With employees over spending accounting for over one third of business travel expenses and 15% of all corporate fraud coming from falsified and fake expense claims, tighter T & E control has become a priority for a lot of senior financial executives who want to keep the cost of doing business to a bare minimum.
A poll conducted by CFO found that 69% of respondents agreed that their businesses could benefit from greater control over business travel expenses. Another study by J.P. Morgan found that business travel expenses came in second behind salary payment as the largest operating cost for most businesses.
Over 1.2 trillion dollars will be spent globally on business trips this year alone. That’s roughly equivalent to the GDP of Australia. Is it too much? Of course it is, and hundreds of billions in excess at that.
Essentially, the business travel industry spends more than a trillion dollars of other people’s money because most times, the people paying for these trips aren’t the people making the trip. Every time a purchase is made and the person making the purchase is not the payer, then there is bound to be some unnecessary spending, no matter how little.
Let it not be mistake, it is not because employees are trying to spend a lot on business travels, it’s just that they have no reason not to do so. If someone is reimbursed anyway, they are unlikely to get out of their way to save some money.
Even when employees adhere to the company’s travel policy, they tend to spend towards the maximum allowable limit instead of the lower part of that limit. It’s just human nature. Nobody will willingly fly economy class when business class is on the table.
These little saving opportunities might seem insignificant, “saving $100 on a $2000 flight ticket”; but they eventually add up at the end of the quarter or year. Small potatoes!
Undoubtedly, abuse of business travel expenses is a big problem, but, the better question is: is there a solution?
Carrots, Sticks, and Cutting down business Travel Costs
Traditionally, companies have had two options when dealing with high business travel expenses. They either accept employee over spending as the cost of doing business or they could try to reduce business travel expenses with corporate policies like tight spending limits and stuff like that. The first option resulted in hurting the bottom line, while the second increased the employee’s dissatisfaction and increased employee turnover. Honestly speaking, one is not sure which one is worse or more expensive on both the short and long run.
However, there is a new paradigm in corporate travel management, the idea leans towards carrots and not sticks. So instead of punishing employees who over spend during their business travels, many companies now chose to reward those who don’t.
After all, I am sure we can all agree that cutting costs without disturbing employees is very attractive and also almost unrealistic.
So how does this work? To influence better decision-making (deciding to save or use cheaper mode of transport even when more expensive ones are on the table), some companies have begun to use points, marks, and other types of recognition to reward employees. This in theory can motivate employees especially those who see these rewards from a delayed gratification point of view to make cheaper decisions, such as booking an affordable flight or hotel.
But this theory has caught up with the reality of human nature. Business travelers are nothing if not human. They act in their own self-interest and towards their own comfort and convenience. Instant gratification is the default setting for most people and when you don’t give them a more tangible reason to go out of their way to save than a few “points on paper”, they’ll just call your bluff.
Business travel expenses: How Much Do Employees spend On Business Travels?
Quick Fact: According to a 2015 World Economic Forum’s Travel and Tourism Competitiveness Report, Austria ranked 10th as the most expensive country for international visitors.
Depending on where they are traveling to, cities like San Francisco cost around $ 550 a day while London cost around $ 500 a day (on food, accommodation and transport only), small and medium-sized businesses need to make sure that money is used wisely and that the return on investment worth it.
Dan Ruch’s solution? Give employees a reason to less through financial incentives. His Rocketrip platform generates personalized travel budgets and allows employees to keep half the money save on the trip.
Financial incentives may work in encourage compliance, but companies still bear costs, just on another front. At the end of the day, paying employees to reduce their business travel expenses almost as counterproductive as giving them room to spend as much as they want.
Where does the spending go?
According to BCD Travel 2019 forecast, here’s where the money will go to:
Flights
Business and economic class prices of regional flights are expected to increase by 1% and in general, the average price of flight tickets will increase for both regional and international flights.
Hotels
Hotel prices will increase by 1 -3% this year.
Car rentals
A 2 -4% price increase is expected this year 2019 for car renting
So how can CFOs reduce business travel expenses without paying employees to do so or pissing then off? Below several ways CFOs can reduce business travel expenses.
How CFOs can reduce business travel expenses without hurting the bottom line
1. Establish a business travel policy
Although smaller companies usually do not have an official travel policy, but they can and big companies should. In any case, companies need to clarify procedures that control travel budgets. In addition to booking early and using frequent flyer deals, it is very important to provide employees a clear and precise travel guidelines.
Be specific about stuff like meals expenses, client expenses, preferred travel service providers, preferred accommodation providers and so on. Clear rules save your stress and almost puts things in black and white so your employees can plan their business travel expenses in relation to the company’s policies without wondering which would land them in trouble or when they are just playing dumb.
2. Harness the power of virtual meetings to service clients
Undoubtedly, face-to-face meetings have greater impact when it comes to relationship building. Generally, first person contact improve rapport, shows greater commitment, and allow more emotional connection. While this is true, and you probably can’t seal a million dollar deal over Skype or Google Hangouts, there are other business meetings that can be done through Skype or other video conference networks.
It has been proven over and over again that certain transactions and meeting can be effectively held through conference calls, and moreover, it’s a highly affordable tool. A tool that when used well, can helps a company keep in touch with customers, solve problems, and even make new deals.
Fun Fact: In 2001, American Airlines saved $40,000 a year by taking out ONE olive from each salad they served.
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3. Watch the add-on fees.
In spite of what it may seem like, flying have not become more expensive in recent years. In fact, Concur said the 2015 average cost of flight tickets was 5 dollars less than what it was in 2011. But add-on fees like seat upgrades, luggage fees, flight meals, ability to cancel tickets and so on has helped airlines make more money from traveler.
According to Concur; in 2014, the average passenger spent an extra $ 17.43 than what they spent in 2013; an 8.5 percent jump and airlines are constantly getting more inventive with these fees. Some now have charges for preferred sits with more leg room.
4. Use the workflow automation tool to automate the booking process.
Flights and hotel reservations can be time consuming and difficult, especially if you need to manage costs. Instead of requiring employees or HR to do the booking, you can save time and money by using automation. This allows you to set predefined parameters according to your travel policy, such as maximum costs among other stuff.
You can also specify things like preferred airlines and hotels. Or you can use small companies like atlanticride to do these automation. But with atlanticride, it’s no longer machines behind the wheel but a person who can better understand the situation with as low as $10.
At the same time, it ensures that all orders are processed on time and all transactions are accurately recorded. This eliminates the risk of errors, inaccuracies and irregularities that cause problems that can be costly and time consuming in the long run. Finally, employees can freely focus on their work so that they remain productive as long as they can and spend the right amount of time preparing materials to do whatever deal or business they are expected to do on that business trip.
5. Plan ahead — make sure to book flights and accommodation as early as possible
We understand that sometimes emergency trips are part of the norm. However, we recommend that companies start the booking process as soon as the trip has been confirmed to take place. This also gives companies time to make sure everything is in other. It’s also more profitable as booking early can save you tons of cash. Avoid last minute bookings as much as possible, and make sure your employees follow the same approach. This will allow you and your business to travel more with the same budget.
6. Be loyal to airlines
If you are not yet a member of a frequent flyer program of an airline, what are you waiting for, join one already! These programs are wonderful way to cut down business travel expenses as they provide good incentives for business travelers. The more loyal you are to an airline, the more incentives and benefits you can get.
Qanta offers priority check-in and extra luggage to local travelers in the U.S; Virgin Australia’s offers advance seat selection and valet services to their frequent flyer. International travelers can get Singapore Airlines credit points when they book a hotel with one of their global partners and Cathay Pacific offers free access to the international airport lounges worldwide.
7. Renegotiate for better corporate rates with flight vendors or hotel chains
Is your business often travels to the same destination and chooses the same hotels and airlines over and over again? Or perhaps a new market has opened up and the company is frequently traveling to that region for business.
For the first instance, approach your regular business travel vendor and see if you can negotiate better deals giving the fact that you have proven to bring steady business to them. In the latter part, discuss travel forecasts with your business travel vendor and see if you can strike a better deal to be retained as a customer giving the recent trend and forecast of your business trips.
If this is not the first market expansion your company has been involved in, point to the growth of similar trips to other markets in the past as a proof of concept sort of. If your business is too small to get a better deal, try working with a company that has already negotiated a better deal for the region. This solution is suitable for small businesses and even for people who often travel to certain destinations.
8. Seek alternatives.
Landing on major airports is convenient, but sometimes you pay a lot more for this convenience. It is always a good idea to explore the idea of flying into small and medium-sized regional airports, especially when it is a last-minute flight. (However, it is important to factor in the price of gas and transportation to and from the smaller regional airport). Also consider traveling by train if they are available to your destination. Often they are cheaper and much more work can be done on the way.
Another fun fact (Kinda unrelated) : Lufthansa is the world’s largest purchaser of caviar, buying over 10 tons per year for their in-flight caviar service available in first class.
9. Assign accountability at the right level
Most people would agree that more support is needed form management to make business travel management work and ultimately less expensive and extravagant. Involvement of CEOs and CFOs can go a long way in influencing the political nature these kind of tasks and can provide motivation. For example, if a CEO flies economy class to take a meeting out of time, it almost becomes irresponsible for other employees for fly business class.
It’s more like living my example. However, from experience, the commitment of CEOs is not sufficient on itself. Since the CEO or CFO doesn’t handle day to day operation of the travel department, they wouldn’t really know what’s going on in those departments.
It’s then left for whoever is in charge to save cost on the momentum provided by a CEO flying economy. Therefore, management assigning accountability to the right person plays a crucial role.
10. Focus on how to cut business travel expenses, not just how much
Cost reduction programs more often than not lose their effectiveness over time as top management tries to achieve overall cost reduction (“How much can we save?”), but then leave the decision of how to save that money to lower rank employees.
If a CEO or CFO wants to reduce business travels expenses, dropping words and phrases like [let’s see if we can bring this down by at least 20%] while the rest of the travel teams echos [we’ll see what we can do] isn’t going to cut it half the time.
Focusing on the actual “how” other than the numbers can really go a long way in cutting down cost.
11. Organize your travel program
Having a systematic process or approach is important for an effective business travel expense program. Simplified booking, approval, expense and risk management processes increases the speed of travel management. Systematization also gives your travel managers insight on how and which travel policy works. This will help them make informed decisions on improvement backed up with the data.
In addition, a systematic business travel program will ensure that your business fulfills its duty of care obligations and operates with sufficient risk management to protect itself against financial and legal damages.
12. Weigh the incidental costs.
Just like in airlines, small things add up on road transportation too. That’s why you have to compare prices in advance. Is it cheaper to rent a car or take an Uber, Lyft or even a Taxi? Does the hotel have Internet connection and is the price worth it or are you better off using your mobile hotspot?
13. Schedule wisely.
If possible, schedule your business trip any time other than those beautiful summer months when every traveler is assumed to be a tourist. Summer months attract lots of tourists and as a result, airline tickets are usually off the roof, hotel prices are just as high too.
March ending is also another terrible time to travel because everybody is going somewhere for spring break. If you can have the meeting any other time or through conference call or video calls, then why not.
14. Invest in travel management technology
Companies now use travel management technologies such as the Travelport or Locomote which offers premium services at amazing prices.
When considering travel management platforms, there are a few things to have in mind. These include tools that simplify processes, collect data, and improve policy performance, and have features that enrich the travel experience of employees
- Travel management platforms must be comprehensive and holistic.
- Travel management platforms must be integrated
15. Establish and enforce a strict but reasonable travel reimbursement policy that’s fair to all employees.
According to the Society for Human Resource Management, business travel expenses are nontaxable for the worker and deductible for the employer when they are ordinary, necessary, and accurately reported. Your travel policy must explain the business travel expenses to employees and provide them with information about the travel reimbursement policy of your organization.
It should specify daily allowances for all types of events and for all destinations. It should also allow for seniority among staff (i.e., offering more luxury to senior staff and management during business trips) and how to apply and approve monies for hosting certain types of events like dinners as part of the business travel expense. It should also clearly indicate which bonuses and luxury are not eligible for compensation and which are the responsibility of the employees.
16. Use one travel agency for business travel expenses that can’t be automated.
In some cases, you may not be able to automate certain process, for example if a staff needs special accommodation or if a large number of your staff is travelling. In such cases, you can’t ask each staff to plan their individual travel, some might get better deals and other will feel left out despite the fact that they did plan the trip themselves. In situations like this, you can use the same travel agency to plan the entire trip. All you have to do is share your travel policy with the agency and have them plan the travel using the guidelines you have provided such as preferred flights, hotels and so on.
This way, they can get all your employees the required travel services they need without compromising on your travel policy or any one of them feeling cheated. What we do here at atlanticride is to plan the entire travel and send the company a link to make payment directly so that the company name remains as the buyer and payer of the flights and accommodations.
17. Automate the business travel expenses reimbursement process.
The travel processes does not only cover transport, accommodation and expenses. It also involves the time and work done by the management or administration to reimburse the staff or employees business travel expenses.
It may be helpful to use a workflow automation tool that allows your staff on a business trip to remotely upload receipts so they can be processed immediately and that once they return from the trip, they can be reimbursed as soon as they return. Software like Coupa’s expense management system brings additional benefits in terms of accounting transparency, which reduces the chances of employees having to pay for costs they incurred on the trip or the company having to pay for expenses outside the scope of their policy.
18. Use discounts and reward programs.
Most airlines, hotel chains, and car rental companies offer discount and reward programs for companies that often use their services. Make sure that your company registers and keeps track of these bonuses like bonus miles, discounts and other special offers and use them to reduce business travel expenses where possible.
Occasionally, we at
So if you or your company is planning a business trip, it might be helpful and wouldn’t cost you anything to check our special offer page to see if there is something in there for you and your company. There is really no harm in trying.
19. Encourage employees to use business apps on their laptops and phones.
Many hotel chains offer office equipment like computers, fax machines, printers and more. With today’s cloud-based productivity and collaboration tools, it is easier for employees have documents on their cloud accounts and share them with others through their phones instead of printing them using facilities provided by the hotel which you eventually have to pay for. While employees still have to pay for Wi-Fi in the hotel rooms, not using the office facility provided by the hotel can save you big over the long run.
20. Actively participate in travel management
Only 27% of the CFOs report that they actually interact with travel managers. In order to make travel policy improvements, companies need strong collaboration between top management and the people handling the company’s travel program. Therefore, management must actively participate in travel program, either through an analysis of the effectiveness of the policy or through policy making, or by collecting first hand feedback from company staff who have traveled or returned from a business trip.
The point here is that management must find a way to actively be part of the travel management if they are serious about reducing business travel expenses.
21. Pay Attention to the new generation of business travelers
Millennial travelers will make up about 50% of all business travel expenses by 2020 (this figure is expected to translate into $ 1.6 trillion in monetary value). Management has to face the diverging preferences of these young travelers to reduce travel costs and take advantage of their strengths. For example, a Hipmunk survey of Millennial business travelers found that they are more likely to include leisure days in their business travel, but also more likely to go the extra mile to get the job done.
In collaboration with tourism managers, management should explore the habits and preferences of thousands of business travelers and incorporate them into the company’s strategic travel policy.
22. Do Not Leave Your Travel Policy Untouched
It is often said that business travel policy only gets better with time. With the advent new technologies that offer new methods of travel booking, new ways of connecting and new ways of doing business abroad, management must ensure that their business travel policy keeps up with market changes and take advantage of the cost savings that comes with it.
These policy amendment must be coherent with data, and therefore it is very important to analyze and report on all business trips to have and keep accurate data.
23. Make sure your travel policy is transparent
Have a clear and transparent travel policy that outlines expense and reimbursing efficiently. This might sound basic and simple, but it’s very important and it is often harder than it seems. A new study from the GTBA reveals shows that while 79% of business travelers feel their company travel policy has the most impact on their business travel decision, there is still a huge gap between when travelers are booking flights through the appropriate channels (63%) and when their employers think they’re booking in-policy (90%).
24. Conduct regular audits of management process and receipts
No person is perfect, not even you; that’s why the IRS invented audits. Follow this example and regularly audit your employee cost statements, taking into account the Scam triangle (needs, opportunities, ability to rationalize activities). Take a step further and carry out periodic, regular, unannounced audits. This way, there is no telling when you would audit your staff and therefore makes stealing more dangerous for those looking to cover their tracks.
25. Fast payment makes you a quick friend.
Reimburse your staff quickly. Don’t make them wait for their money. Just as you wants your staff to turn in their expense reports as soon as possible, they also want to see their bank accounts smiling immediately.
This also helps to improve moral for workers.
26. Acknowledge travelers’ efforts
Everyone wants recognition. If you can’t offer money rewards, be sure to recognize them instead and praise their hard work. It can take the form of an email or even public commendation during a meeting. Recognizing hard is costs you nothing, but the ROI are tremendously in terms of productivity, loyalty and longevity. Just make sure you praises are genuine.
27. Collaborate with travel guides
The co-operation of the financial manager with their CFOs are an important factor in improving business travel policy. But only 27% of CFOs believe that their relationship with travel agents is effective.
Just as financial managers show their commitment to travel policy, they must show that they are willing to work with travel managers to make positive and information-oriented changes. This can be achieved through periodic meetings and enabling them to have effective travel management technology.
Conclusion
CFOs and CPOs know that revenue-generating trips are not random events. There is no law to “book a trip and you’ll make money from it”. Growth takes place when effective strategic implementation take place alongside intelligent travel cost management. Understanding where travel contributes to profitable transactions will help you use your travel budget wisely and help grow your business.
But notwithstanding, if you decide to cut down on travel, then you just might not make money at all. At the end of the day, all that matters is proper planning.
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