Travel and Expense Management: Definition, Significance, Benefits, Key Features & Best Practices

Travel and expense (T&E) management is a crucial task for any business. It is, however, a complex process to accurately gather and record all travel-related expenses. This article explains how to optimize business travel spending, stay compliant, reduce policy violations, and enhance the efficiency of your T&E process.  

Whether you have 50 or 5,000 employees traveling for business, travel and expense (T&E) management is an important task. It was, until recently, a cumbersome and long-drawn process.  

Fortunately, things have improved in recent years. The necessity for physical expenditure reports, human reimbursement systems, and back-and-forth approvals has been eliminated by cutting-edge technologies. Several organizations have a travel and expense management policy as well, to ensure efficiency and prevent misuse or fraud. This is, however, an expensive process now. Studies reveal that despite economic uncertainty, over 1 in 3 companies will spend upwards of $250,000 on business travel this year.  

Read on to know why spending on T&E management is worth the money, why it is critical at organizations, how to optimize this spending, stay compliant, and reduce policy violations. 

What is Travel and Expense Management?  

Travel and expense (T&E) management is the documentation and processing of organizational business costs for tax deduction, budget compliance, business intelligence, and employee experience management.  

How Does Travel and Expense Management Work? 

The T&E process has six key steps: 

1. The employee places a travel request

In a manual system, the individual must first submit a trip request and obtain permission before commencing the booking process. In contrast, requests and approvals happen instantly within an automated travel and cost management system. HR departments would benefit from having a platform where individuals can submit requests for business travel. This may be a pre-populated form with the bulk of employee information, like identity, title, and reporting authority. Employees only need to submit information pertinent to the upcoming trip. 

2. The manager and/or HR partner approve the request

Once individuals complete their applications, they are forwarded to one or more individuals for approval. This is where having a well-defined travel management strategy for the organization comes in handy. In accordance with the policy, the manager may manually approve, seek clarifications on, or reject the request using a web-based travel and expense management software. 

3. The travel team makes the booking

The first two stages enable the travel department or team to gather all necessary itinerary information in a centralized location. After that, employees are given various ticket options to choose from and reservations are made. Employees are sometimes also given the option to select their dining and seating preferences, as well as their lodging and rental vehicle requirements. Some businesses may choose to employ a third-party travel agency to complete this task on their behalf. 

4. Employees submit expense reports

Employees are able to collect and submit expenditure receipts in real-time. This saves them a great deal of effort when they return to their base of operations. There are also financial management applications available in the market that can extract data from a digital receipt and classify the spending. 

Some T&E tools enable workers to scan and record actual receipts via a mobile app, and then submit the expense report. The remainder of the report can be compiled based on real costs incurred at the time of the business trip.The expenses are simultaneously communicated to appropriate departments or supervisors for approval. 

5. Managers and/or HR approves the expenses

Multiple approvals are permissible – even required – if they are planned well. By establishing an approvals hierarchy, you can guarantee that relevant information reaches the right individual at the right time. You may also choose to automatically accept cost requests in specific circumstances, such as for food purchases under $10. Prior to taking the next step, finance teams may need to re-check expense claims amongst employees and approvers. 

6. Finance teams or T&E accountants reimburse the business travel costs

The reimbursement of travel expenses is the last step in the travel and expense management process. Following approvals from the finance team, one may set up an automated trip reimbursement system in which the funds are sent straight into the individuals' bank accounts. 

Corporate credit cards could also save time, monitor spending, and automatically reconcile card balances. Consider obtaining employee feedback on the procedure at the conclusion of each trip. Regular feedback and frequent process improvements can further simplify your procedures. 

Learn More: Make Your Business Go Places With Darwinbox’s Brand New Travel Module!  

Formulating a Travel and Expense Management Policy 

A travel and expense policy seeks to address all potential concerns, pertaining to policy guidelines and budgets. If these questions are unanswered, it could lead to damaging outcomes such as policy violations, out-of-policy expenditures, false expense claims, and a sharp decline in compliance.  

T&E expenses represent the most frequently incurred form of business expenses. In addition, it's the second-largest expenditure that is hardest to manage for a company, after remuneration. Therefore, a robust policy is required to regulate it. 

The goal of a travel and expenditure policy is to remove or minimize the risk factors associated with expense reporting. It does this by outlining the principles and guidelines that finance teams and individuals must adhere to while handling business travel costs. 

Listed below are some of the spending categories that should be included in any travel and expense management framework. 

• Airfare and ground transportation costs 
• Hotel reservations and other accommodation 
• Travel advances and cash expenses 
• Corporate credit card charges  

• Healthcare and insurance costs 
• Per diem allowances 

Learn More: How To Automate Travel Expense Reporting in Enterprises  

Importance of Travel and Expense Management: 10 Key Benefits 

A robust T&E capability is essential for businesses because it offers the following benefits: 

1. Maintain a data trail for audits

In the eventuality of an audit, the benefits of travel and expense control become abundantly clear. Being capable of accounting for every trip and business expense makes working with auditors much easier. 

Certain software solutions alert employees when they could be incorrectly reporting an item as a legitimate cost. Depending on the business's travel expense regulations, the company may additionally configure T&E software to determine which charges are permissible and which are not. 

The solution will maintain complete records of expenses incurred, along with per employee, per team, and per expense category analytics. 

2. Prevent expense fraud

One could assume that only large corporations are affected by travel expense fraud. Now, this is not even close to the truth!  Frequently, small businesses must deal with individuals who file fraudulent expense reports supported by fake documents. With modern technology, it is quite simple to forge a receipt. By clearly articulating everything in the travel and expense policy, there's really minimal possibility that an employee would misinterpret which charges are permitted and which are not.  

3. Save employee time and effort

Maintaining receipts, ensuring expense compliance with policies, and completing expense reports on time can be tedious and repetitive for your employees who travel frequently. This might be particularly challenging in the event of abrupt scheduling changes. 

A travel and expense system facilitates the tracking, scanning, and storage of receipts for business expenses. Your employees may file their travel expense statements with a single click after the trip has ended. This saves them considerable time, effort, and productive hours. 

4. Build customer relationships

Business travel is frequently a wonderful opportunity to interact with new people and cultivate new partnerships. This not only helps you develop ties with individuals in your area of business, but it also enables you to form new relationships with suppliers, prospects, and customers, among others. In fact, travel and expense management are essential for business development and sales, with a direct impact on your annual revenues. 

5. Improve productivity for finance

If you ask financial experts about the most time-consuming aspects of managing expenses, they will undoubtedly include analyzing expense reports and pursuing employees for reimbursements. A well-designed T&E system can now simply automate the aforementioned tasks and much more. By automating travel and expenditure management, one may boost the finance department's productivity and performance. 

Accountants can instead use the saved time to focus on spending forecasts, planning, and long-term cost savings. 

6. React better to crises

During the early months of the pandemic, the greatest challenge was the lack of a transition period. Many governments enacted lockdowns relatively quickly, while others began by restricting travel to affected areas. 

Having a clear travel and expense policy enables businesses to respond to unexpected events without losing financial control. 

As an organization, you want to convince your workers that you would do whatever it takes to ensure their safety, while also being able to determine the cost of these activities promptly. A method that is automated may expedite the repayment of emergency expenditures and provide finance teams with real-time insights into the underlying reasons behind spending. 

7. Enhance employee experience

Paper-based expense tracking isn’t a great option  in today's business environment. Keeping track of tangible receipts, recalling the policy, and submitting reports on time may impose an enormous burden on individuals.  In contrast, a robust, digitally-empowered T&E system can make the employee experience much smoother. For instance, systems that use OCR technologies to scan receipts and input personal or corporate card transactions straight into the system expedite submissions and, ultimately, reimbursement. 

8. Drive organizational health and business stability

Since the COVID-19 pandemic hit, the terms 'pivot' and 'unprecedented' have become popular terms. Managing cash flow is always a crucial problem for organizations in difficult times. Inadequate cash flow might result in a delay in employee payments and increased uncertainty about the company's survival.A travel and expense management system provides organizations with greater visibility. Without having to go through paperwork, you can clearly ascertain where income is flowing in  — and where it is going outs – as well as filter results by business unit. 

9. Stay compliant with internal, state, federal, and industry laws

T&E management systems help organizations maintain compliance with local, state, and federal tax authorities. Companies may classify expenses, such as office, travel, and mileage, and appropriately tag them. In the event of an audit, the software may also provide easily accessible digital copies of documents and receipts, which are invaluable. 

10. Reduce delays and errors

With old-school, unstructured expenditure reports, employees could make data-entry errors. A reliable T&E management system can indicate inaccuracies and duplicate entries, avoid overpayment, and raise alarms if something seems excessive and expensive. Additionally, the software may send warnings when a statement or reimbursement is overdue for payment. 

Some solutions draw information straight from savings/checking accounts and credit card transactions and are interoperable with enterprise travel management solutions. Employees can access receipts on their portable devices and upload them to reports, thereby minimizing the possibility of typographical errors.All of this, together with a strict travel and expense policy, ensures that employees are reimbursed correctly and on time. 

Learn More: Rethinking Your Travel & Expense Management With Smarter Technology  

10 Features You Need in a Travel and Expense System 

An ideal travel and expense management system has the following features: 

1. Role-based user experience and access

The software should offer unique functions for each user. The administrator must be able to add multiple users and designate roles depending on their respective permission levels. For instance, although the head of the sales department must supervise the authorization process for the whole division, the sales engineer assigned to them must only submit his/her trip cost report. 

2. Programmable expense limits

Using this function, users may configure the system in accordance with your organization's travel policies, such as expense amount caps, per diems, mileage charges, and approval protocols. Different departments may have different spending demands and expenditure restrictions (e.g., sales vs. product); consequently, a robust travel and expense system will enable you to establish customized policies for each. 

3. AI-powered paper document scanning

Employees no longer need to manually record each cost or be concerned about losing receipts. They could simply click a picture of the receipt using a smartphone application. The optical character recognition (OCR) engine will extract the vendor name, dates, and amounts to generate an expense report. The digital versions of the receipts are then retained until the transaction is fully processed. 

4. Credit card integration

Providing employees with corporate credit cards increases spending transparency, avoids overspending, and decreases fraudulent charges. The travel manager may establish spending limitations for the cards so that each employee receives a card with a predetermined budget. The T&E system should have a dashboard where you can monitor card activity in real time. Along with credit cards, you may also need support for prepaid corporate cards. 

5. Expense reporting automation

Preparing and filing expense reports manually is laborious and time consuming. You should therefore look for a solution that automates this process. The unreported costs from a certain time period are automatically combined into a report, which also includes any additional expenses presented by the employee. The report will be forwarded automatically to the designated approver. 

6. Tight-knit integrations

It is a good idea to choose a T&E system that is truly automated with core, payroll, attendance, and finance. Integrations will also ensure that travel and expense reside within the same human resource management system (HRMS) app with custom reminders, tasks, and self-service. Integration with customer relationship management (CRM) is another feature to look for in case of expense management in sales. 

7. Web-based and centralized

Employees need to be able to file and monitor expense reports via mobile devices or web browsers. A cloud-hosted web-based expense management solution enables administrators to monitor and approve claims from any location. Moreover, information such as expenses, gifts, taxes, and vendor data must be available and extractable from a single source. 

8. Multi-currency support

When employees travel for business, they incur a range of expenditures that are paid in the local currency. Documenting these charges requires manually converting every purchase into your domestic currency, which can burden administrators during the filing process. Look for corporate travel expense software that enables multi-currency capabilities to address this problem. 

9. Approval workflow automation

Rule-based automated processes decrease the need for manual intervention and accelerate the approval procedure. For instance, you may establish approval criteria for expense reports that exceed a specific threshold and must be reported to the finance director. Additionally, you should be able to establish parameters for automatically rejecting expense reports. 

10. Travel and expense analytics

T&E systems provide a variety of real-time analytics reports on spending, financial statements, reimbursements, policy breaches, and other areas. With this data, it is possible to track every dollar invested and gain insights into travel costs. You can view reports grouped by location, division, employee, or spending categories for a breakdown of the top policy abusers, programs where the bulk of your funds are being spent, policies being violated, etc. 

Learn More: SAP Concur vs. Darwinbox T&E: Detailed Feature and ROI Comparison  

Travel and Expense Management Pitfalls to Avoid 

Without the appropriate policy and digital systems to support it, T&E management is vulnerable to the following challenges: 

1. Lack of visibility: When your expense procedures are slow-moving, data gathering will also be sluggish. Managers and budget controllers who lack immediate visibility into spending cannot make intelligent decisions for the time period in question. Instead, their budgetary adjustments will be entirely reactionary. 
2. Inaccurate expense submissions: Processing expense reports is a cumbersome undertaking, particularly when it must be performed several times over, due to erroneous and/or late expenditure form submissions. Outdated, manual systems have tedious and time-consuming submission processes, and are open to several loopholes. 
3. No sense of empowerment for employees: The conventional method of T&E management focuses solely on control. A travel manager or office manager will ensure that all trips are booked within budget. However, this could trouble travelers who would prefer to arrange their own trips instead of having to depend on their managers for all bookings. 
4. Unauthorized expenses: WIthout a robust, secure T&E management system, it is easy for unauthorized travel reservations to sneak in between the cracks. Even if you have pre-approval procedures, it might be difficult to determine whether reservations adhere to your company's travel expense regulations. 
5. Dent in personal finances: Slow processes result in delayed reimbursement for travelers. Especially if they were to make a significant purchase, this might make managing their personal finances difficult. 
6. Lost receipts and tickets: The disappearance of paper receipts is a major problem for individuals in charge of expense management processes in small businesses. When workers lose their receipts, the organization cannot compensate them for resources consumed on business travel, as there is no evidence that the expense was incurred. 
7. Overly complicated record management: Ineffective T&E management makes it challenging to determine whether costs qualify as permissible. When certain staff purchases qualify, while others do not, the process of separating them becomes muddled and labor-intensive, making the closing of the fiscal year even more stressful than it ought to be. 
8. Limited fund access: Without travel and expense management, several businesses continue to use a singular corporate card for the entire workforce. When shared cards are physically passed from employee to employee, there’s a possibility that they will be   misplaced. 

To address and eliminate these challenges, most organizations are now turning to travel and expense management software solutions. These are easy-to-use apps with clients for employees as well as approvers and finance teams to manage the end-to-end T&E workflow. Some apps come with pre-programmed compliance rules and expense thresholds. This, and other key features mentioned above, make T&E software an invaluable tool for organizations. 

Travel and Expense Best Practices to Remember 

Given the complicated yet mission-critical nature of travel and expense processes, HR and finance teams must pay close attention to all its elements. Fortunately, there are several things you can do to simplify T&E management: 

1. Define your business travel budget

After resuming hybrid or full-time office work  following the pandemic, the first thing a company should do is establish a separate travel budget. If there is no historical data available, the finance team should consult with the heads of other departments to estimate the volume of business travel that will be necessary for the year. 

2. Be bold with automation

The way travel expenses are handled requires a lot of manual work. From paper receipts to typing numbers into a spreadsheet, there are many ways to make a system more automated. You can make things run more smoothly by automating approvals for a certain amount or making entries right away through OCR. Identify the inefficiencies, and automate any task that’s mundane and/or high-volume. 

3. Try to centralize bookings on a single platform

You can make life easier for your whole financial team if you only use one booking platform. When all employees book their travel in the same place, it's easier for them to keep track of their receipts and emails and lessen the chaos. Even better, a single booking platform makes it easy to see all of these costs at once in one place, giving you visibility. 

4. Remove known bottlenecks

Set up your workflows so that you can easily auto-approve spending that is important and unavoidable. This could mean that business class tickets are automatically turned down, or that food costs under a certain limit are automatically approved. In the same way, you need to set up an approval hierarchy that makes your reimbursement processes quick and easy, by looping in the right people who are aware of employees’ travel plans. 

5. Go paperless

If you haven’t done so already, replace paper-based travel and expense management with cloud-based tools. Travelers should be able to use your T&E management system to record expenditures, scan bills, and submit digital requests and reports, rather than filling out paper expense forms. 

6. Be objective with expense policies

When setting expenditure standards, it is ideal to set common, standard conditions for the entire workforce. For instance, if you provide managers with much greater corporate spending allocation and flexibility for business trip reservations than other team members, it can cause discontent and conflict among the workforce. However, you can tailor policies for different projects or departments. For instance, recruiting and sales may have a greater average expenditure than the company's general average. 

7. Make sure to provide a mobile app

Most corporate business travel costs occur on the road, and it is not always possible for an employee to check the balance of their digital expense wallet on their laptop. That's why it is essential that you select expense management software with a mobile app. Also, employees now regularly use their mobile phones for work purposes, after prolonged periods of remote/hybrid work. A mobile travel and expense app will elevate their work experience. 

8. Integrate travel and expense management with HR

There are a lot of different SaaS tools that companies use to manage their travel and expense processes. But it's common to waste time by switching between dashboards and apps that do the same thing in order to finish a single task. Choose solutions with a wide range of features and integrations that work well together. For example, Darwinbox offers T&E management in sync with the HRMS and payroll, so you have zero effort or data duplication. 

9. Ensure your travel and expense policy is simple and uncomplicated

The policies should be easy for employees to understand and  all employees must be aware of all the expenses they are allowed to make. This way, they can be sure about what they spend for and during business travel. Ensure you distill your multi-page handbook into a short policy document that employees will actually peruse and understand. 

10. Update your policy every year

Employees' habits about business travel and out-of-pocket costs will inevitably evolve as your company matures and develops. You need to revise your spending policy to reflect the current demands of your business. By maintaining an up-to-date T&E policy, you will ease your staff's concerns about booking travel with the incorrect vendors or going over budget. Don’t forget to notify employees of the major changes they need to remember. 

Learn More: 3 Pillars Of Digitizing Your Travel & Expense Management Strategy  

Conclusion  

Today, business travel is more important than ever before. A 2022 survey by the Global Business Travel Association found that internal travel is back to 50% of pre-pandemic levels. Moreover, nearly 8 in 10 travel managers expect the number of trips to increase dramatically in 2023. A well-defined travel and expense strategy aided by a powerful, easy-to-use T&E tool can help you track expenses and stay compliant. 

Request a Darwinbox Travel and Expense demo to learn more!