What is expense management?
Expense management is the collecting and analysis of travel and entertainment (T&E) costs. It logs the entire process, from the moment someone says they need/want to make a trip or entertain a client, and the authority to do so, to the moment all details of that expenditure are electronically integrated into an internal accounts system. This is done through a combination of corporate cards and card tools (technology).
Why does it matter?
It shows whether travellers are following company policy, highlights fraud and reveals where companies are spending most money, which helps when trying to negotiate better rates from suppliers. This is called management information or MI.
Where do I start?
Make sure you know what you want your system to do. The size of your organisation will determine what is cost effective. Are you a single-country operation? If so, there will be cheaper options. How many people are submitting expense claims regularly? Do you want to get rid of a painful process and outsource it? Or reimburse employees quickly? Or bill clients quickly, in which case accuracy will be as important as speed.
What do the management tools (technology) do?
They record the authority given to spend the money and format credit/charge card statements to look like expense forms. This means that after each expenditure on a card, the system populates the forms automatically and employees only have to fill in the reason for expenditure and forward to accounts. Receipts may also be attached electronically.
How do I know which management tools to use?
There are expense management facilities in the large financial accounting systems and for a small number of expense reports – less than 20 per month – this can be good enough. A dedicated system is more sophisticated and billing is based on the number of expense reports per month: bulk-buy principles apply.
What does it save?
One report costs US$48 (around £30) to process manually, against US$18 (around £11) when automated. From submission to reimbursement, time taken is cut from 14 days to three (Aberdeen Group). It takes less than one part-time person to handle 200 reports per month, a 66% reduction in staff required for manual processing. The cumulative value of moving from unmanaged travel spend with manual-expense processes to a managed programme with a fully integrated T&E system (ie, booking tools, cards and EMS) can drive savings of more than 25% of the total T&E spend (KDS).
What does the cardholder get out of all this?
Cards help travellers separate personal and business expenditure. The technology gets rid of the need for laboriously filling in expense forms and can impose the discipline of submitting them monthly, with the bonus of prompt payment.
How can you ensure it is used – and responsibly?
Best practice is to mandate use of the card. It’s essential this is led from the top, so it’s crucial to get senior management on board. Points or other awards to the cardholder can be used to drive compliance. Controls such as whether cash withdrawals are allowable or blocked can also be put in place.
Is there a way of paying centrally?
A lodge card allows the company to pay, but in that case don’t let people check their own expenses. If the individual pays, they have to justify the expense and their manager signs it off.
Do you really need an EMS?
With small numbers of people, probably not, as it’s usually clear whether someone is abusing their card, but with large numbers of travellers, it’s the most efficient way to track spending. UK organisations paid £1bn to reimburse out-of-policy expense claims in 2010 (Employee Expenses Benchmark Report 2011 by GlobalExpense).
Is there a minimum spend required?
T&E spend represents up to 0.8% of sales, so companies probably need sales in excess of $50m (or £31m) per year before the investment delivers benefits. If travel spend is greater than $1m (£0.6m) per year, or if key travellers are going overseas more than three times a year, you need integrated expense management technology.
Can VAT reclaims be included in this process?
Most of the large expense management companies will either process VAT claims, or have a relationship with a company that does.
What’s the next big thing in expense management?
Mobile apps allow travellers to do their expenses en route, photograph and attach receipts and have the lot approved and paid in their absence. In addition, many of the larger suppliers are now providing services for SMEs, or are planning to do so.
Are there other options?
There are virtual cards, where a unique credit number is issued on a per project or per transaction basis. The number is invalid for any other transaction, ensuring total compliance; and use of the virtual card can be ring-fenced, so if there is a ceiling of £100 per night in a hotel and a traveller is away for one night, the card is blocked at that threshold.
Can some control be imposed on use of personal cards?
No: no control, no MI, no nothing.
• Thanks to Dominic O’Regan, director of product marketing, KDS; Yael Klein, MD, AirPlus; Simon Barker, MD, Conferma.