The New Best Practices For Corporate Travel Spend

By Robert Lawrence, VP Corporate Travel for CSI Enterprises, Inc.

Individual credit cards have had a long run as the de-facto way employers finance employee travel expenses, and for justifiable reasons. When used correctly they benefit both employer and employee – employees are relieved of the burden of financing their company’s travel expenses and the company oftentimes receives rebates on their corporate card program. But, all too often employees use loopholes to pad their pockets and stick their company with the costs.

The reality is individual credit cards enable this non-compliance, and the costs associated far outweigh the rebates received. Good thing the market already has the solution.

Current corporate travel payment methods

Once upon a time, central payments were considered best practices in the corporate travel industry. With central payment, travel managers could control travelers’ purchases. But, as business travel and related expenditures grew, so too did the challenges around reconciliation. With central payment, it was difficult if not impossible to assign expenses to different cost centers.

Corporate cards were then introduced by the banks, effectively solving the problem of reconciliation as each traveler was issued their own card. This, however, created its own unique set of problems, most notably non-compliance.

How individual cards enable non-compliance

Purchases made on individual cards – whether corporate or personal – are difficult to track. A recent study by GBTA found that 59 percent of business travelers “did not use the company’s preferred reservations tool, [and] chose a higher class or more expensive options that were out of policy for their company.” The study estimates that non-compliant travel costs companies nearly $3,000 per business traveler annually.

There are many ways that business travelers rebuke corporate travel policy in exchange for the personal rewards of booking outside of the system, which can include additional point rewards or upgrades for flight, hotel or car rental reservations. The following lesser-known ways of non-compliance illustrate the potential fraud associated with the use of individual credit cards.

Business class is oftentimes approved for International flights, keeping traveling executives comfortable and ready for overseas business engagements. In this scenario, an executive books outside of the system with their card, reserving an $8,000 roundtrip ticket which is immediately charged to their card. That receipt is then submitted with the expense report. However, upon check-in, the traveler decides to downgrade to coach – at a substantially lower fare of $2,000. That $6,000 credit goes back to their individual card, never to be seen by the company – a personally profitable journey for the traveler.

Cancellations are an inevitable part of business travel. Unfortunately, most airline tickets are non-refundable. In this scenario, an employee books a flight and submits the receipt as part of their expense report. The meeting is later cancelled, as well as the planned travel. Since this is the course of business, that non-refundable ticket remains the responsibility of the company. If the ticket was booked through the designated corporate travel agency, that ticket can be re-applied to later travel based on pre-arranged agreements with the TMC. However, if the individual books out of the system, that credit will likely never be seen by the company and may instead be used for the employee’s next family vacation.

Virtual payments: the benefits without the problems

Newer technologies are enabling a new method of payment that brings not only powerful control to corporate travel spending, but also the flexibility needed for travelers. Virtual card payments bring back the control of central payments, with an efficient solution for reconciliation.

Virtual card payments are essentially single-use credit card payments issued through the web or a mobile app. Similar to a check, virtual payments are payable to one payee for a specific dollar amount. For example, as the travel agency books an airline flight, a virtual card number is generated, payable to the airline in the exact amount of that roundtrip travel. Once that payment is made, the credit card number expires, effectively eliminating the risk of fraud or lost or stolen cards.

Virtual cards are issued by the designated travel agency, providing that central source of control once enjoyed through central payments. Any expense that is paid for without a virtual card requires employee reimbursement, which raises an immediate red flag and thereby ensures compliance with corporate travel policies.

Unlike the traditional form of central payments, each virtual card payment is tied directly to an individual. When a virtual card is requested the traveler’s reservation details and descriptive billing details such as cost center and department are captured and included with each charge. When virtual card technology is integrated with automated expense reporting systems, every expense is pre-populated in the traveler’s expense report just as if they had used a single corporate card. This provides full visibility of the charges through the expense process.

Merging the best of both worlds, virtual cards allow the corporation’s travel manager and designated corporate travel agency to control all spending. Virtual card payments ensure that policies are being followed, preferred suppliers are being utilized, and every employee remains in compliance or is held accountable for non-compliance.