The way that people pay for business travel and claim their expenses back, is back to front. The industry has talked for a long time about how we might change the way we pay for business travel, but little has been done in the way of understanding and quantifying the impact this could have, or how an alternative model might deliver value.
At Amadeus, we have been working with theCentre for Economics and Business Research (CEBR)to lay out the facts of the matter. Let’s start by taking a look at three common payment and expense challenges facing business travelers and organizations today.
1. Travelers left out of pocket
In the standard expense management model, business travelers tend to purchase their own hotel stay and on-trip expenses - like meals on business trips - before claiming these costs back from the company (unless they are provided with a company credit card). This model, in which travelers are forced to spend their own money, creates one unavoidable problem – namely that each business trip leaves the traveler out of pocket.
In the interim, between making a payment and receiving compensation from the company, travelers are left with a dent in their bank account. Claiming the costs back can be a lengthy process and at some companies, the traveler must wait until receipt of the following month’s paycheck to receive compensation. A previous study sponsored by Amadeus showed that travelers from large companies (1000+ employees) are forced to wait 4.1 weeks to have the expenses paid back; at smaller firms (less than 1000) the wait is still 3.5 weeks. When you consider that business travelers may take multiple trips each month, this presents much more than a minor inconvenience.
2. Time wasted processing expense claims
From a business point of view, the current model is an inefficient use of both company time and money. Typically, travelers collect business receipts during a trip, before submitting an expense claim, which must be approved by their manager before being audited, accounted-for, and reimbursed by finance.
This takes up a significant amount of time – time which could be spent on far more productive tasks. In fact, CEBR’s analysis reveals that travelers, their managers, and finance teams spend over two hours on average per trip, manually processing expense claims. With widespread use of virtual cards to pay for on-trip spend, companies can significantly reduce and even completely remove these manual processes.
The economists at CEBR calculated that productivity improvements from handling expenses in an integrated and digital way, could free 188,000 Full time Equivalents (FTEs) across the US, UK, France, and Germany. To put that in perspective, the economic benefit would amount to more than $20B in gross value across the four economies, which is broadly equivalent to the total value added to the UK’s economy by manufacturing.
3. Inability to control employee spend
During each trip, business travelers spend on meals, taxis, and entertainment. This spend often accounts for 40-50% of the total cost of a trip and yet remains completely unmanaged and opaque at most companies today. Since this type of expense is claimed for after the fact, it is difficult to manage and can lead to particularly awkward situations for everyone involved, should an employee unknowingly overspend. Implementing corporate travel spend policies after-the-fact is complex and it’s costing corporations greatly.
Surely there's a better way?
When you combine all these inefficiencies, the need to drastically re-think the way in which we handle expense management becomes evident. We must move away from this unmanaged, after-the-fact process and instead embrace end-to-end digital payment and expense, which boosts efficiency, visibility and control over travel spend.
By using virtual cards, businesses are able to supply travelers with a pre-approved expense budget for each trip, so that there is greater transparency and companies are better able to control employee spend to ensure that business trips do not incur unexpected costs.
Let’s take the example of a three-day business trip to Madrid. Ahead of the trip, company can calculate a pre-approved budget including allowances for a hotel, meals, and taxis. Then, a virtual card is loaded up with this budget and stored on the travelers’ phone. When the employee makes a payment using this virtual card, the expense is paid for directly from the company’s bank account and there is no need for the traveler to dip into their personal funds at all.
Our research with CEBR reveals that moving to this model, where spend is more actively understood and controlled, is likely to help corporations save 8.2% of direct travel costs. When we know spend on business travel is estimated to reach more than $1T this year, it represents a significant saving for corporations. The economists attributed these savings to reductions in fraud and error achieved by pro-actively setting trip budgets, as well as better enforcement of company travel policies using the unique capabilities of virtual cards.
Rather than auditing expense forms after the trip and potentially disciplining an employee, a virtual card allows the company’s policy to be hardwired into the payment method.
The way forward...
Now is an ideal moment for corporate travel, finance, and procurement leaders to come together to ask if the expense management process at their firm remains fit-for-purpose. Can we be confident that we’re effectively controlling the cost of business travel? Are we empowering business travelers with a modern digital experience that supports productivity? Could we be doing more to ensure we have the automation and visibility needed to free high-value finance teams from transactional tasks?
End-to-end digital spend management is an emerging concept that harnesses a number of innovations to reinvent decades-old travel and expense processes. It presents an opportunity for transformation and clear economic benefits gained through productivity improvement and more efficient management of travel spend. It’s time to re-think and reshape this process.
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