Think about all the money your company spends to do business. How much of it is a “cost of doing business,” and how much of it is an investment – a way to increase the value of your company? If you are a CFO, this is a crucial question and is at the heart of everything you do – making sure that money spent is growing your business. Travel and Expense (T&E) is widely considered to represent the second largest category of operating costs for a company, and according to our recent study, travel makes up 88 percent of T&E management. Now imagine that business travel is an investment in the company’s growth, and not just a cost – this is what 40 percent of companies interviewed told us. It’s important to the success of their company, but about 85 percent of them feel like they could do better in optimising it. Interestingly enough, that’s the same percentage who don’t use integrated travel and expense (T&E) systems. Coincidence? We don’t think so. And here’s why.
We talked to over 600 professionals who manage their company’s T&E spend and most of them were in the finance or accounting teams. For finance, maximising the ROI on travel means controlling costs, increasing productivity for their staff and making sure the travel programme is as tight as it can be.
But finance doesn’t work like travel. Finance is on a monthly schedule, travel can be anytime. Finance looks at the numbers, travel needs to connect the people, deliver the service, close the deal. But to make sure travel really is an investment, Travel and Finance need to work together. Using a single system for T&E can help to ensure better visibility on spend and timely administration of the entire travel and expense process. The findings of our study “Strategic Spend: A New View of T&E for Finance” support this.
Among the companies interviewed, Finance is mostly responsible (65 percent) for T&E budgets. This would explain why the number one area identified for improvement of T&E programmes is controlling spend – specifically, improving the planned vs actual spend, which 76 percent listed as a priority. Why would that be such an issue? To map what was budgeted to what was spent, finance teams rely on monthly accruals. But if a traveller is on a trip that spans over the end-of-month period, or just takes a while to submit an expense report, finance doesn’t get accruals on time. By using a system where payment transactions are matched to travel data in real time, finance can get a full view of how much a traveller has spent in a month for a specific trip, including both pre-paid booked travel from the OBT and card transactions from non-booked items. This joined-up system can deliver the data to Finance as needed, without waiting for the expense claim. Plus, by attributing all transactions to the trip, the total actual cost of the trip can be compared to the estimated cost to determine the true ROI.
What’s that? Reduce direct and indirect costs? Tell me more.
Second in the list of improvement strategies is lowering direct costs. This is a mainstay of travel management and is primarily associated with transport and accommodation. But it’s important to remember that controlling indirect costs may have a wider impact than you think. Achieving efficiencies across the business will impact your indirect costs as well. Think all the tasks involved with traditional expense claim filing: keep track of receipts, manually enter transactions, match each one with the right cost centre and code, check the expense is compliant with policy, get approval, photocopy receipts, check for errors, audit for fraud detection, and so on. The time and resources needed can be huge. Add to this the cost of physical storage of receipts required for up to ten years in some countries and it’s easy to see how managing expenses can get…. Expensive.
Systems that streamline these workflows and digitise receipts free up accountants to focus on value added tasks and reduces overhead on physical storage. The numbers from our study back up this trend – companies interviewed that use both online booking tools and automated expense management were more likely to report savings on both indirect and direct costs.
Indirect costs are also linked to managing processes that have nothing to do with reimbursing travellers. VAT reclaim is a good example. For this, companies have two choices: ignore the process and leave money on the table, or make the effort to get the money back by filing for reimbursement. It may seem like a no brainer for direct savings, but the second option can be complex and incur greater indirect costs. Tax codes are different from one country to the next, not only are the rates different, but so are the laws about what is deductible.
Failing to keep track of compliant receipts and applicable laws can lead to fines and audits due to suspicion of fraud. Managing travel and expense in one system makes it easy to calculate VAT amounts, simplifying the process for both travellers and accountants and safeguarding against fraud and errors. A system like KDS Neo, which proactively maintain rates and regulations for many economies in Europe, reduces the administrative burden and increases the likelihood of actually getting money back.
Data. It’s got to be accurate, integrated and easy to analyse
Today, data is the key to spend control strategies and all respondents in our study use multiple sources to get their travel data: ERP, expense management tools, OBTs, TMCs, travel and payment suppliers. Predictably, when asked what challenges they face for improving T&E spend, the top answers were all linked to an inability to consolidate and analyse data:
- 40 percent cited a need to get accurate data.
- 35 percent were concerned with the cost of integrating different systems to manage the spend.
- 33 percent felt that assessing spend to better allocate resources was the problem.
Two is better than one, but integrated is best
A healthy majority of companies (68%) have implemented technology solutions to support T&E through a combination of online booking and/or expense automation management.
It’s interesting to see that companies are now more likely to use systems for both than they were 3 or 5 years ago (40 percent 5 years ago to 69 percent in the last year). What’s more, if you look at integrated systems , this trend is even more dramatic going from 42 percent to 79 percent.
But what does true integration mean? Today, about 80 percent of expense solutions on the market claim to integrate with an OBT. True integration will enable you to use travel data in a meaningful way and to pre-populate an expense report in real-time and link transactions to a trip automatically. But many ‘integrated’ solutions only provide a view of travel data, no real-time access and no meaningful connections that would help create an expense report. That’s not true integration.
Bring it all together for greater efficiency
Around 60% of the companies interviewed said that integrated T&E solutions would help them drive better strategic business decisions by making sure that the budgets get allocated to the right areas of the business at the right time. We could imagine flexible travel policies driven by business needs that would determine the rules to apply based on the type of travel. If these policies are managed in a single place, it’s easier to manage them in a more dynamic way.
Taking it a step further, companies would value consolidating even more supplier relationships for managing travel. Fifty two percent of mid-to-large sized companies consider that having a single provider for travel agency services and integrated online booking and expense management would be even more beneficial. Not only would this centralize into one point of contact the administration of TMC services along with online booking and expense management, but the data set available to Finance and travel managers would be even more complete. There would be no easier way to bring the entire online and offline spend together in one place. Changes to bookings en-route would automatically be sent through approval workflows and charges for new tickets and offline assistance would match up with trip data in real time. Only in this way can you truly identify planned vs. total actual spend.
This is the vision for KDS Neo Travel and Expense. It is designed as one platform for both – making the processes smoother and more efficient for everyone and giving the most visibility and control into travel spend. We’ve seen through this study that more companies are realizing that the move to a fully integrated travel management and T&E solution just makes sense.
For more interesting data points from our study, “Strategic Spend: A New View of T&E for Finance Teams” see the infographic here.