a discussion between the RMC and the client, involving the following factors:

• Client’s internal capabilities to process payments not typical to the core business
• Client’s cost of money and cash flow requirements
• Efficiency of approving and processing payment approvals within the organization
• Responsiveness to the needs of the relocating employee

It is important to note that many RMC / client relationships involve a combination of methods. For example, a client may retain the responsibility for making payments directly to the employee (Method 1), while the RMC is responsible for making payments to suppliers and third parties (Method 2).

Funding Methods for Relocation Expenditures
The four key types of funding methods for relocation expenditures are:

1. Client Funded – Client Makes Payment
(Client funds are used to make all payments)

  • RMC provides a payment notification to the client for a specific expenditure(s) required for a specific relocating employee
  • Client makes payments directly to employee, supplier, and/or third party
  • Client maintains detailed records of expenditures for payroll reporting and accounting purposes

2. Client Funded – RMC Makes Payments
(Client provides funds to RMC; RMC makes authorized payments)

  • RMC delivers an invoice to client
  • Client pays RMC via check, ACH or wire depending on the type of expenditure
  • RMC makes payments to employee, supplier and/or third party
  • RMC provides client with detail of expenditures for payroll reporting and accounting purposes

3. Funds on Deposit Account
(Client provides funds for a dedicated account from which the RMC makes authorized payments)

  • Client deposits an estimated amount in an RMC account to fund payments for a specified period of time (week, month, etc.)
  • RMC makes authorized payments to employee, supplier, and/or third party
  • Periodically, RMC invoices client via a consolidated invoice for all payments within a specified period
  • Client payment of the invoice replenishes the funds used in the account
  • RMC provides client with detail of expenditures for payroll reporting and accounting purposes

4. Bank Funded
(RMC uses borrowed funds to make the authorized payments and client pays interest for the use of the funds)

  • Client must meet the credit requirements of RMC and its bank
  • RMC and client agree to an interest rate to charge client while funds are outstanding
  • RMC makes authorized payments to employee, supplier, and/or third party using borrowed funds
  • RMC invoices client via a consolidated invoice for all payments made within specified period for each relocating employee; invoice includes interest for the period that the funds are outstanding
  • Upon receipt of funds from client, RMC repays the bank, including both principal and interest
  • RMC provides client with detail of expenditures for payroll reporting and accounting purposes

Capability, Flexibility, and Capacity
Not all RMCs offer all of the methods listed above. Therefore, it is important for clients in the earliest stages of the RFP process to identify their preferred method of funding, so they can determine whether the RMC has the financial systems and technology to manage funds and provide accounting data in a manner acceptable to the client.

Accounting flexibility is a key factor that can be overlooked. Under any of the methods described in the table, the RMC must have the capability to provide the client with transaction data that is coded to meet the client’s internal reporting and management needs.

In today’s market, technology is essential to managing client funds. Technology helps streamline financial processes and remove manual steps that can lead to errors and time-consuming delays. Increasingly, to reduce processing costs, clients are demanding that RMCs provide automated and secure, direct connections to Payroll and Accounts Payable.

Lastly, when considering a “Bank Funded” approach, it is extremely important to determine if the RMC has sufficient credit capacity to manage client expenses based upon the client’s annual or predicted relocation volume and average move cost. Not all RMCs do.

Relocation Funding Options Conclusion
The funding of relocation expenditures can be a confusing topic. It’s a very important subject to thoroughly address when selecting and working with an RMC.

Importantly, RMCs are responsible for managing a lot of money on behalf of their corporate clients. We want our clients to know that we take this responsibility very seriously. And, we want to assure prospective clients that NuCompass Mobility offers the funding method, or combination of methods, that will meet their specific requirements; and the technology to support payroll and corporate accounting integration as needed.

RFP Steps for Funding Options
If you are creating an RFP or evaluating Relocation Management Companies, the following questions identify the key areas to evaluate for relocation funding options:

  1. Determine the type of funding method(s) your company prefers
  2. Estimate the total annual relocation expenditures that the RMC would be required to carry based upon your annual relocation volume and average move costs. You may need to estimate move costs separately, based upon the number and types of programs you offer.
  3. Determine the type of technology integration you require from your RMC to support employee payroll, tax, and other accounting functions
  4. Confirm that the RMCs you are considering offer the funding options you prefer and they have the financial capability to provide the necessary funding, the technology and processes to integrate with your company as needed, and the flexibility to make on-demand payments to meet special circumstances

Written by Frank Patitucci
CEO

Related Links

Sample Relocation RFP Questions

read more

RFP Guide

read more

Do Lump Sum Programs Provide the Right Assistance?

read more

What Does a Relocation Management Company Do?

read more

What’s the Value of a Global Footprint?

read more