Corporate Travel and Expense Payment Cards - How Does A Company Benefit?

Global InsightsCORPORATE TRAVEL & EXPENSE PAYMENTCARDS —HOW DOES A COMPANY BENEFIT? Travel and entertainment (T&E) is a critical spend category for nearly all corporations. Typically, it is the second largest controllable expense after salaries and benefits. In all cases however, it is no longer regarded as best practice but essential practice for a successful programme to deploy a corporate card. Corporate cards meet five core strategic objectives for a company travel programme: • Controlling costs through improved policy compliance and budget monitoring • Increasing purchasing savings through improved supplier negotiations • Increasing process savings through automated payment and reconciliation of T&E expenses more • Looking after the needs of travellers through reduced bureaucracy and improved duty of care • Improved travel-related processes for other corporate stakeholders, such as finance and human resources INDUSTRY INSIGHTS SHOW ORGANISATIONS THAT USE TRAVEL CARD DATA 33% IN NEGOTIATIONS REPORT, ON AVERAGE 33% GREATER DISCOUNTS FOR AIR FARES, HOTELS AND CAR RENTAL BOOKINGS COMPARED TO ORGANISATIONS THAT DO NOT USE TRAVEL CARD DATA IN NEGOTIATIONS.1 This white paper sets out how each of the above objectives is met and how they clearly deliver benefits for one of the most important stakeholders of all: the person responsible for buying and managing travel. In many larger corporations, that person is a dedicated travel manager, and they typically work within the procurement department. However, there are many other variations where travel may be a part-time role or they may work in other departments, including facilities, finance, human resources or operations.ADVANCING INSIGHTS ADVANCING COMMERCE. JANUARY 2012

Global Insights OBJECTIVE 1 CONTROLLING COSTS THROUGH IMPROVED POLICY COMPLIANCE AND BUDGET MONITORING FIGURE 1: HOW COMPANIES USE TRAVEL CARD DATA TO REDUCE TRAVEL & ENTERTAINMENT (T&E) PURCHASING COSTS Monitor compliance with policy 92% Audit travel activity 91% Update or improve travel policies 88% Track and analyse travel spending 85% patterns and trends Engage in price negotiations with vendors 72% Source: 2011 Corporate Travel Card Benchmark Survey of 1,234 travel card programme administrators, Palmer & Gupta. Every purchase a traveller Control Through Pro-Active Enforcement makes with a corporate travel Corporate clients can build travel policy into their card programme. & entertainment card generates Examples include: automated management • varying limits for each cardholder information about how much • applying limits to the number of transactions they have spent, where they have • blocking use of cards for speciﬁce merchant categories spent it and when. The data is collected in a card management Control Through Reporting information system from which Every purchase a traveller makes with a corporate T&E card generates the travel manager can generate automated management information about how much they have spent, reports to vet policy compliance. where they have spent it and when. The data is collected in a card management information system from which the travel manager can generate reports to monitor policy compliance. Control at a Cost-Centre Level Card numbers act as unique identiﬁers for each transaction. As a result, charges can be correctly assigned to the appropriate cost centre, allowing tracking of travel spend against allocated budget. Control at Company Level Similarly, travel managers can use card data to identify T&E spending at both departmental and company level. If budgets are close to being exceeded, the company can take the appropriate action.2 ADVANCING INSIGHTS ADVANCING COMMERCE.

OBJECTIVE 2INCREASING PURCHASING SAVINGS THROUGHIMPROVED SUPPLIER NEGOTIATIONSBetter Supplier InformationDetailed card management information gives travel managers accurate data Detailed card managementabout how much they spend with each T&E supplier. Card data helps travel information gives travel managersmanagers consistently negotiate better discounts from suppliers, e.g. 9.1% accurate data about how muchfor airlines versus 5.9% without card data.2 There are two main reasons: they spend with each travel &• Suppliers can make a precisely tailored offer if they have a clear picture entertainment supplier. of the client’s spend.• High-quality management information is a convincing indicator to the supplier that the client can measure and therefore effectively manage its travel spend.Tracking Contracted SpendEnables travel buyers to control their travel programme with maximumeffectiveness, e.g. monitoring progress towards meeting volume targetsfor supplier deals.Savings Through Card RebatesIt is customary in commercial agreements with larger clients that thecorporate card issuer pays a spend-based rebate.OBJECTIVE 3INCREASING PROCESS SAVINGS THROUGH AUTOMATEDPAYMENT AND RECONCILIATION OF T&E EXPENSESStreamlined Processes—Automated Travel andExpense ManagementAutomated expense systems can take a direct feed which pre-populatesthe traveller’s expense report with payments made through the card. Thisreduces expense report processing times by 54% and processing costs bymore than 50%.3Streamlined Processes—Automated Financial ManagementAutomated data feeds alow spend data from cards to ﬂow seemlessly into thegeneral ledger of an enterprise resource planning system (e.g. SAP or Oracle).Lower Payment CostsHandling costs for cards are lower than for cheques or automated payments,such as ACH (Automated Clearing House).Efﬁcient PaymentA card is a consolidated and consistent way to pay numerous suppliers withjust one payment. There is also only one set of terms and conditions to observe.Eliminates Cash AdvancesThe lengthy expensive administrative process of issuing pre-trip foreign currencyto international travellers is removed.CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS—HOW DOES A COMPANY BENEFIT? 3

Global Insights OBJECTIVE 4 LOOKING AFTER TRAVELLERS THROUGH REDUCED BUREAUCRACY AND IMPROVED DUTY OF CARE A corporate card: • Allows travellers to avoid paying business expenses out of their own pocket. • Saves them the bureaucratic burden of obtaining cash advances. • Considerably speeds up expense reclamation process. • Avoids the security risk of carrying large amounts of cash. • Provides insurance and assistance services in the event of travel emergencies. OBJECTIVE 5 IMPROVING TRAVEL-RELATED PROCESSES FOR OTHER CORPORATE STAKEHOLDERS, INCLUDING FINANCE AND HUMAN RESOURCES In addition to benefits already stated: Finance Improved liquidity—optimises working capital by delaying settlement of debts, typically for as much as 30 days. Improved banking relationship—strengthens relationship and provides opportunity for preferred pricing with the cash management bank if same bank is used as the card issuer. Elimination of cash advances—treasury also dislikes cash advances because they release funds up-front. Lower administrative costs—efficient, automated processes allow reassignment of personnel to more strategic initiatives instead of basic administrative functions. Forecasting—allows historic data analysis as a guide to future spend and helps calculate accruals for anticipated T&E spend. Human Resources Non-compliance deterrence—encourages compliant behaviour because travellers know non-compliant spending is easily auditable. Temporary staff—use of one-time virtual (T&E) cards can pay for expenses incurred by contractors, trainees and other irregular workers. Alternatively, temporary staff can be provided with commercial pre-paid cards which have fixed funding limits with spending controls. Employee induction—issuing new employees with corporate cards makes them feel part of the company.4 ADVANCING INSIGHTS ADVANCING COMMERCE.

INTRODUCTIONWhen a company introduces a corporate card to manage its travel &entertainment (T&E) spend a wide range of stakeholders in the organisationbenefit in a wide variety of ways. In fact, there are so many differentadvantages to using a card that it is easy to lose sight of some of them.This white paper sets out clearly all the benefits for one of the most importantstakeholders of all the person responsible for buying and managing travel. Inmany large companies, that person is a dedicated travel manager within theprocurement department. However, there are many other variations: travel maybe a part-time role or they may work in other departments, including facilities,finance, human resources and operations.In all cases, however, it is no longer regarded as best practice but essentialpractice for a successful programme to deploy a corporate card solution.A recent survey of 300 finance and accounting professionals identified thefollowing as the key challenges faced in the T&E management process: When a company introduces aFIGURE 2: KEY CHALLENGES FACED IN THE T&E MANAGEMENT PROCESS corporate card to handle its travel & entertainment spend, a wide Manual data entry and 45% inefficient processes range of stakeholders in the organisation benefit in a wideInability to enforce corporate travel policies 42% variety of ways. Lack of visibility into spending 29% Increase in overall T&E expenses 21% High cost of processing expense reports 18% Lengthy reimbursement cycles 8%Source: Travel & Expense Management Benchmarking—Improving T&E Processes through Automation,PayStream Advisors, 2011Every single one of those challenges is addressed through deployment of acorporate card, and so too are several other core strategic travel programmeobjectives. Overall, the benefits of using a corporate card can be divided intofive areas:• Controlling costs through improved policy compliance and budget monitoring• Increasing purchasing savings through improved supplier negotiations• Increasing process savings through automated payment and reconciliation of T&E spend• Looking after the needs of travellers through reduced bureaucracy and improved duty of care• Improved travel-related processes for other corporate stakeholders, including finance and human resourcesThis white paper explains each of the benefits in turn.CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS—HOW DOES A COMPANY BENEFIT? 5

Global Insights FIGURE 4: ORGANISATIONAL GOALS FOR TRAVEL CARD PROGRAMMES Increasing convenience for 49% the employee-traveller Obtaining rebates or other incentives from 43% the card issuer Improving process efficiency by eliminating 38% the paper-based expense reporting process Obtaining better data about travel spending 37% to promote compliance with travel policy Source: 2011 Corporate Travel Card Benchmark Survey of 1,234 travel card programme administrators, Palmer & Gupta. A travel policy is the backbone of TRAVEL MANAGEMENT OBJECTIVE 1 any managed travel programme. It CONTROLLING COSTS THROUGH IMPROVED POLICY has many functions, such as fulﬁlling COMPLIANCE AND BUDGET MONITORING duty of care obligations, and it is A travel policy is the backbone of any managed travel programme. It has many also key to controlling travel costs. functions, such as fulﬁlling duty of care obligations and it is also key to controlling travel costs. Among its savings-related objectives, a policy usually ensures: • Travellers do not spend above approved limits or make unauthorised purchases with company money • Travellers use preferred suppliers to access preferential pricing By instructing travellers to use a corporate card, policy compliance is improved in the following major ways: Control Through Pro-Active Enforcement Corporate clients can build a travel policy into their card programme to prevent non-compliant spend before it even happens. The most common example is to impose spending limits on cardholders. Clients of MasterCard issuers can vary the limits for each cardholder, and apply limits to the number of transactions or total spend per day or month (or both). “Good internal controls are in place to help curb fraud. Our entire expense reporting/reconciling process is automated, including reimbursement of expenses.” 4 —ADMINISTRATOR, LARGE-MARKET CORPORATION6 ADVANCING INSIGHTS ADVANCING COMMERCE.

Blocking merchant categoriesCorporate customers can apply more detailed controls for cardholders, such WHY CARD DATA?as blocking use of cards for specified merchant categories. MasterCard has743 different merchant category codes to define and distinguish the 32.8 Card data provides a company with the most complete picturemillion outlets (as of October 2011) where it is accepted. Working with their of an employee’s travel expenses.card account manager, clients can set rules that let employees use their card Travel buyers can obtain spendfor appropriate business purposes in establishments such as hotels, restaurants data from other sources, mostand petrol stations, but not for personal items like electronics or jewellery. notably the travel management company (TMC) which books their flights, and perhaps “The ability to prevent cardholders from purchasing accommodation and car rental as items that aren’t deemed to be company-related.” 5 well. However, while TMC data is usually of a high standard, it only —SENIOR ACCOUNTANT, FORTUNE 500-SIZE CORPORATION covers what is booked before a trip. It does not cover spend incurred during a trip. Spend not covered by TMC data includesControl Through Reporting items such as restaurant bills butEvery time a traveller uses a corporate T&E card, it generates automated also the final cost of bookingsmanagement information about how much they have spent, where they have that were made through the TMC.spent it and when. Travel managers can easily compile reports from their card Example: Air ticket—a travellermanagement information system to vet spend compliance. For instance, they buys an economy-class seatcan run a report to see all restaurant spend of more than £100. Without a through a TMC for 300, thencorporate card, this would be a laborious task unlikely to yield a complete upgrades to a 600 seat inanswer. Managers can also run exception reports on cardholders who have business class at the airport,made transactions outside travel policy. or adds extras such as checked baggage for 25. In either case,The growing importance of card acceptance the final amount recorded on theSome card issuers have much wider acceptance than others, a point of corporate card is higher than whatdistinction which becomes important for compliance reasons. If a card is not was booked through the TMC.accepted at numerous hotels and restaurants, then it is difficult to gain full Example: Hotel booking—oversight of T&E spend. travellers often book hotel rooms directly, and the spend dataAcceptance is growing in importance as workforces become increasingly mobile would be lost without a corporateand geographically diverse. Mobile employees are having to spend more on card. Yet even if the hotel isnumerous items, such as stationery, which would once have been purchased booked through the TMC, thecentrally. Visibility of this spend is only possible if it is channelled through a card data only covers the room rate.with widespread acceptance. In contrast, the card data states the full amount paid at check-out,Control at a Cost-Centre Level including extra items such as foodOne of the greatest strengths of corporate cards is that card numbers effectively & beverage and internet access.act as unique identifiers for each cardholder. It is therefore possible to trace Extras add on average 30% toexactly who in the organisation has paid for any transaction with a card. As the final hotel bill. Some hotels, including most major chains ina result, costs can be correctly assigned to the appropriate cost centre, which the US, provide what is knownallows the manager of that cost-centre to track travel spend closely against the as folio data to card companies,allocated budget. giving a full electronic breakdown of all the items listed on the cardholder’s bill.CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS—HOW DOES A COMPANY BENEFIT? 7

Global Insights Control at Company Level Similarly, travel managers (or chief procurement officers or chief financial officers) can use card data to identify T&E spend at both departmental and company level. If budgets are close to being exceeded, the company can take corrective action. The important point is that cards provide both the headline and detailed knowledge which allow strategic spending decisions to be taken. TRAVEL MANAGEMENT OBJECTIVE 2 INCREASING PURCHASING SAVINGS THROUGH IMPROVED SUPPLIER NEGOTIATIONS According to the 2011 Corporate Detailed card management information gives travel managers accurate data about Travel Card Benchmark Survey, how much they spend with each airline, hotel and many other categories of organisations that use travel T&E supplier. Knowing exactly how much their company is spending helps travel card data in negotiations report managers obtain consistently better deals from suppliers for two main reasons: greater discounts compared to • Suppliers can make a precisely tailored offer if they have a clear picture of organisations that do not use the client’s spend. travel card in negotiations. • High-quality management information is a convincing indicator to the supplier that the client can measure and therefore effectively manage its travel spend. It tells them the client is able to steer policy and deliver business to preferred suppliers and redirecting bookings to rival suppliers if an acceptable discount is not offered. According to the 2011 Corporate Travel Card Benchmark Survey, organisations that use travel card data in negotiations report greater discounts compared to organisations that do not use travel card data in negotiations. Examples of improved discounts thanks to use of card data include air fares (9.1% versus 5.9%), hotels (12.3% versus 9.5%) and car rental (14.5% versus 12.4%). Tracking Contracted Spend Close monitoring of supplier data through card spend enables travel buyers to control their travel programme with maximum effectiveness. For example, if the data shows spending with a particular supplier is on track to exceed agreed volume targets, the buyer can adjust travel policy to steer bookings towards a different supplier agreement. Conversely, the buyer can see if bookings are falling short of negotiated targets and investigate why travellers are not using the preferred supplier. “The ability to capture, analyse and manage spending more efficiently.” 6 —SENIOR PURCHASING AGENT, FORTUNE 500 CORPORATION8 ADVANCING INSIGHTS ADVANCING COMMERCE.

Savings Through Card RebatesCards reduce supplier costs in another way: where a commercial agreementincludes a spend-based rebate. Therefore, it is important to choose a card withthe widest possible acceptance to maximise the proportion of the company’sT&E spend that is settle by card and applicable for a rebate.TRAVEL MANAGEMENT OBJECTIVE 3INCREASING PROCESS SAVINGS THROUGH AUTOMATEDPAYMENT AND RECONCILIATION OF T&E EXPENSESA corporate card automates payment and reconciliation of T&E expenses, gettingrid of time-consuming paper based invoicing and enabling several other keycorporate processes to be automated.Streamlined Processes—Automated Travel andExpense ManagementIn recent years there has been a major drive by companies to automate theirtravel processes (such as moving to online booking) and expense management.Benefits include:• Lower processing costs• Better visibility of data• Faster processing• Greater accuracyHere are two examples of how cards play a crucial role in travel and expenseprocess automation:Online booking tools An increasing number of companiesMany companies now use corporate online self-booking tools which allow are introducing automated expensetravellers to book their own trips. Key benefits are lower travel management reporting systems. In many cases,company fulfilment charges and lower average prices (owing to travellers the expense tool takes a direct feedfeeling obliged to select the cheapest options offered). When travellers book from the card issuer that allows allflights online, and pay by card, they ensure both the booking and payment payments made through the traveller’sinformation will be captured. card to be automatically pre-populatedExpense reporting tools into their expense report.An increasing number of companies are introducing automated expensereporting systems. In many cases (43% in 2010, up from 23% in 2004), theexpense tool takes a direct feed from the card issuer that allows all paymentsmade through the traveller’s card to be automatically pre-populated into theirexpense report. This reduces the overall time to process an expense report by54% and ensures much greater accuracy in their reporting. In terms of totalemployee time (travellers, clerical staff and accounts payable), it costs US $67to process a typical paper-based expense report but only US $30 to processan automated expense report with pre-populated card data.7CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS—HOW DOES A COMPANY BENEFIT? 9

Global Insights “Card data automatically populates into electronic expense reports. Reimbursable expenses are paid directly by our company’s accounts payable to the credit card company. No receipts are required for credit card expenditure under $25.” 8 —SENIOR TRAVEL MANAGER, FORTUNE 500 CORPORATION Automated feeds flow spend data Streamlined Processes—Automated Financial Management from cards into the general ledger Automated feeds flow spend data from cards into the general ledger of an of an enterprise resource planning enterprise resource planning system. Data feeds are sent daily in a compliant system. Data feeds are sent daily format that can be imported easily into the financial software the company in a compliant format that can be uses. Processing time is also accelerated considerably. imported easily into the financial With corporate T&E cards acting as unique identifiers for employees, data can software the company uses. flow from the cards seamlessly into the appropriate buckets in the general ledger. It is a much more efficient process for accounts payable than invoicing, which requires manual input, making it cumbersome and error-prone. Lower payment costs Cheques, which are the traditional alternative to cards, incur expensive handling costs. Automated payments (such as ACH) are generally efficient, but their handling costs are higher than for cards and they are far from being accepted universally, especially by T&E suppliers such as hotels, restaurants and taxis. Efficient payment A card is a consolidated, consistent way to pay numerous suppliers with just one payment. There is also only one set of terms and conditions to observe. Since corporate cards are positioned as charge cards, there should be no late payment fees, and thus no increase to the final price settled for invoice-based transactions. Eliminates cash advances The lengthy, expensive administrative process of issuing pre-trip foreign currency to international travellers is removed. Not only can travellers use their cards to pay directly for most T&E spend, but they can also use them to withdraw cash from ATMs around the world where policy permits. TRAVEL MANAGEMENT OBJECTIVE 4 LOOKING AFTER TRAVELLERS THROUGH REDUCED BUREAUCRACY AND IMPROVED DUTY OF CARE Good travel management is about minimising cost to the organisation, but it is also about maximising service to the traveller. Companies have duty of care obligations that are critical for legal and reputational reasons. It is also in a company’s interests to protect travellers as their most important assets and minimise their time taken up with administration.10 ADVANCING INSIGHTS ADVANCING COMMERCE.

Convenience and SafetyA corporate card:• Allow travellers to avoid paying business expenses out of their own pocket.• Saves them the bureaucratic burden of obtaining cash advances.• Considerably speeds up expense reclamation, especially if travellers are using an automated expense management system with a pre-populated card feed.• Avoids the security risk of travellers carrying large amounts of cash.• Provides insurance and assistance services in the event of travel emergencies. “Employees not paying out of pocket is a key factor.” 9 —GENERAL MANAGER OF FINANCE, LARGE-MARKET CORPORATIONTRAVEL MANAGEMENT OBJECTIVE 5IMPROVING TRAVEL-RELATED PROCESSES FOR OTHERCORPORATE STAKEHOLDERS, INCLUDING FINANCE ANDHUMAN RESOURCESFinanceMany of the benefits described in Sections 1-3 above are of direct relevance tofinance departments, but finance gains in some additional ways that may notbe immediately apparent to the travel manager. Examples include:TreasuryImproved liquidity—optimises working capital by delaying settlementof debts, typically for as much as 30 days.Improved banking relationship—strengthens relationship and providesopportunity for preferred pricing with a cash management bank if samebank is used as the card issuer.Elimination of cash advances—treasury also dislikes cash advancesbecause they release funds up-front.Accounts PayableLower administrative costs—efficient, automated processes allowreassignment of personnel to more strategic initiatives instead of basicadministrative functions.Budgeting/PlanningForecasting—allows historic data analysis as a guide to future spend andhelps calculate accruals for anticipated T&E spend.For more information on this subject, MasterCard has published a companionwhite paper entitled “Corporate Travel & Expense Payment Cards—The BenefitsFor Finance Departments”. To obtain a copy, see the contact details at the endof this document.CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS—HOW DOES A COMPANY BENEFIT? 11

Global InsightsHuman ResourcesNon-compliance deterrenceCards help to reduce non-compliant spend significantly and thus avoid disciplinary issuesbecause employees know that everything they spend through their card can easily beaudited and provide clear evidence in cases of misbehaviour.Corporate protectionAs an industry standard, a corporate card programme includes corporate liability waiverinsurance. If an employee uses a card to buy goods or services that lie outside companypolicy (e.g. for gambling), then the corporate client is compensated for the unauthorisedspend, so long as it has clear policies and procedures in place to control employee carduse. There is no comparable insurance for inappropriate payments by invoice.Temporary staffAnother challenge for HR is how to make payments for irregular workers, suchas temporary staff, contractors, apprentices, trainees and interns. It is not usuallyappropriate to authorise workers in these categories to buy services on account. Inaddition, it is not usually appropriate to give them their own T&E card, but there aresuitable payment card alternatives. Examples include one-time virtual cards for a fixed-value transaction with a specified supplier, such as paying a hotel bill for a trainee—orcommercial pre-paid cards which have fixed funding amounts with spending controls.Employee inductionIssuing a new employee with a corporate card is an important part of the inductionprocess, making them feel they are part of their new company. It is also an ideal wayto instruct new hires about travel policy and their responsibilities relating to T&E spend.CONTACTFor further information about how MasterCard can help you, please contact eitherof the following:Al Diamant Max ChatterjeeSenior Managing Consultant Vice PresidentGlobal Commercial Knowledge Centre, Commercial Cards UK & IrelandNorth America max_chatterjee@mastercard.comMasterCard Advisorsal_diamant@mastercard.comENDNOTES1-9 2011 Corporate Travel Card Benchmark Survey of , Palmer & Gupta.For additional insights, please visit www.mastercardadvisors.com and insights.mastercard.com.©2012 MasterCard. All rights reserved. Proprietary and Confidential.Insights and recommendations are based on proprietary and third-party research, as well as MasterCard’s analysisand opinions, and are presented for your information only.ADVANCING INSIGHTS ADVANCING COMMERCE.

Corporate Travel and Expense Payment Cards - How Does A Company Benefit?

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