What is T&E expenses?: Travel & Expenses Management
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In business terms, T&E stands for Travel and Expenses or Travel and Entertainment. Sometimes, especially in the service industry, T&E can stand for Time and Expense, referring to the time invested in a project and expenses incurred to execute the project successfully.
For running a business, many times employees are required to go to different destinations to meet new clients and identify new markets with a view to expanding the business.
What is Travel and Expenses (T&E)?
In a corporate context, T&E (or T and E) refers to Travel and Expenses or Travel and Entertainment. This encompasses the costs incurred by a business when employees travel away from their usual base for work purposes. In the professional services sector, T&E can also denote Time and Expense, indicating the time spent on a project recorded for utilization records and billing purposes. Understanding T&E is vital for effective financial management and budgeting in organizations.
When employees leave their operating base for these purposes, the organization must pay for their travel and related expenditures. This expenditure is categorized as T&E, which is travel and expenses.
Travel and spending are one of the most significant expenses for many businesses.
According to the Global Business Travel Association, business travel spending grew globally to $305 billion in 2018 from $292 billion in 2017
Profitability is significantly impacted by efficient budget and spending management. The overall profit is decreased if employees spend too much on lodging, transportation, food, and beverages. However, strict expenditure limitations may prevent employees from attending important meetings and activities.
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What are the components of Travel & Expenses?
Travel between source and destination
This covers the price of any required travel by air, rail, road, or river to conduct business away from home for an extended period of time. Only out-of-pocket payments may be written off, not the value of frequent flier miles or other rewards programs.
Travel at destination
This includes the use of a taxi, shuttle, limousine, or ride-sharing service to get from the airport to your hotel and a place of business. Even if you work in a different city within the same metropolitan area as your tax home or office, the expense of your usual commute to and from those locations is not deductible.
Seasonal variations in standard rates cause them to vary from month to month. They include a meal allowance (breakfast, lunch, and supper) as well as incidental costs (M&IE), such as tips or room service fees.
Communication and Other Expenses
This covers expenses on calls, internet, and any other expense incurred like laundry, gifts given to clients, etc
This covers the price of taking clients or staff members on business trips and their families to sporting events, clubs, or activities that resemble vacations. Additionally, "lavish or costly" meals that aren't quantified by a specific cash amount are covered by the entertainment exemption. To assist employees in navigating the murky waters around entertainment and meals, your travel cost policy should offer direction or impose spending caps.
61% of business travelers report that their current travel schedules are falling short of their expectations, and 82% of business travelers report their company is returning to pre-pandemic levels but with a “more travel on fewer shoulders” approach
What are the stages in Travel and Expense reimbursement?
Approval & Submission of Travel Request
The employee gives his or her manager the travel request. The request includes information such as The reason for the call, the recruiting, the visit to the distributor, etc. dates of travel (start and end dates), the locations of the source and the destination, the mode of transportation, and the cost center to which the expense will be paid. The employee then sends the request to his/her manager who reviews it and approves/rejects it and asks for modifications to it if needed.
Reservations by Travel Department
The employee's reservations (for travel, lodging, and other services) are made by the travel desk. In certain businesses, it is the employees' obligation to make the reservation.
The travel department books the flights and provides the traveling employee with confirmation of the details of the tickets, accommodation, etc.
Expense Request and Approval
Once the employee reaches the destination, he will incur expenses. For this purpose, he will raise appropriate requests. The employee asks his or her manager for permission before incurring expenses. This is often done by filling out a paper or online form with the information needed to incur the expense (such as the item, the need for it, the anticipated cost, the cost center to which it will be charged, etc.). After reviewing the expense request, the manager decides whether to accept it or not. If the request is approved, the employee goes ahead with the expense and if denied, the employee won't be able to incur that expense on behalf of the business.
T & E Report Submission
Once the employee returns from the trip, they submit their T&E report. Most businesses have rules on how soon after a trip is over a claim may be lodged. This policy makes sure that employees submit their expense reports on time so that management can view expenses as soon as possible.
The employee includes the trip request number against which the expense was incurred in the expense report, and the matter is then closed. The T&E desk validates the claim that was submitted. From the standpoint of outsourcing, this step is the most crucial and necessitates a full understanding of the client's payment procedures.
Verification and Settlement
Once the team receives the documents, they start sorting, scanning, and uploading them into the document management system. These papers are indexed in the document management system and made available to the team offering the verification services for further processing. The verification team confirms that the trip expense has legitimate authorization from a manager or authorized employee.
The verification team then examines the expense report to see if it is accompanied by genuine receipts and bills. Employees are requested to submit claims again if any receipts are missing, along with the missing receipts. The claim is next examined to see if it adheres to the company's T&E policy in terms of eligibility requirements and spending limits. The verification team authorizes the claim for payment if all the conditions are examined and determined to be in compliance. The transaction is completed, and the employee gets paid.
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What is the importance of T & E?
T&E is after payroll, the second-most challenging operating expense, according to a Forrester Research poll.
8 to 12% of the average organization's total budget is spent on business-related travel and leisure.
This means that you should particularly pay attention to your T&E expenses if you're thinking about cutting costs or promoting more effective business procedures.
Most businesses believe that their spending is within reason and that there isn't much they can do to reduce their expenses. Such presumptions may not be accurate in reality, and it can be challenging to overcome them. They are only left with open eyes about how much more they spend and how much money employees might be spending outside of policy once they know their actual spending (after employing a competent T&E system).
When interpreted correctly, this information makes it possible to control spending patterns, monitor fraudulent spending, find duplicate invoices, etc. It reduces travel and expenses by more than 20%.
Business travelers can also benefit from a better T&E process. Employees who travel for work-related purposes or make out-of-pocket purchases for the company are concerned about how quickly they will be reimbursed. A smart system for managing travel and expenses can streamline the entire process. Shortening the entire approval time allows for speedy reimbursement and provides adequate visibility into the cash flow. It makes it simple to provide receipts and, if there are any infractions, it flags them.
When employees are certain that their prompt reporting will result in prompt reimbursement from the company, they will pay for unforeseen T&E expenses out of their own pockets without any fear or reluctance
Every year, underreported mileage causes organizations in the United States $5.4 billion dollars in losses
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Travel & Expense Report
A travel and expense report includes a breakdown of all the costs related to a certain business trip. The expense reporting form and all the paper receipts are kept together in a file. To receive timely reimbursements, employees must submit these expenses to the finance department or the reporting manager within a certain amount of time. Businesses typically have a T&E policy in place that spells out what should and shouldn't be done with business costs. It covers the spending caps for each category of expense as well as what happens when they are exceeded.
The company frequently needs its employees to travel, but managing cost reports is difficult. Paper receipts are occasionally trustworthy but are prone to lose and damage while traveling. Even after all the receipts have been sent, sorting and processing them takes time. Both the workers who are waiting for compensation and the department trying to keep track of expenditure reports find that frustrating.
To request compensation for out-of-pocket expenses, employers need employees to submit T&E expense reports. T&E expense reports frequently include details regarding each expense item, including:
- The date on which the cost was incurred.
- Where the cost was incurred, for example, at a restaurant or at a service center.
- The client or business for whom the item was bought.
- The item's price.
- Additional comments if required. For example, if it was a dinner, “ Dinner with Tom from ABC Networks for discussion of the proposal”
Depending on the kind of expense, these fields change. For instance, employees may fail to include the client/project or account number on T&E reports when asking for reimbursement for home internet access.
Why are T&E reports important?
Many employees dislike filing expense reports, but there are valid reasons to resist the urge to put them off. It may be a tall order to find the appropriate receipts or remember the specifics of a business trip weeks or months after the fact, so submitting expense reports at the very end of the reporting period can result in serious issues. After a trip, you should rapidly complete and submit expenditure reports to help prevent mistakes and omissions.
Employees who travel or host clients can get reimbursed for costs they personally incur by using expense reports. Salespeople, executives, and other employees who incur these costs typically have to submit expense reports to their managers for approval at the end of each trip or by the end of the month in which the charge was incurred. Employees may also utilize corporate credit cards from some businesses to pay for authorized T&E costs.
The report must include in detail the taxpayer's professional connection to any person who was fed or entertained if the expense was for meals or entertainment.
Most firms ask employees to submit copies of actual receipts rather than credit card statements when expense reports are made for T&E goods that exceed a predetermined limit (usually $25 or $50). Some frequent examples of expenses that may be eligible for reimbursement are airfare, hotel, rental cars, mileage on personal vehicles, gas and tolls, taxis and ride-sharing services, business phone calls, wi-fi access fees, tips, and meals.
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How do Organizations spend their T & E budgets?
In all industries, travel and lodging are still the top two expense categories. Unsurprisingly, compared to the corporate sector, government and nonprofit organizations spend more on travel and lodging (66%) and less on dining and entertainment (a combined 10%).
Mid-sized businesses spend the least amount (26%) on airfare as compared to larger firms, probably because their business operations are more likely to be local and involve fewer travels.
Additionally, the middle market has the greatest non-travel expenditure percentage (17%), which may mean that they mostly use the corporate card for business-related expenses rather than a separate purchase card.
Since there are multiple sources of information needed to understand what a firm is purchasing and from whom, gathering travel data presents its own set of special difficulties. The general ledger, any cost management software, travel agency reports, and corporate credit card reporting are typical sources of travel information.
The card-to-employee ratio varies between 19.6% (for large businesses) to 26.9% (for the medium market). The mid-sized sector reported a card-to-employee ratio of 18.1% in 2008. The Fortune 500 reports an average monthly card fee of $813, while mid-sized businesses charge an average of $1,290.
The greater purchasing power of large enterprises and the fact that mid-sized businesses utilize the corporate card for a sizeable portion of non-travel-related purchases could both be contributing causes to the discrepancy.
Even if spending restrictions are being imposed less frequently, they still amount to about $4,000 on average for the larger organizations, which may have grown more reliant on other control methods. The average cap for large and mid-sized businesses is $2,400.
All corporate sectors appear to prioritize training and communication.
The cost of a hotel stay is typically the most expensive part of an employee's vacation due to recent large increases in hotel rates. However, spending on hotels frequently only has one line item. Folio data is being used by more and more third-party providers and businesses to present a more thorough picture of hotel spending.
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Drawbacks of Manual Travel & Expense management
Lack of Transparency
Businesses that record and forecast corporate spending manually or with typical expense management software have a difficult time tracking and analyzing spending data at the end of the month.
Limited transparency of employee expenses and lack of spending insights is a prevalent concern among their finance team.
This inadequacy of data leads to inaccurate calculations and poor financial management, planning, and forecasting. Senior management also tends to receive falsified or heavily deviating reports which leads to them making poor choices that they are unable to recognize or change.
Employees frequently "cheat" while filing expense reports. For instance, a dishonest employee might inflate expenses; they might also alter the figures on a receipt, submit several requests for reimbursement, or think of other ways to draw out money from the company. One of the most popular strategies is misrepresenting expenses by using legitimate receipts for non-business-related activities.
Some businesses could make "informed guesstimates" about monthly spending since they had a strong handle on travel trends. However, COVID-19 upset everything.
According to Dataconomy, the pandemic upended categories and brought T & E spending to a grinding halt. 51 % of expenditures in March 2020 were on lodging. That fell to 20% in just one month, a 31 % decrease. Spending on corporate services, meanwhile, increased from 10% to 27%.
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When waiting for their T&E claim to be processed, 32% of employees think they were "left short," according to a survey.
Even when employees do submit cost claims, the reimbursement process doesn't always proceed as swiftly as is ideal. For 10% of workers, the procedure may take more than a month. Employees' perception of their employer suffers while they are struggling financially and coping with a difficult claims process.
When someone takes advantage of them, nobody likes them. Resentment, lack of enthusiasm, and abandoning the firm may result from this. They might even suggest to their network members not to work for your business. That kind of reputation won't benefit the organization in any way.
According to one-third of the employees questioned, one of the main reasons for unclaimed expenses is that filing an expense report takes too much time and frustration.
Despite the fact that it could appear that unclaimed expenses would save your business money, you don't want to be one of the businesses with subpar travel and expense (T&E) procedures that irritate workers.
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Inefficient and time-consuming
A typical reimbursement procedure would look like this:
- An employee will submit the report and receipts after travel, making sure that all compliance criteria are satisfied.
- Managers who have been identified as authorizing evaluate the expenses. These invoices might be rejected, questioned further, or sent to the finance department for processing.
- These travel reports are compiled by finance staff, who manually identify claims.
- The payroll staff reviews the spending reports and makes any necessary reimbursements.
- The finance staff would return the expenses to the employee for any policy irregularities so that they may be corrected
The method must be repeated many times if there is any inconsistency or ambiguity in any of the steps. The process takes a very long time because of this.
Thus, processing claims can take time away from employees' working hours and productivity, leaving them with less time to complete valuable tasks for the company.
The cost of processing business travel expenditure reimbursements is frequently considerable, including the salaries of finance teams in charge of expense management and the resources needed for reporting. Don't just consider the one-time (for on-premises) or monthly (for SaaS/cloud) software cost when assessing expense management. The reporting process is further delayed and costlier when different systems are not able to "speak" to one another. Additionally, it is a waste of time for employees to search online for the greatest hotel and flight rates.
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Difficulty in tracking Receipts
Since receipts serve as proof, businesses typically require employees to include them with every expense report claim. It is essential for maintaining compliance and assisting finance teams during audits. Receipts, however, come in a variety of formats (paper, e-receipts, etc.), which presents difficulties like:
Employees find it tedious to manage several receipts, particularly when there is continuing T&E This often happens in the case of customer-facing teams. It puts more of a strain on finance teams to gather, confirm, and record them. In addition to this, many firms employ conventional approaches and reimbursement templates that may not have changed to meet the evolving demands of the sector. An unorganized expense workflow leads to confusion, lack of compliance, numerous rejections, and a delay in payment settlement.
Employees need a simple way to submit receipts with their expenditure reports so that the T&E management process runs smoothly.
T&E management is considerably more difficult for big businesses. The accounting and finance teams devote more time and effort as the amount of expenditures rises, which results in greater processing costs. Organizations that are attempting to save wasteful spending by limiting necessary trips face challenges as a result of this.
Companies that don't continuously monitor T&E spending trends miss out on chances to improve policy decisions and take prompt action to stop potentially fraudulent or out-of-policy behavior.
The spreadsheet method to T&E management won't catch, for instance, that an employee who typically spends $500 per month visiting clients at their locations suddenly spends $750 without authorization or justification.
However, businesses that use the aforesaid machine learning in their travel and expenditure software are able to take early action. Anomalies, like that $250 monthly spending increase, that can point to fraud or human mistakes can be detected by a well-configured ML system.
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According to a PayStream Advisors survey, businesses spend about $20.18 processing each expenditure report.
Multiply this by the number of workers that travel for work and the total number of reports submitted each month. You are aware that this entails significant wealth. Large sums of money are spent on useless expenses that could have been stopped at the source.
Nearly half of the organizations (46%) do not track the cost to process expense reports while 43% of companies are still managing expense reporting manually.
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Selecting the right T & E Automation software
63% of businesses already have their expense control processes (partially) automated, according to Pay Stream Advisors (2017)
This number will only increase because improving your travel and expense management (TEM) could significantly affect the financial results of your company. Thus, it is necessary to automate the T&E process using accounting automation software.
However, it's crucial to make sure you pick the best T&E solution and use it properly if you want to automate your cost management effectively. To minimize the time-traveling costs incurred by employees, approvers, and accounting or finance departments and to maximize your return on investment, high employee adoption rates are essential.
Various travel and expense management tools provide various functionalities. While some online solutions for managing expenses could be free, they only have extremely rudimentary features.
On the other hand, top-notch solutions provide features like cutting-edge OCR technology to "read" receipts and automatically pre-populate expense lines, calculations for mileage, adherence to local laws, the option to go completely paperless, and a mobile and desktop app, and offline mode.
IDC expects the worldwide Travel &Expense management software market to reach $2.7 billion by 2022 and have a compound annual growth rate of 8.7%
ROI of Travel & Expense Management Software
Setting a maximum budget for your expense management tool will be aided by making a rough estimate of prospective cost savings. The majority of businesses find that reducing the number of hours that traveling staff and the finance and accounting division must spend approving and monitoring expenses results in significant cost savings.
The precise amount of your potential cost savings and ROI will rely on your company's spending habits, workflow procedures, the number of traveling employees, business income, the employee adoption rate of the TEM tool, and the level of automation your preferred TEM product will provide.
The typical pay-back period for the most widely used TEM solutions is between six and seventeen months (G2Crowd, 2018)
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Ease of Use
The adoption of automated expense management software is not a typical project where the vendor handles the majority of the work. In order to tailor the solution to your company's travel policies and reporting requirements, the TEM provider may help you with the system integration process. Post that however, it is the organization’s responsibility to make the best out of it. Thus it must be ensured that the software is not too complicated to use as that would further delay processes.
Additionally, the success of automating your spending management depends on the confidence and satisfaction of key figures in your accounting and finance department with the chosen solution. Thus, it is crucial to not only comprehend their needs but also actively involve them in the project from beginning to end.
“Ease of use” was cited by 59% of respondents as the most important factor when selecting a cloud-based expense system
Support and Security
Another crucial aspect while selecting the T&E software is that it should support interaction with other relevant company systems, such as accounts payable, human resources, human capital management, and customer relationship management.
Data and processes will flow between systems automatically if the T&E software supports various languages, delivers consistent processes globally, and adjusts to the specific cultural and regulatory constraints in each market. Additionally, the right solutions should give you access to a diverse partner ecosystem so you can integrate complementary enterprise apps into your T&E solution portfolio.
Data transfer across systems can be accelerated with the aid of APIs with prebuilt integrations. The most recent security procedures and fraud pattern-detection tools must be included in T&E systems in order to protect against risks to data security. You can stop both internal and external data threats with the correct tools.
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Benefits of Automating T&E
Migrating T&E processes from manual to automated can go a long way in improving the overall performance of an organization. Businesses may increase productivity and keep a tighter watch on employee business expenses, which are the second-largest controllable cost for the organization.
Intelligent automation gets rid of paperwork. With an expenditure management system in place, staff members can take photos of their receipts with their cellphones and submit them via a mobile app to the expense platform. They can then swiftly put everything together into an expenditure report and submit it right to the finance division.
This reduces the hassle of maintaining physical copies of multiple receipts. Even if a mistake is made, the finance division can identify where it happened, which is challenging to do with paper records.
The finance team can conveniently go over all the documentation to check everything and authorize the expense reports. This greatly reduces effort and the potential for error while also speeding up the process. The finance team may make mistakes while moving data from the spreadsheet to the accounting system even if your personnel provide flawless expense reports.
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T&E management systems provide Integrated spend reports that give useful insights, such as helping you choose a trip companion based on what proportion of your T&E money is spent on travel, lodging, and entertainment.
With the help of this data, your organization can come up with more accurate budgeting and a better distribution of funds to areas where they will have a significant impact.
Reduced time and costs
You can set travel pre-approval with a finance automation tool customized to business needs to make sure that employees are taking advantage of the best airfare deals as they become available. No more missing out on a bargain because a boss is too preoccupied to approve it!
Travelers in businesses with automated expense reporting systems use 33% less time on average to prepare reports than those in other businesses with best practices.
Small to midsize business (1-999 employees) users saved an average estimated $49K annually by implementing an automated travel and expense solution, and they saw positive ROI within eight months of implementation. (Source: Analysys Mason 2022)
Faster Turnaround Time
Nothing is worse than rushing to turn in a report only to have to wait months for reimbursement after incurring expenses, especially if the employee paid out of pocket for an expensive product or service. The employee may become frustrated as a result, which may have an adverse effect on morale and production.
However, businesses may automate the approval and reimbursement process with efficient expenditure management procedures and tools.
Utilizing an automated expense management program expedites the approval and reimbursement processes. The manual procedure results in delayed reimbursement because finance managers and accountants have to spend a lot of time examining each expense report and passing assignments from one approver to another.
Organizations that automate their spend management tend to approve expense reports 4.9 days faster, spend less time handling receipts, and can approve expense reports on the go, all of which can lead to higher employee engagement and satisfaction, according to an Aberdeen report.
Better Tracking of Expenses
On average manual expense, processing spending is 3X times more in contrast to what can be achieved by a fully automated travel and expense system. Additionally, it can save 70% of their time.
Keeping track of all company spending-related documentation, such as reports, receipts, open invoices, and bills, is one of the main issues in manual expense reporting. These records are necessary for audits as well as reimbursement purposes. However, managing all the paperwork easily can be difficult when using manual expense management
Without misplacing or losing their receipts, employees can handle them. With the help of dashboards, finance teams may examine all corporate business expenses. All employee business reports are also accessible to approvers and the finance teams at any time and from any device. All employee spending reports can be tracked by the finance department for status and development. Every stakeholder involved has access to information about the expense reporting process.
According to studies, one out of every five expense reports includes a trip exemption. Some businesses only comply with regulations to a degree of 60%, which leads to wasteful spending on unauthorized charges.
By increasing adherence to and consistently enforcing corporate policy, travel managers might anticipate savings of up to 10%. It can be challenging to enforce expense standards without formal cost management software in place, which makes maintaining compliance all but impossible.
With an automated system, compliance and adherence to policies can be greatly improved. The entire procedure can be customized to comply with your company's travel policy. Employee expenses that go against the travel rules will be immediately reported to approvers as soon as they happen. This enables your team to quickly approve or reject expenditure claims in real time while checking for compliance.
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Best Practices for Travel and Expense Management
Clarify Expense Categories
It is essential to identify what types of expenses are covered by the policy with a precise categorization. The organization must clearly define the categories. The document should go into detail about any additional guidelines that may apply to these expense categories, such as spending limits, the frequency with which a particular expense type may be incurred, and any exceptions that may need to be approved in order to meet regulatory compliance requirements. To avoid disagreement and discontent, it should also specify which expense categories are entirely or partially non-reimbursable.
The following are typical expense categories: air travel, ground travel, hotel, food, entertainment, etc. Having a distinct spending type for each in your T&E system can help you distinguish between meals for employees and meals for business. Establish rules for what is permitted for internal travel and meals versus outside entertainment for business.
Set Limits and Constraints
If possible, specify a daily spending cap for food, housing, entertainment, etc.
Set standards for car size, insurance protection, and fuelling practices. Consider whether you should pay the airline's baggage costs, trip insurance, and cancellation charges.
In addition to the monetary value, each worker can spend each transaction, but you can also assign each person a monthly allowance. This can also differ per employee and scope of authority. This restriction tool restricts the degree of danger the card poses to the company. Concerns from employers that a worker will incur extra costs may employ SIC blackouts.
Detailed policies and processes should be set before a procurement card programme is launched. Printed versions of these rules should be provided to all impacted workers. Set standards for car size, insurance protection, and fuelling practices. List a few recommended hotel chains or the lowest possible hotel rates per night.
Define a Time Frame for Travel and Expense Claims
A minimum and maximum time period must be defined for the submission and reimbursement of claims. This should contain the timelines for when an employee should submit an expense claim and when they should anticipate receiving reimbursement from your business.
Try to treat the workers fairly here. Since these are business expenses, you don't want your team members to lose money if they are late.
But you also want to encourage them to file their papers as soon as possible. A definite cutoff point might be the best option. The T&E policy document should specify in detail when travel requests should be made when bookings should be made when travelers should ask for an exemption, and when expenditure reports should be made.
If the business makes use of a sophisticated instrument for managing travel and expenses, the procedure should outline the steps a traveler should take from pre-trip approval to final payment. Additionally, it should describe the company's approver policy and how a traveler can choose their own approver.
Regularly Update the Travel & Expense Policy
Examine reports from your expense management system instead of just the T&E policy to find areas where you are spending more than you should. Perhaps there are ways to cut costs, such as creating a new site for booking trips or extending the permitted hotel list to incorporate accommodations from a budget chain.
At the very least once a year, update your expenditure policy. Not just because it is required, but also because using this strategy has other advantages:
"Reducing the amount you spend on suppliers is another reason to update your costs policy. Use any updates as a chance to specify which businesses should be used and try to reach an agreement for recurring business.
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September 2022: The blog was originally published in July 2022 and was updated in September 2022.
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