Travel and Expense Policy: Best Practices for SMEs
If you are a small or medium-sized enterprise (SME), you know that every pound counts. Managing business travel-related expenses can be a significant challenge, especially when trying to grow your business while controlling costs.
If you ever found yourself overwhelmed with expense reports and reimbursement forms, struggling to explain to employees why certain spending cannot be approved, you’re not alone.
Let’s dive into how you can create a travel and expense policy that works for your SME, keeping your bottom line and your employees happy.
Why Your SME Needs a Travel and Expense Policy
Before we get into the details, let’s talk about why you need a good travel and expense policy. First, let’s discuss the numbers:
These numbers reveal the massive financial impact of business travel on SMEs. With global spending approaching $2 trillion and individual trip costs averaging over $1,000, travel expenses can quickly become a major drain on your resources if not managed properly. Moreover, the lack of safety plans for nearly half of the business travellers exposes a critical gap in risk management.
A comprehensive travel and expense policy isn’t just beneficial—it’s vital for your SME’s survival and growth. It protects your bottom line, ensures employee safety, and aligns travel activities with your business objectives. Clear guidelines within the policy can streamline the expense claims process, preventing issues related to dishonest claims and ensuring timely reimbursement, which boosts employee morale.
In the next section, we’ll explore how implementing such a policy can dramatically improve your SME’s financial health, operational efficiency, and risk management.
Expense Management, Cost Control, and Financial Health
Now that we’ve established the significant financial impact of business travel on SMEs, let’s delve into how a well-crafted travel and expense policy can serve as a powerful tool for your company’s financial health and operational efficiency.
By implementing a robust travel and expense policy, you’re not just managing costs—you’re creating a framework that supports your business goals while taking care of your most valuable asset: your people.
In the following sections, we’ll guide you through the process of creating and implementing such a policy tailored to your SME’s needs.
Your Travel and Expense Policy
Creating an effective travel and expense policy is about striking the right balance between control and flexibility. Effective travel and expense management can streamline the policy creation process and ensure compliance.
In this section, we’ll break down the essential elements of a well-crafted policy, providing practical guidance on how to tailor each component to your SME’s specific needs and culture. From setting clear spending limits to streamlining the reimbursement process, we’ll cover the key areas that will make your policy both effective and user-friendly.
Keep It Simple and Clear
It is crucial to create a travel and expense policy that is clear, concise, and easily comprehensible. Avoid the common pitfall of producing overly lengthy or complex documents that employees may find difficult to read or understand. Instead, focus on crafting a policy that uses straightforward language and avoids unnecessary jargon.
For example, instead of: "Employees are required to use cost-effective transportation methods when travelling for business."
Try: "Choose the cheapest option to get around for work trips."
This not only makes it easier for your employees to understand, but also helps to avoid any confusion or misunderstandings.
Break your policy into clear sections with headings like:
Pro tip: Use bullet points and short paragraphs so it's scannable. Your employees will thank you.
Set Spending Limits
One of the hardest parts of creating a travel and expense policy is setting the spending limits. You want to be fair to your employees and also protect your bottom line. Here's how to do it:
Remember, these are just examples. Adjust to your business needs and location. Consider seasonality, event-driven price surges and regional cost differences when setting your limits.
Also, a tiered system should be considered based on employee seniority or travel frequency. While this adds complexity, it can help address the different needs of different employee groups while still maintaining overall cost control.
Make Booking Easy
The easier you make it for employees to book travel and track expenses, the more likely they are to follow your policy. Consider using a travel management platform that integrates with your expense management system. This can help you:
Additionally, using an expense management tool like Fyorin can streamline processes such as expense claim approvals and receipt submissions, enhancing both efficiency and accuracy.
If a complete travel management system isn’t within your budget right now, at least provide clear instructions on how employees should book travel. For example:
“Book all flights through our preferred travel agency, TravelRight. For hotels, use hotels.com and choose options within our limits.”
Consider creating a list of preferred vendors or a travel portal that aggregates options within your policy guidelines. This will make it easier for employees to book compliant travel without feeling overwhelmed by choices.
Common Scenarios
Your policy should cover common situations that your employees will encounter. For example:
Here's an example of how to handle client entertainment:
"When entertaining clients, you may spend up to £50 per person on meals. Alcohol is limited to 2 drinks per person. Always include the names of attendees and business purpose on your expense report."
Consider adding a FAQ section to your policy to cover these scenarios. This will be a quick reference for employees and reduce the number of questions your finance team has to deal with.
Be Flexible (Within Reason)
Clear rules are important, but remember, sometimes situations arise that don't fit into your policy. Add a clause that allows for some flexibility in exceptional circumstances. For example:
"In exceptional circumstances where policy exceptions are required, employees must get written approval from their manager and the finance department before incurring the expense."
This gives you room to move without opening the floodgates to policy abuse. You need to strike a balance between control and flexibility. Consider a tiered approval system for exceptions based on the amount or type of expense.
Flexibility can actually encourage compliance. If employees feel the policy is reasonable and takes into account unusual circumstances, they'll be more likely to follow it.
Communicate and Educate
Creating a good policy is only half the battle. You need to make sure your employees actually understand and follow it. Here are some additional tips:
Review and Update Regularly
Your business is growing and changing, and so should your travel and expense policy. Set a reminder to review your policy at least once a year. Consider:
Regular reviews will ensure your policy is fair, compliant and effective. Consider setting up a small committee with finance, HR, and frequent travellers to conduct these reviews.
Putting It All Together: A Sample Policy Structure
To get you started, here's a more detailed structure for your travel and expense policy:
Remember, this is just a starting point. Customise to your SME's specific needs and culture.
Regional Considerations
When creating your policy, be mindful of regional variations, especially if your SME operates in different countries:
United States
United Kingdom
European Union
Conclusion
Having a fair and effective travel and expense policy for your SME doesn't have to be a pain. Keep it simple, clear and business focused and you'll have a policy that works for your business and your employees.
Remember, the goal is to make it easy for your team to do their job while travelling, not to create more barriers. As your business grows and changes, so should your policy. Regular reviews and updates will keep it working for your SME.
By following these tips, you'll be on your way to easier expense management, happier employees and a healthier bottom line.
Fyorin, your global financial partner
Interested in transforming your treasury management function? Get in touch with us at [email protected]