Business travel expense management is incredibly important to the success of a company. If you are working in this field then you are at the forefront of managing cash flow and overseeing one of the business’s largest overheads.
This guide is designed to eliminate some of the stress associated with expense management and help you build a process that will undoubtedly impress.
What exactly are business travel expenses?
A business travel expense is a cost incurred when travelling for business purposes. This can include the cost of products or services necessary for the trip and are usually associated with travelling from home for days or weeks.
Which business travel expenses can employees claim?
The key rule when claiming any expense is that it should be both necessary to the performance of your job, and exclusively for that purpose as it relates to business objectives. What that means is that you (as opposed to your business) should not be personally gaining from claiming the expense.
Here are some examples:
- The direct costs of travel (airfare, train tickets, hotel stay, etc)
- Subsistence expenditure (food and drink consumed during travel)
- Any other costs associated with the journey, such as entertainment.
What is not a legitimate travel expense
What you also need to take into account are the expenses that are not considered business travel expenses, such as:
- Commuting to and from your regular office
- Any travel taken for private reasons.
What about driving? Can I claim expenses if I rent a car, or use my own car to drive for business reasons.? Yes, absolutely. To find out exactly how much you can claim, check out the Canadian government’s Automobile Allowance Rates.
You are obliged to report on travel expenses for tax purposes. However, some costs do not require reporting to the CRA. Cost such as an employee bus service or taxi services when ride-sharing isn't available are exempt from tax reporting.
How to manage the travel & expense process
1. Decide on the employee payment method
There are two main ways in which you can pay for expenses:
- Ask employees to pay them upfront using their personal bank/credit card or with cash and then have them submit expense claims.
- Pay expenses directly from a company bank account or company card.
1. The company credit/spending card
Although there is no legal requirement to do so, having employees submit expense claims can cost time. You might want to consider a company spending card which, if nothing else, makes it much easier to keep track of the finances. There are a lot of companies that offer both expense tracking and company credit cards, such as Soldo or Divvy - these will allow you to track and control expenses from one source.
If you decide to opt for company spending cards, be sure to conduct some research before going directly to your current corporate bank.
2. Pay with personal cards and submit expense claims
For many small to medium size businesses (SMEs), this is the simpler option. Asking employees to pay business expenses from their personal account is pretty standard practice. Reimbursing expenses can be a time-consuming process for both admin professionals and staff.
Factors such as asking for tax receipts only add complexity to the process. More details on the tax implications of claiming expenses can be found here. However, if this is your company’s preferred way of working, then it’s a good idea to use software such as Soldo or Divvy. These will help you digitize and track expenses.
2. Set out a clear process for expense submission & reimbursement
Whether using forms on paper, spreadsheets or expense software, having a very clear process will not only help you manage the flood of emails, but also set expectations for employees who are waiting for expense reimbursements. Establishing service level agreements with staff will help you get the info you need in a timely manner and also stop staff sending follow-up emails asking about the status of claims.
Here are some process options for you to consider:
- Pre-trip expense projection – Ask employees to complete a budget projection prior to their trip, this will force them to consider their spending.
- Receipt and invoice types – Be sure to state in what format you expect proof of payment to be provided (e.g. tax invoice in PDF/ physical receipt)
- Expense claim submission timeline – Ensure that all expense claims are made within 5 working days after the business trip.
- Expense reimbursement period – The company commits to reimburse staff within 15-30 days of the expense claim, during which time the company can query employees about expenses.
If you choose not to use an expense management software, then be sure to have standardized expense report forms that are accessible to all employees.
3. Communicate the expense policy
Many companies include their expense policy within their business travel policy, and nearly all of them have issues around compliance. No matter what payment option your company has selected, spending that’s outside company rules leaves the business in awkward situations.
If you have given someone a company credit card, and they spend out of policy, then the money has already gone. If the employee has bought something on their personal card and made an expenses claim outside policy, the employer faces the unpleasant scenario of either paying the bill or leaving an employee out of pocket and disgruntled.
The best way to avoid this is to make sure every employee knows the rules. Make sure you communicate the rules clearly and regularly, so they have no excuse but to follow them.
Here are ways to achieve this:
- Company-wide emails every quarter – Send an email with the expense policy every quarter, this may not be necessary if you are a small team.
- Talk about it at all-hands meetings –Your employees are important and they save the company money. Open the floor to them at the next company meeting and ask them to give (anonymous) examples of ) of good and bad expense claims.
- Post it on your company intranet – Make sure it is a living document that’s easily accessible. Link it to a Google doc or whatever tool you use. This means updates don’t require you to ask employees to delete or disregard previous versions.
Wherever possible, automate expenses for them by using a tool like TravelPerk which eliminates employees having to report their flight and accommodation expenses.
If you’re worried that someone in your company is deliberately not following the rules and is cheating your business out of money, make sure to read our guide on how to recognize and eliminate expense fraud.
How to calculate and track business travel expenses like a pro
Given that the average company will spend around $278 per day on domestic travel alone, it is likely that admins and those working in expense management will be asked for reports and breakdowns of how the company is spending on travel. Here are some key elements of making your quarterly or yearly reporting much easier if you put them into practice now.
1. Record everything and tag each expense
Sounds obvious, but if having a software to organize every receipt, invoice and expense report will pay massive dividends. . Travel and expense reporting are extremely important as in many countries these costs are tax-deductible, meaning big savings for companies. The first thing to do is to make sure you’re keeping a comprehensive record of all your business expenses on a regular basis. It’s best to do this daily, but at the very least, you should aim to do it twice a week. Everything you spend must be tallied!
Watch out for cash payments, these can easily go missing from your record, but they’re still a business expense, and they can’t be forgotten. The best way to do this is to choose one of the many business accounting software on the market. You can see our recommendations on the major expense management players here.
It’s a good idea to tag expenses so you can easily pull meta information when needed. The more granular your records, the better. Consider grouping and tagging travel expenses in any of the following ways:
- By trip type (existing client, sales, corporate event)
- By department
- By expense type
It’s also a good idea to make sure that your recurring expenses are set up in your accounting system. If you know that you’re going to pay a vendor every month, set that entry to recur in future months. That will make sure you don’t miss it, and it’ll help you plan better for the future.
2. Calculate every trip
It’s best to have an overview of the cost of the whole trip instead of immediately splitting travel and food costs into separate spreadsheets. This will provide you with valuable data that will allow you to decide how much to allocate for future trips to that region/event, and identify trips or staff members that cost more than the average. Make sure every element of every trip is accounted for and review the trip as a whole.
This should include, but is not limited to:
- Travel costs – plane, train, car rental, this includes fuel costs Accommodation – Hotel, Airbnb, or wherever you stayed
- Food & drink
- Entertainment – either for clients or if permitted in policy
- Wi-Fi connections, or anything else you needed to do business on the road.
3. Categorize your spending
Your accounting software will come with pre-established categories ready for you to start categorizing your spending. Try to stick to these standard categories as much as you possibly can. It’s important because when it comes to filing your taxes, you’ll be able to clearly see which areas of your spending are higher or lower than they need to be.
For small, one-off expenditures, set up a “miscellaneous” expenses field.
Predict your travel expenses
With all your expenses tallied and recorded, you can look at previous years’ spending and identify how much you’re likely to spend. This will help you see where you’re spending too much, or buy cheaper flights, hotels, etc. in advance.
Look at seasonality, recurring expenses, new employees coming in, opening a new national office, etc.
How to reduce travel expenses for small businesses
Whether you're an SME or a large corporation there’s a lot of ways you can reduce your business travel expenses. Here are 6 that you can fix straightaway.
1. Do you have to stay the night?
Most low-cost airlines and even train companies have early morning and late-night options. While these can mean a little less sleep, they can also be a good way to save money as they mean you don’t have to pay for a night in a hotel or Airbnb.
If you use a tool with automated travel policies, you should consider making all trips with an overnight stay require approval.
2. Get the point(s)
Airlines, hotels, car hire companies, and even alternative lodging providers all have loyalty programs that can potentially save your business a lot of money. Check out the different available options to see which one has the most benefits for you.
PRO TIP: Business travel booking solutions like TravelPerk lets you register your rewards number once and then automatically collect points every time you travel.
3. Cut the taxis
Taxis, especially to and from airports, are often the most expensive option for getting to the city center after your flight has landed. Consider making it mandatory for your employees to use train, subway, bus, or shuttle services to save up to 50%, especially for those travelling alone.
4. Get corporate rates
If you have an office in more than one city and most of your travel is between offices, it can be worthwhile negotiating a special corporate rate with nearby hotels. In fact, you can do this whenever you notice that a lot of your travel is to the same city.
Hotels often appreciate the repeat business. TravelPerk has an excellent corporate rate negotiation team that can arrange this for you.
5. Get the Per Diem right
Do you provide your travellers with a daily allowance for meals and other incidental expenses? Make sure to adjust it according to which city they’re travelling to. There can be big fluctuations in prices. Remember, the CRA sets rates on meal allowance and what you can reclaim, so keep the per diem close to that so you pay less.
6. Recover the tax
Each year companies fail to recover tax (GST) on billions of travel expenditures. Each company that does this is spending between 5 and 25% more than they have to!Canadian companies are entitled to recover GST on domestic business travel through their GST tax return. Companies are also entitled to recover VAT incurred in other countries but this VAT is recovered through different methods (some of which are online and some which require a paper form to be completed). Click here for our guide on claiming VAT on European business travel.