Travel and entertainment (T&E) expenses account for almost 13% of a company’s annual sales on average, and is the second-largest corporate expense item behind payroll, according to a study done by JP Morgan.
With T&E expenses representing such a large proportion of total costs, it is vital for businesses to have in place a travel and expense policy that safeguards the company budget while helping to predict employee spending patterns.
What is a travel and expense policy?
Travel and expense policy is a set of rules and guidelines, usually set by the Finance Manager and/or Travel Manager to define the do’s and don’t for employees when incurring expenses in the course of their work.
What should be included in a travel and expense policy?
A typical travel and expense policy would include:
- Objective, scope and general expectations and requirements of employees
- Reimbursable expense categories, including the rules and guidelines for each category i.e. maximum budget, allowable flight cabin class, hotel star rating etc
- Non-reimbursable expense categories
- Expense reporting & reimbursement process
- Safety information
Learn how to write your own here!
Why should you create a travel and expense policy?
Having an effective travel and expense policy can lead to worthwhile benefits for both employees and employers.
1. Ensure traveller’s safety
Reduce travel risks as much as possible by adding restrictions to your travel policy. For example, restricting a specific airline that you don’t trust or risky neighbourhoods that you don’t want your travellers to stay in. Restricting the travel booking tools that employees can use to a centralized travel management system also allows for easy monitoring of all travel and helps to raise red flags for any potential high-risk trips.
2. Cost savings
Having clear restrictions in place that determine how much and what employees can spend on travel expenses, makes it easier for your finance department to forecast costs, control bottomline and optimise this cost center. For example, you can increase cost savings by specifying your preferred airline or hotel brands for which you have negotiated supplier discounts.
3. Improved productivity
A standardized policy provides employees clarity on what they should and shouldn't do. By setting clear boundaries, you can reduce discussion, friction and frustration between employees and their managers or policy administrators over expenses and reimbursements. This also gives employees the flexibility and autonomy to book their own travel while staying within guidelines.
Common challenges of implementing travel and expense policies
In most cases, these internal policy documents are forgotten about the moment they're produced, with most employees just doing their own thing. Here are some common problems with travel and expense policy:
- Hard to understand
- Too vague
- No one reads or remembers them
All of which leads to low compliance. According to recent research by Amex Global Business Travel, an average of 61% of business travellers report booking out-of-policy.
Travellers who admit to booking out-of-policy, by country. (Source: AMEX Global Business Travel)
How can automation help in implementing a travel and expense policy?
Creating a travel and expense policy is a great start towards managing your company's T&E expenses. However, when implemented manually, it becomes laborious for the policy administrators to go through a multitude of travel and expense reports and check for any non-compliance.
This is where automation comes in. Engage a booking tool with embedded, customisable policies and approval workflows.
According to a study by Aberdeen Group, using an automated travel and expense management tool effectively increases the average rate of T&E compliance by 26%.
With a corporate expense and travel management solution like Navisteps, bookings that are out of policy are automatically flagged, therefore making them easily identifiable and also rectifiable. You decide how lean or generous your travel program should be and manually approve when needed, without having to specifically micromanage it apart from special exceptions.