Effective T&E Management: The Foundation for Control & Effective Forecasting

Delivering earnings predictability, owning corporate governance, and supporting productivity across the enterprise are among the top challenges faced by CFOs. On the surface of it, meeting these challenges can seem daunting at best. Where does a CFO even begin defining a strategy to embrace these opportunities? The answer I offer may well raise the eyebrows of CFOs: best-in-class travel and entertainment (T&E) expense management. Effective T&E expense management teaches valuable lessons in establishing internal controls and enhances the predictability of what is for most companies the second largest budget line item behind payroll. Best-in-class expense management can also positively impact the productivity of employees from accounting, to treasury, to each and every employee who travels on company business.

As previously noted in an earlier blog, Why T&E Should Matter to CFOs, T&E ranks as the second most difficult operating expense category to control according to a 2014 Forrester Research report. And as T&E expenses account for such a significant portion of the budget overall, the people, process and technology leveraged to establish control over expense management can also serve as the roadmap for CFOs to improve control and governance of expenses at a macro level across the enterprise. How? It all starts with visibility. You can’t manage what you can’t see, and T&E best practices offer CFOs almost 20/20 vision into where business travelers are spending the company dime. That’s in addition to visibility into the T&E expense reporting workflow, including a granular level of details for any expense report at any point in the reimbursement process. Details such as who reviewed and approved an individual expense report and which categories of T&E spend will be impacted when reimbursement occurs. Beyond visibility, CFOs can have direct oversight of who approves what expenses, all the way down to the level of Merchant Category Codes (MCCs). A best-in-class T&E expense management solution also allows for “control nirvana,” meaning these systems can automate compliance enforcement specific to you company’s T&E policy. If your policy is done right, control in the arena of T&E automation is about as good as it gets.

Forecasting and T&E Automation: An Example
Forecasting any variable that impacts the company lines is never easy. Furthermore, inaccurate, untimely forecasts can negatively impact the quality of any decision that’s based on any of the variables being forecasted. Considering T&E expenses, at the very least inaccurate and/or untimely forecasts can have a meaningful impact on the efficiency of working capital management. Consider the following example. A company forecasts T&E expenses of $10 million for March (hypothetical $1b revenue; T&E is on average 10%-12% of total revenue according to JP Morgan), and the treasury manages cash availability accordingly. During the first three weeks of March cash outflow relative to expense reimbursement is line with the forecast, so the treasurer is comfortable that incoming cash receipts will cover T&E expenses until the end of March. On Wednesday in the last week of March, $1 million over forecast comes through for reimbursement as T&E expenses relative to a huge trip to China. The treasury manager is now short on cash. Bad news is the company is now a net borrower of funds, and she must go out and borrow short-term money at a very high interest rate. With notice she could have tapped a line-of-credit with a much lower interest rate. By the way, the CFO is blindsided as the first quarter financial statements also look worse than expected.

In this scenario, an automated expense reporting solution can help by providing the ability to set a companywide schedule (and/or customizable by individual, department, line of business, etc.) for all expense reports to be submitted. This includes e-mail notification functionality to keep things running smoothly through the submission and reimbursement process to minimize delays. These automated expense solutions can offer near 20/20 vision into T&E reporting and enhance the predictability of how long it takes an expense report to become due. This is almost invaluable information for the person charged with forecasting T&E expenses, which, remember, represent the second-largest operating cost for most companies. 

Increasing T&E management effectiveness can offer the roadmap for effective corporate governance with insights into how to effectively forecast variables that impact key decisions. It can also make the lives of all company employees who travel easier, result in significant cost savings, impact productivity across the enterprise, and increase long-term stakeholder value in the process. Who knew there was so much we could learn from expense management?