Travel & expense management – the realities in the current economy

By Nick Fearn, Infor

How does your organisation automate travel and entertainment (T&E) expenses? Many still use spreadsheets. Business travellers enter their expenses into Excel, print out the spreadsheet and attach receipts.

From there they pass it to somebody for approval, maybe even using recorded delivery to get it back to the relevant office which adds even more cost. Once approved, the data is laboriously re-keyed into the finance system for processing, and finally the reimbursement payment is generated.  Sound familiar?

But spreadsheets are not automation. They create a slow, costly process that lacks any effective management visibility into the data. At a time when companies are desperate to rein in expenses, the old spreadsheet-based T&E process is counter-productive.

In the current economy, expense management has been magnified in importance and so too has travel and entertainment cost control. Yet still, after many years availability of sophisticated automated expense management systems, so many companies have still not automated their T&E systems and processes.

The need to automate expense management and T&E has never been greater. The economy of the past 18 months has been particularly hard on cash flow. Although the economy in many parts of Europe is showing varying signs of recovery, managers can't count on a large enough pick-up to really boost revenues in the near future. This means that all they can do is to focus on what they can control. That includes T&E expenses.

Travel managers are struggling with the economic pain. Across the board, we've seen huge cuts in T&E spend. In some companies all non-discretionary travel and entertainment spending has been curtailed and in others business travel has been cut back to only that which is customer-facing or commercially critical. Without doubt, the last 18 months have seen a marked reduction in travel and entertainment spend; an avoidance of travel where possible through the wider use of online meeting tools; stricter policies and higher-level approvals for T&E.
 
However, world-class enterprises take a more comprehensive approach. The Hackett Group recently looked at how companies manage their T&E costs and found that 70% of world-class companies use automated tools. Compare this to the average adoption rate across all companies of 30%.

The difference to the bottom line that this makes between the world-class companies and the rest is striking. According to the research world-class companies spent $4 less on processing costs per expense report. This is 40 % less than is spent by those companies that use a manual process. For a company processing thousands of expense reports each year the savings can really add up. A large company can easily be processing over 5,000 expense claims every month. Many other companies have more than 500 regular business travellers and can process 1,000 or more expense reports monthly, so these efficiency savings are sizeable. Significant thought these savings are, they’re small compared to the reduction in spend which can be achieved through the greater adherence to policy, increased use of preferred suppliers, greater VAT recovery and other cost savings which automated solutions make possible.

In one particular case a company had 12 full time employees handling T&E expense auditing and reimbursement when it was only partially automated. However when it was fully automated, they were able to do it with just five people – a saving of seven staff.
Yet today, most organisations still do not fully automate T&E, and with today's focus on curtailing costs, organisations should be pushing for more automation and integration.
Analysts Aberdeen Group, in their latest T&E management automation study, identified four primary drivers for the adoption of expense claim automation software:

1.    Budget reduction, which was a direct response to the recent global financial downturn and is cited as the most important reason of those given.
2.    The fluctuating cost of travel.
3.    The high cost of processing expense reports.
4.    The need to meet financial reporting and regulatory requirements.

Naturally enough, gaining improved visibility and analysis of company spend and improving expense policy management enforcement are also very powerful drivers, as is reducing the time it takes to enter, approve, and pay expenses.
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Getting started, corporate credit cards often constitute an initial step in management's efforts to understand and control T&E costs. The corporate card has become an effective link between travel booking and expense processing in many cases.

 

Many companies have gone beyond that. For example, many have already integrated payment processing with expense management, by integrating their finance systems with the expense management application. Others also integrate reporting and budgeting with their expense management solutions.

However, rather alarming is the fact that so few companies have used the data available from their T&E system for the purpose of improving the procurement process. For organisations intent on controlling T&E spend, this is a serious oversight. A determined procurement effort based on up-to-date and accurate information concerning the use of airlines, hotels and rental cars can make a significant dent in T&E expenses in a very short timescale by securing the most favourable volume discounts and terms.

The positive impact that procurement can make may however be undermined by human behaviour. Procurement's contribution is to establish a select set of providers to which all business travellers are directed. Yet many business travellers have their own preferred airlines and hotels - ones that are not part of procurement's approved supplier listing. Often, they break the rules but think that they are getting the company an even better deal, unaware of the volume discounts that they are jeopardising.

This is another example of where T&E expense management can be improved through the adoption and enforcement of consistent T&E policies supported by the use of an expense claim automation solution. Almost half the respondents to a recent Infor study had documented policies but adherence to policy was upheld manually. As a result, managers could not easily determine whether or not policies were being upheld. Others let each business unit or region manage T&E themselves. Some tried to apply consistent T&E policies but only to selected spend areas such as air travel and hotels. Even among the largest businesses, those with $1 billion or more in revenue, only a little over half of them reported the ability to apply policy through an automated, fully integrated approach. Yet, in the end, that is what it takes.

T&E is one of the last  processes within organisations to be automated. Maybe it is the independent nature of business travellers or their very mobility that has historically made T&E difficult to automate. Whatever the reason, the economic pain of the past 18 months is finally forcing a change in companies’ attitudes toward T&E automation.

Looking ahead, the next issue for expense management is mobile computing. Here, both travellers and managers can use mobile devices such as Blackberrys to make and change travel arrangements, file and process expense claims, and review and analyse T&E spending.

In conclusion, although cost cutting is still at the forefront of many minds, organisations cannot significantly curtail travel without risking lost sales and degrading customer service, both of which can significantly hurt an organisation’s bottom line. 

Fundamentally, companies don’t really want less contact time with their customers, so a  far better strategy is to closely manage T&E expenses as part of a comprehensive integrated expense management approach that incorporates comprehensive expense claim automation.

About the author

Nick Fearn, Business Manager, EMEA, Infor Expense Management, is Infor’s specialist responsible for the commercial relationships between Infor and its Expense Management customers, partners and resellers across EMEA.