Subscribe to Inc. magazine

Eat, Drink, And Be Wary

Travel and entertainment costs don't have to take such a big bite out of your company's budget.
Advertisement

Jan B. Heffington is the woman rental car companies love to hate. Since 1981, she has made her living combing employees' rent-a-car contracts for over-charges and helping them collect refunds.

It is a lucrative line of work. In three years, her partnership, JBH Co. of Redondo Beach, Calif., has grown from a one-woman show to business with 11 full-time employees. And she has expanded her repertoire from rental cars to hotels and motels. (A Minneapolis company has carved out the airline niche).

Her secret is pricing. Heffington, a former stewardess and sales manager for The Hertz Corp., charges corporate customers nothing up front for her services. She works, instead, on a commission of sorts: "We split the refund, 50-50," she says.

On average, 7% of all rental car invoices contain errors, Heffington says. The most common mistake? The car company charges the customer the regular rate rather than the less expensive corporate fee.

Heffington's success is impressive. But it is also an indication of the fact that businesses are looking for ways to cut their travel and entertainment expenditures.

It's about time. In the past five years, business spending for airline fares has more than doubled, lodging prices have shot up 61%, and food bills have jumped 25%. "Today's traveler is consuming 27% fewer meals," notes H. Robert Heid of PHH Group, a Hunt Valley, Md., business services firm, "but paying close to double the 1978 price per meal."

All told, U.S. companies will shell out some $95 billion in 1984 for business-related travel and entertainment. By 1990, the figure will top $200 billion. For most companies, "travel and entertainment is now the third largest controllable corporate expense, just behind salaries and data processing," says Denis W. Day, president of The Day Partnership, an Oak Brook, Ill.-based consulting firm that specializes in helping companies trim T&E expenditures.

Putting a lid on travel and entertainment spending is seldom simple, but these days there is a new twist that makes it easier. Companies can shift some of the burden to such outside suppliers as credit-card companies and travel agencies. They can provide the management reports that companies need to minitor T&E spending. Travel agents can also help enforce travel policies, insisting, for example, that employees fly tourist rather than first class.

Another selling point is that the services of credit-card companies and travel agents are available at little or not cost to the company using the service. They make their money elsewhere. Travel agents, for example, receive commissions on the products they sell -- 10% on domestic airline tickets, 8% to 12% on international flights, 10% on hotel rooms, and 5% to 10% on automobile rentals.

Finally, credit-card companies and travel agents make it possible for you to save dollars now. That way, you don't have to scramble to recoup money later by using the services offered by companies like Heffington's.

The cornerstone of any plan to trim T&E expenditures is a well-defined travel policy. Generally speaking, a travel policy should record what you will pay, when you will pay, and how you will pay. It should also list preferred vendors, including travel agents, hotels, and rental car companies that provide discounts.

"[The policy] doesn't need to be a fancy, bound thing," explains Michael L. Borsuk, managing partner of the Long Island, N.Y., office of Coopers & Lybrand, the Big Eight accounting firm. "A three-page typed statement will do fine."

For the most part, travel policies have to strike a balance between strictness and leniency. "When a policy is too [harsh] and employees are forced to scripm to break even on business," says consultant Day, "it may cause resentment and may be a factor leading to expense account fraud. On the other hand, when a policy is relaxed, and the company exerts little or no control, it may lead to unnecessary cost. Basically, what a company wants to do is have controls. They don't want to kill their employees."

The first step in writing a travel policy is for company executive to sit down and iron out key T&E issues. Here are some of the important questions that should be considered:

Should your company issue cash advances? Companies pay a steep price for cash advances -- from $4 to $35 per advance from the time of issuance through settlement for bank charges, employees' time, and computer usage. "And this amount," says Day, "does not take into account what it costs the company to tie up its funds. Money that is being used for advances does not earn interest, is not available for other uses, and results in negative [cash] float. Cash advances also tend to encourage employees to put off filing expense reports longer than necessary."

The rule of thumb, then, is not to issue cash advances. But, if you choose to ignore that advice, Jerry Snow, a partner in the Indianapolis office of Geo. S. Olive & Co., an accounting firm, suggests using so-called permanent, or one-time, advances to new employees who travel frequently. The amount, which is returned to the company when employment is terminated, is based on how much you expect the individual to travel and the reimbursement schedule.

Should you issue corporate credit cards? Corporate credit cards provide benefits for employers as well as employees. For businesses, the primary advantage is management information. Creditcard companies prepare the management reports needed to monitor T&E expenses effectively, thus relieving the business of the task.

As a rule, charge-card companies' management reports give an overview of company travel charges, including air fare. Holders of American Express Travel Management Services's special corporate cards, for example, receive monthly statements providing a detailed breakdown of air travel by traveler, city, project, date, department, airline -- whatever the company desires, explains John Riener, senior vice-president of American Express TMS.

With credit cards, businesses also get uniform receipts, more accurate verification of expenses, improved cash flow, and elimination of the need for cash advances. Witness Environmental Research & Technology Inc. (ERT), in Concord, Mass. The environmental consulting firm operates a national network of air-pollution monitoring stations, so employees are required to travel long distances.

"The problem was a lot of [the employees who work on the monitoring stations] didn't make a hell of a lot of money," says Howard A. Jones, the company's manager of administration. "They couldn't afford to wait to be reimbursed for their expenses, and we were constantly issuing cash advances." Jones's solution? He signed his company on with American Express. So far, he is glad he did.

Generally, credit-card companies give businesses two choices: Bills can be sent either directly to the corporation for payment or to the individual employee. If the employee is billed, the corporation stands as a guarantor of the amount charged, although, in the case of fraud, the credit-card company absorbs the loss.

ERT has tried both options, and endorses employee billing. "When the company paid the bills," Jones remembers, "it became a real farce, because people wouldn't get their expense accounts in. At one time, we had almost a quarter of a million dollars we hadn't gotten expense accounts for. It was too easy to just let somebody else pay the bill, so we changed it all around."

One final word of caution: Your American Express card may be accepted at leading hotels and restaurants around the world, but don't count on using it in small town America. "Some of our guys out in the Midwest have a hell of a time," reports Jones. "We've had to get them MasterCard and Visa."

How much can you get your travel agent to do? For starters, travel agents will book airline flights, hotel rooms, and rental cars. They also will help you enforce your travel policy, selecting, for example, only moderate-price hotels, tourist- or business-class airline seats, and small or medium-size rental cars.

And travel agents will furnish your company with regular management reports on your employees' travels. Russ Berrie and Co., a manufacturer and wholesaler of impulse gifts in Oakland, N.J., with about 450 field sales staffers, has a huge travel bill. "We go to one travel agency," explains A. Curts Cooke, the corporation's vice-president of finance and administration, "because they give us the ability to control costs and have some reports on where people are going and who is traveling."

With more than 23,000 travel agents now in business, choosing the right one can be tough. Begin, Denis Day says, by finding out if the agency has enough experience in servicing other small companies with your types of needs. You may want to ask for a list of references and check the agency's financial stability.

Other important questions to ask are how highly automated the agency is and whether it is capable of handling computerized airline reservations and accounting, including custom-tailored management information reports.

Even the best planning can't eliminate problems, of course. As long as there are T&E expenses, there is room for a Jan Heffington.

Last updated: Aug 1, 1984




Register on Inc.com today to get full access to:
All articles  |  Magazine archives | Livestream events | Comments
EMAIL
PASSWORD
EMAIL
FIRST NAME
LAST NAME
EMAIL
PASSWORD

Or sign up using: