Expense Management

Poised for Takeoff

Once a fringe application, T&E expense software is becoming a travelers best friend.
John P. Mello Jr.June 1, 1999

For years, U.S. businesses have sought to rein in the costs of corporate travel, which collectively amounted to a whopping $175 billion in 1998, according to a recent survey by American Express Corporate Services. They have done so essentially in four ways: enforcing travel policies, negotiating travel prices, using efficient payment methods, and reengineering the reporting process. The latter, in particular, seeks to reduce the approximately $8.9 billion that companies spend annually just to process expense reports.

Now, a new breed of enterprise software promises help. Travel and entertainment (T&E) expense reporting systems save time for the harassed traveler and accountant alike. They give businesses greater control over how travel dollars are spent, ensuring compliance with travel policies. And, they provide the leverage companies need to cut better deals with travel vendors.

By some estimates, companies will spend about $160 million this year on T&E expense report software, up from $78 million a year ago. However, the market is still immature. “If you go back two years, this was looked at as a fringe application used by some companies,” says Susan Obijiski, an analyst with GartnerGroup, an IT advisory firm based in Stamford, Connecticut. “Over a two-year period, the number of calls we’ve taken about this software has increased about 70 percent.”

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A key driver of interest in the software is the need for better information. “What companies are finding out is that there’s an awful lot of ways they can hemorrhage money through exception travel, which occurs when you don’t have good audit procedures or good top-level management analysis,” says Obijiski. Good auditing and analysis can’t be had unless you have the software and technology to capture expense information in a database, and the extraction and reporting tools needed to parse the data.

A better handle on the data enables tighter control of travel spending. “The majority of organizations [that buy T&E software] believe they’re going to achieve at least a 5 to 10 percent reduction of their overall spend,” says Scott Anderson, CEO and president of Necho Systems Corp., a T&E software vendor based in Mississauga, Ontario.

The State of the Art

State-of-the-art enterprise T&E systems, like the five listed in the chart on page 78, can be deployed over LANs, WANs, and intranets, and may offer employee self-service. The most robust systems can support tens of thousands of users.

Electronic expense reports take a matter of minutes to fill out and submit. Employees can prepopulate reports online with credit-card information direct from the vendor, saving time and improving accuracy. A traveler can install a stand-alone version on his or her laptop and complete the expense report on the plane ride home. Back at the office, workflow routes completed reports for necessary approval and reimbursement.

T&E systems may contain database software for data collection and decision support, and are integrated with major financial systems. Data from expense applications is automatically posted to the general ledger, accounts payable, and payroll modules, which speeds up payments. Also, a Web-based T&E system can transcend any hardware babble within an organization. “The cross-platform capabilities of these systems are one of the critical factors that have accelerated this market,” says Karin Adams, senior product marketing manager at Extensity Inc., a T&E software vendor based in Emoryville, California.

Companies can expect to pay a fee for setting up a system, plus a licensing fee and an annual maintenance fee. Implementation costs run anywhere from 50 percent to 200 percent of licensing fees. Licensing fees are usually calculated on a per-seat basis and range from about $80 to $175, but could be lower, depending on the number of seats a company purchases.

Some companies will license their software on a transaction basis, but according to the vendors, there hasn’t been much demand for that sort of arrangement. “We expected more companies to be open to transaction-based pricing,” Anderson of Necho Systems admits, “but they see it as financial application software, and they’re used to paying for those applications as a capital expense.”

Payback Time

Vendors and customers agree, however, that outlays made for an expense system can be recouped quickly–in some cases, as fast as three months.

According to the American Express survey, the cost of processing a manual expense report can be as high as $76. Automation can slash that cost by 50 to 85 percent, claim software vendors. At Cargill Inc., a maker of agricultural and industrial products, it used to cost $13.60 to process an expense report, says Peggy Smith, function leader in accounts receivable at the company’s Fargo, North Dakota, offices. After Cargill installed the InterPro expense system in 1996, processing costs dropped 65 percent, to $4.78 per report. Smith says that cost embraces all aspects of the processing, including support services, such as help-desk time, for the company’s 13,000 travelers. (If those services–which many companies don’t include in their cost figures–were excluded from Cargill’s numbers, Smith says that processing costs would be 46 cents a report.)

The Amex study reports that it takes an average of three weeks to process an expense report; software can reduce report cycle time to as low as three days, says Pam Kostka, director of product marketing at Extensity. At Plano, Texas-based retail giant J.C. Penney Co., “We tell people that if you submit your report this morning, it will be processed this afternoon and be in your bank in two business days,” says Jim Strand, accounting manager in the controller’s department.

A big cost-saver of T&E expense software is the elimination of back-office labor, along with the errors that result “because of misinterpretations between the traveler and the data-entry clerk,” says Adams. Before J.C. Penney installed its Xpense Management Solution (XMS) system, from Concur Technologies Inc., the equivalent of 30 people dedicated their time to shuffling expense reports. Now the processing is done by 3 people at a central location, says Strand, adding that errors have “definitely” been reduced.

Expense software also simplifies life by flagging reports containing dubious outlays. Instead of conducting spot checks of reports, auditors can focus on reports that they know have problems. Better yet, they can focus on the exact line where the problem occurs. At Cargill, 100 percent of its travelers’ expense reports were audited before InterPro’s software was installed; today only 5 percent of the reports are audited.

“Seventy percent of our clients have gone from multiple levels of approval to automatic approval if the system doesn’t flag a report,” observes Patrick Williams, vice president of sales and marketing for InterPro Expense Systems Inc., in Pleasanton, California. At InterPro user PacifiCorp, an energy company in Portland, Oregon, approval time is accelerated by using a “passive” process. If a report is filed and the system finds all expenses within reasonable limits, it is routed to a manager who has two days to act on it. Then, it is automatically routed to finance, explains Colleen Anderson, vice president for corporate travel services. If any items exceed those limits, the report is placed in the manager’s active review queue. Anderson estimates that about 60 percent of PacifiCorp’s reports are passive, and says that average report-approval times have dropped from two weeks to four or five days.

Gaining Preferred Status

Automating a labor-intensive process is one benefit of T&E expense systems; enabling managers to see how dollars are being spent at its travel vendors is another, potentially greater, benefit. Armed with that knowledge, companies can establish realistic usage thresholds with preferred vendors and obtain preferred status with others.

“What often happens is you’ll negotiate a certain threshold limit with a vendor, but you won’t have enough real-time data to know if you’re going to meet that threshold,” says Kostka. “With an automated product, you can get that information. There are tons of stories about companies that could have saved millions of dollars if they had taken a few more trips with a preferred air carrier.”

Better control of travel data can also help a company recoup costs that were too difficult to capture manually. For example, some countries allow a foreign corporation to recover the value-added tax (VAT) on expenses travelers may incur in that country. (Such taxes can add as much as 17 percent to a hotel bill.) An expense program can identify those expenses and make it feasible to file for a VAT refund.

Future Features

The rising popularity of T&E solutions hasn’t gone unnoticed by ERP vendors, which seek to cram ever more functionality into their systems. However, their T&E efforts have been weak at best, say analysts. “It seems that there are some logical limits to what it makes sense for an ERP company to tackle,” notes Lisa Williams, a senior analyst at Yankee Group, IT consultants in Boston. She points out that ERP applications aren’t built to reach every desktop in an organization, and to do so would require them to change their system architecture.

Meanwhile, enterprise T&E vendors see new features in their future. “In the next five years,” predicts InterPro’s Williams, “I think you’re going to see additional functionality in terms of other processes related to the employee,” such as scheduling, time and attendance, and procurement.

While expense-report automation can have a salutary effect on morale–who doesn’t want faster reimbursements?–it definitely focuses everyone’s attention on the bottom line. At PacifiCorp, travelers are paying more attention to spending limits because they don’t want their report to go “active”–in the manager’s review queue. “People are looking at the dollar limits we have in place as real,” says Anderson, “and they don’t want to go over them.”

John P. Mello Jr. is a contributing editor to CFO.