November 03, 2022
The Importance of T&E Expense Management
Sign up for our newsletter
Stay informed with the latest trends and best practices in finance and procurement.
In the absence of a pre-granted per diem, employees who need to travel may have to use out-of-pocket funds, which will later be eligible for reimbursement. This scenario is frequently the case for those engaged in sales, procurement, account management and other fields requiring expenses outside the workplace. Usually, these funds fall under the category of T&E, or travel and entertainment. T&E expenses (and their reporting processes) are often central to the financial operations of businesses and enterprises that rely on travel to build relationships and make sales.
This article will cover the following topics:
- What are T&E expenses?
- T&E Expense Management Tips
- What Is a T&E Expense Report, and What Does It Contain?
- Why Is It Important to Report T&E Expenses?
- Best Practices for T&E Expense Reporting
- How to Automate T&E Report Management
What are T&E expenses?
T&E, or travel and entertainment expenses, are expenses paid out-of-pocket or via corporate credit card by employees. On average, T&E expenses make up about 10% of a company’s operating budget. The concept of T&E covers a wide range of potential costs, from client lunches to convention attendance fees. Examples of T&E expenses include:
How important are T&E expenses?
T&E expenses are critical to the maintenance and growth of businesses, especially when their business models rely on travel. As the financial side of tech has developed, companies large and small now enjoy much greater flexibility and automation in managing their T&E expenses. Thanks to said tech, as startups (and even larger companies) have expanded their teams, having the option to approve and execute fast payments has been a significant boon.
As a result, the perception of finance teams has shifted from that of a bottleneck to an indispensable part of the team, one which enables growth and potential success. This transformation, along with the need for automation, which was already underway before the COVID-19 pandemic, became crucial to the survival of many businesses. Nano-Dimension, which embraced these developments, has saved 40 hours per month on T&E expense management alone.
What Is a T&E Expense Report, and What Does It Contain?
T&E expense reports are how employees communicate incurred T&E expenses to their employers. Though the process for creating and submitting T&E expense reports is not universal, the elements that the reports contain are relatively uniform. These elements include:
- Date when the expense took place
- Location where the expense took place
- Reason for Purchase (e.g., The client or project requiring the expense)
- Billing Account (e.g., The client or project account that will foot the bill)
- Cost claimed in the expense
- Notes offering details or further context (e.g., Took a cab to Kinko’s)
The Importance of T&E Expense Reporting
First and foremost, T&E expense reporting is important since employees wouldn’t be eligible for reimbursement without it. Moreover, on the financial side of the business, there are two main benefits.
The first benefit relating to the importance of T&E expense reporting concerns spend management. When reporting policies and processes are transparent and universally followed, businesses can turn those reports into actionable data, whereby they can craft or modify expense policies or even find ways to cut costs in general.
The second significant benefit that comes with T&E expense reporting has to do with taxation. The IRS classifies T&E expenses as tax-deductible. However, this status comes with two caveats:
- Claimed expenses must be ordinary to the industry and necessary to business operations.
- Upon request, businesses must be able to provide documentation of these expenses, including their categorization and purpose.
If that second caveat sounds familiar, it should. That legal requirement is precisely what expense reports are intended to cover, hence why T&E expense reporting is so important.
Best Practices for T&E Expense Reporting
Don’t be fooled. T&E Expenses are not just relevant for big businesses. Instead, be aware that even the smallest of startups need transparent workflows and policies in place that dictate the use and management of T&E expenses. To that end, here are a few tips for businesses to improve their T&E expense management processes:
- Keep it simple! Employees are more likely to report their T&E if the process is easy.
- Be clear! If a business’s T&E policies are straightforward, they’ll be easier to follow.
- Stay up to date! Ensure your processes remain compliant with recent tax laws.
- Protect thyself! Should they be audited, businesses are encouraged to break down T&E expenses by category.
- Embrace automation! Implement an automated T&E expense process to reduce the risk of fraud and user error.
How Can I Automate T&E Report Management?
At its worst, T&E expense reporting can be overly time-consuming for both employees and finance teams. For instance, archaic expense reporting procedures could result in hours of documentation and form submission following a business trip. Frankly, this is a waste of time for all involved.
That last point has often led companies to adopt external expense management platforms like PayEm. Not only can it assist with and automate expense reporting, but it also offers an expanded suite of mobile capabilities, thus allowing employees to submit reports on the go. In turn, these features can save hours-upon-hours on what were formerly manual tasks.
Using PayEm, if employees pay out-of-pocket, for example, then it is easy to set customized approval flows for reimbursement requests. Moreover, if they paid via corporate card, the reporting process is simplified down to just uploading the expense receipt/invoice. For more information regarding T&E expense reporting solutions, contact PayEm’s experts for a commitment-free, no-cost demo of the platform.