Travel and expenses are essential to operations and growth for businesses of all sizes. But how do companies determine what are acceptable business expenses–or the contrary? Here’s where official travel and expense policies come into play.
Without a formal policy, keeping track of employee spending can be overwhelming. Approving expenses on a whim and letting anyone make major spend decisions isn’t great for company finances.
Left unchecked, business expenses can quickly grow out of hand and dig into company funds needed elsewhere.
To manage travel and business costs more effectively, company leadership can create a standard set of rules that apply to all employee spending. These guidelines let leadership define what are eligible expenses, and help employees follow company protocol more easily when traveling for business.
In this article, we explain why travel and expense management is important, and some of the common challenges that come with it. We’ll also list the key tips, tools, and resources you can use to create a strong T&E policy, and to better manage your company’s expenses.
Table of contents:
What is travel and expense management?
Travel and expense (T&E) management involves documenting and processing company business expenses for tax deduction purposes. The legal definition of what counts as tax deductible expenses depends on the country the business is based in.
Business expenses are tax deductible in most countries, meaning companies pay reduced or no tax on them. And these purchases must be business-related in nature to be eligible for legal tax deduction.
Specific expense reporting processes are also determined by each country’s tax organization. But no matter where you’re based, it’s crucial to report all eligible expenses to optimize and lower your tax liability.
Common business travel expenses include:
- Accommodation: hotels, lodging
- Transportation: tickets for plane, train, bus, rental cars, gas fees
- Entertainment: restaurants, shows, events
- Per diems: country-specific allowances for food, accommodation, and mileage
- Electronics and other essential gear: computers, phones, tablets
Employees often pay out-of-pocket for business expenses, then submit an expense claim to their employer for reimbursement afterwards. Employees should submit all expense receipts to finance teams by the end of each fiscal closing period. This is often a challenge for many companies, which we’ll get into shortly.
In the case of an audit, companies need to provide proof (including purchase receipts and bank statements) that all reported company expenses are essential and specifically support business operations.
What is a T&E policy?
To make travel expense management easier, companies develop T&E policies to regulate how team members spend company funds on business trips and business-related expenses.
T&E policies should apply to all scenarios where employees perform work-related activities outside the office. That includes international and domestic travel, and even day trips. Note: T&E policies don’t cover remote work situations, which require a separate policy.
Implementing an internal policy for travel & expenses brings benefits to businesses of all sizes and industries. A well-written T&E policy clearly defines what qualifies as essential employee spending and helps finance teams streamline expense reporting and approvals. This keeps businesses tax-compliant and ready in case of an audit.
Your T&E policy should typically cover the following topics:
- Where and how to book travel
- The criteria for approving or rejecting an itinerary
- The expense reimbursement process
- Accepted flights and trains, including class, budgets and spending limits
- Accepted hotels, including the star class allowed based on location along with allowable and non-allowable incidental expenses
- Ground transport guidelines for rental cars, ride-sharing services, and personal car usage
- Meal allowances
Why T&E management can be challenging
As mentioned earlier, expense reporting and reconciliation are often tedious and laborious tasks for both employees and finance teams. Without clear spending processes and infrastructure, it becomes impossible to keep track of paperwork as a company grows.
Inefficient T&E processes make it hard for teams to spend when they need to, and even harder to track purchases when they do.
These are common pain points in companies with ineffective or outdated T&E processes:
- Limited access to funds: Many companies still use one corporate card that is used by the whole team. Shared company cards are hard to track down and easily lost when they’re being physically passed around from employee to employee. This poses serious issues when team members need to spend quickly.
- High security risk: Generic payment methods don’t attribute payments to a unique purchaser. And it’s hard to catch fraudulent spending when expenses aren’t traceable. This leaves companies vulnerable to a plethora of financial risks whenever company payment methods are being used.
- No spend visibility: Finance teams with low spend visibility often struggle with healthy budgeting and balancing cash flow. This makes it difficult to scale company growth. Effective finance teams should always be aware of what company funds are being spent on and why.
- Slow reimbursements: Manual expense reporting and approvals are often conducted over long back-and-forth email chains. Reimbursements can take weeks to months to be issued, if they’re not lost in a sea of communications in the meanwhile. These outdated processes waste time, for both employees and finance teams.
- Messy bookkeeping: Poor T&E management makes it difficult to know what counts as eligible expenses. When some employee purchases qualify and others don’t, sorting through it gets messy and manual–making financial close an even more stressful time than it should be.
6 keys to better T&E management
Although there are common challenges in T&E management, every business is different. Determining how to best manage your employee spending depends on your company’s structure and culture.
But alongside a solid T&E policy, following these best practices will make any travel and expense process more effective and efficient – no matter what industry you’re in.
1. Use a travel expense policy template
It’s not always easy or fun to write company policies. Make your finance team and employees’ lives easier by using a policy template. Here’s a ready-to-use template we’ve created for just that purpose. All the legal terms are there, just fill with your own company details and tweak the details according to your business’s preferences.
2. Write your T&E policy in layman’s terms
Most people agree: legal documents are a bore to read. The majority of your employees won’t be pouring over each word of your T&E policy – unless they’re looking for a specific answer.
The solution? Keep your written policy simple and easy to skim. Skip the jargon, and avoid long rambling paragraphs. Format it for easy reading with these elements:
- Table of contents
- Bullet points, flowcharts, and tables to highlight information visually
- Clear headings and bolded details that summarize key points
A straight-forward policy leaves no room for misinterpretation and makes it easy for employees to follow. (Psst, here are more tips on creating a succinct T&E policy.)
3. Apply fair spending rules
When it comes to creating spend guidelines, it’s best to apply the same rules across your entire workforce. Case in point: If you give managers significantly more company spending allowance and flexibility than other team members for business trip bookings – don’t be surprised if there’s some huffing and puffing around the watercooler.
4. Centralize T&E management with comprehensive tools
Lots of companies use different SaaS tools to manage their travel & expense processes. But it’s easy to waste time jumping between redundant dashboards and apps to complete a single task.
Choose solutions that offer comprehensive features and complementary integrations. For example, a travel management platform that allows your employees to book their own accommodation and transportation from a selection of pre-approved suppliers.
Pair this with an expense management tool that automatically imports data directly from your travel management solution – then streamlines receipt capture, expense reports, approvals, and reimbursements all in one place.
5. Go with a paperless policy
Modern expense policies should be accessible to your team at anytime, from anywhere. That doesn’t happen when it’s a stack of paper sitting in a file cabinet.
As mentioned in the previous point, integrating your T&E policy directly into your travel management and expense management tools means employees can spend confidently without having to refer to the rules every other purchase.
This makes business travel stress-free (pleasant, even!) for your employees, and keeps finance teams and managers in control of company travel spending.
6. Update your T&E policy regularly
As your business grows and evolves, employee travel and expense behaviors are bound to change as well. Your expense policy should be adapted to match the latest needs of the company. Keeping your T&E policy up to date ensures employees don’t worry about booking travel with the wrong suppliers, or going over budget.
Tools and processes for flawless travel expense management
It’s clear that the foundation for strong travel and expense management is a solid expense policy, supported by comprehensive software solutions.
The best T&E processes eliminate time-consuming reimbursements by preventing employees from having to spend out-of-pocket in the first place. Here are some more specific tools and processes that your finance teams can use to promote smarter company spending.
Increase visibility with real-time spend data
Spend management solutions like Spendesk use powerful automation features to build your expense policy directly into the spend process. Finance teams can monitor and track all spending in real-time, approve purchase requests, assign and adjust individual spending limits, issue reimbursements, and more – all from one platform.
With real-time spend data, every expense is logged immediately and traced back to the individual purchaser – making it easy to know what is being spent, by whom, and why, at all times.
With this insight, finance teams are able to forecast budgets with greater accuracy and manage cash flow more effectively. Real-time spend data also enables companies to create better travel & expense policies.
Virtual company credit cards to book trips
Virtual cards are a highly convenient and secure payment method for online purchases. They can be instantly generated as a single or recurring-use payment card, with customizable spend limits for maximum security.
With virtual company cards, employees don’t need to pay upfront or out-of-pocket for travel expenses. They can book trip details autonomously and effortlessly, saving themselves and the finance time valuable time.
Physical expense cards for traveling employees
For employees who travel frequently in their roles, the most efficient solution can be providing them with their own customizable debit card. These are allocated pre-defined budgets, which can be used for both in-person and online purchases.
If more funds are needed, employees can easily request a top-up online, which managers can approve or reject in a click. Managers can even set specific spending rules like whether cash withdrawals are allowed, and what time of day or week the card can be used.
All this can be managed from a connected mobile app, where users can check their card balance, request more funds, and track payments in real-time.
Mobile receipt capture
Keeping track of paper receipts can be a nightmare – and a major time suck for accounting during financial close. Never lose a receipt again by automating this step.
Mobile receipt capture allows employees to snap a photo of the receipt immediately after purchase – instantly reconciling the payment. OCR technology extracts receipt data to forward essential details into your software solution. You can even set automatic notifications for payments that are missing receipts.
No more chasing down employees at month-end closing. Reconciliation during tax preparation can finally be a breeze.
Automated T&E management at your fingertips
Well-written travel and expense policies simplify and streamline the expense reporting and reimbursement processes, for employees and finance teams alike.
By automating T&E management, your finance teams gain greater visibility and control over company spending. Even better, you empower your employees to make the best spending decisions for the company.
Spendesk’s 7-in-1 spend management platform does it all by integrating your expense policy directly into your day-to-day spend processes – take it for a spin here.