Efficiently managing business travel expenses is crucial for a company to thrive. Fortunately, there are a number of software solutions that can help with this. These include Ramp, Zoho Expense, SAP Concur, Expensify, Emburse, TravelPerk, and Rydoo.
In this article, Ramp will explain what goes into travel and expense management, how to design an effective T&E policy, important tax considerations, and how software can streamline this often difficult process for your company.
Travel and expense management, also called T&E management, is the set of processes and policies companies use to control their business travel expenses. This function is crucial for managing outgoing cash flow, complying with the company expense policy, and maintaining financial visibility.
The travel expense management process involves setting clear guidelines and policies for employee travel and then enforcing them effectively, using tools like employee credit cards and expense management solutions.
There are six critical steps to writing an effective travel and expense management policy.
1. Draft a business travel policy
Creating a comprehensive business travel policy is a foundational step in managing travel expenses. This policy should clearly outline what's considered a reimbursable expense, set daily spending limits, and specify preferred vendors for flights, accommodations, and car rentals. By following the six steps reviewed above, you'll be well on your way to creating an effective T&E policy for your organization.
2. Communicate your policy
Once you have a travel policy, make sure your employees know about it. Share your company's travel policy with all employees, regardless of whether they're likely to travel. Ensure your policy is easily accessible and send out reminders before business trips to review it. Make your T&E policy required reading as part of the onboarding process for new hires. A clear and thorough travel policy will help prevent confusion when it comes time for reimbursements.
3. Record and categorize all expenses
Establish a method for employees to track and categorize all their travel-related expenses. This could involve using corporate cards and expense management software that lets employees upload receipts and track spending in real time. Categorizing expenses will help your team analyze spending patterns and identify areas for cost reduction. It also streamlines the approval process and reimbursements and keeps your financial reports accurate.
Tip: What is the purpose of a travel expense report?
The purpose of an expense report is to document and itemize expenses incurred during business travel. It facilitates the reimbursement process and helps companies track and manage travel-related costs.
4. Calculate trip costs
After a business trip ends, calculate the total cost of the trip and split out costs by category. This equips you with valuable information to help plan accurate budgets for future trips to similar destinations or events. It also lets you pinpoint any trips or employees who exceed the average costs. Look at expense categories like travel and fuel costs, dining, entertainment, and other costs to get a sense of where your company is spending money on trips.
5. Predict future travel expenses
Having historical data from past trips will help you forecast your future travel expenses. Predicting future spend is important for budgeting and strategic corporate travel planning, helping you allocate resources more effectively. Also, understanding your company's travel needs and spending means you can plan to negotiate corporate rates with providers like airlines, hotels, and car rental companies.
Needless to say, there are important tax considerations to keep in mind when designing your company's travel and expense management policy. The IRS allows you to write off certain travel expenses, and you'll want to make sure your employees understand they can only get reimbursed for these specific types of costs. It's also important to keep track of your receipts for each and every one of these charges in case your company ever gets audited.
Deductible business travel expenses include:
Tip: What type of expense is travel?
Travel expenses are typically classified as operating expenses, which include costs incurred for transportation, lodging, meals, and other related expenses necessary for conducting business activities away from your primary place of work.
An ineffective travel and expense management process creates several pain points for organizations, including:
Travel and expense management software simplifies the process of expense reporting, automates approval workflows, and organizes your financial data so it's easy to review.
Travel and expense management systems can also offer valuable insights into your company's spending patterns, notifying you when transactions are outside company policy or when spending in certain categories is higher than your benchmarks.
This story was produced by Ramp and reviewed and distributed by Stacker Media.