CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS

CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 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 purchase savings through improved supplier negotiations Increasing process savings through automated payment and reconciliation of T&E expenses Looking after the needs of travellers through reduced bureaucracy and improved duty of care Improving travel-related processes for other corporate stakeholders, such as finance and human resources INDUSTRY INSIGHTS SHOW ORGANISATIONS THAT USE TRAVEL CARD DATA IN NEGOTIATIONS, REPORT ON AVERAGE, 33% GREATER DISCOUNTS FOR AIR 33% 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 these objectives 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, who typically works within the procurement department. However, there are many other variations where the travel personnel may hold a part-time role or may work in other departments, including facilities, finance, human resources or operations. ADVANCING INSIGHTS ADVANCING COMMERCE. JANUARY 2012

OBJECTIVE 1 CONTROLLING COSTS THROUGH IMPROVED POLICY COMPLIANCE AND BUDGET MONITORING FIGURE 1: HOW COMPANIES USE TRAVEL CARD DATA TO REDUCE CORPORATE T&E PURCHASING COSTS Monitor compliance with policy 92% Audit travel activity 91% Update or improve travel policies 88% Track and analyse travel spending patterns and trends 85% 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 makes with a corporate T&E card generates automated management information about how much they have spent, 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 verify policy compliance. Control Through Pro-Active Enforcement Corporate clients can build travel policy into their card programme. Examples include: varying limits for each cardholder applying limits to the number of transactions blocking use of cards for specific merchant categories Control Through Reporting Every purchase a traveller makes with a corporate T&E card generates automated management information about how much they have spent, 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 verify 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 2 INCREASING PURCHASE SAVINGS THROUGH IMPROVED SUPPLIER NEGOTIATIONS Better Supplier Information Detailed card management information gives travel managers accurate data about how much they spend with each T&E supplier. Card data helps travel managers consistently negotiate better discounts from suppliers, [e.g., 9.1% for airlines versus 5.9% without card data. 2 ] There are two main reasons: Suppliers can make a precisely tailored offer if they have a clear picture 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. Detailed card management information gives travel managers accurate data about how much they spend with each T&E supplier. Tracking Contracted Spend Enables travel buyers to control their travel programme with maximum effectiveness, e.g., monitoring progress towards meeting volume targets for supplier deals. Savings Through Card Rebates It is customary in commercial agreements with larger clients that the corporate card issuer pays a spend-based rebate. OBJECTIVE 3 INCREASING PROCESS SAVINGS THROUGH AUTOMATED PAYMENT AND RECONCILIATION OF T&E EXPENSES Streamlined Processes Automated T&E Management Automated expense systems can take a direct feed which pre-populates the traveller s expense report with payments made through the card. This reduces expense report processing times by 54% and processing costs by more than 50%. 3 Streamlined Processes Automated Financial Management Automated data feeds allow spend data from cards to flow seamlessly into the general ledger of an enterprise resource planning system (e.g., SAP or Oracle). Lower Payment Costs Handling costs for cards are lower than for cheques or automated payments, such as an Automated Clearing House (ACH). Efficient Payment A card is a consolidated and consistent way to pay numerous suppliers with just one payment. There is also only one set of terms and conditions to observe. Eliminates Cash Advances The lengthy and expensive administrative process of issuing pre-trip foreign currency to international travellers is eliminated. CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 3

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 the 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 corporate cards to new employees makes them feel like a part of the company. 4 ADVANCING INSIGHTS ADVANCING COMMERCE.

INTRODUCTION When a company introduces a corporate card to manage its T&E spend a wide range of stakeholders in the organisation benefit in a variety of ways. In fact, there are so many advantages 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 important stakeholders of all; the person responsible for buying and managing travel. In many larger corporations, that person is a dedicated travel manager, who typically works within the procurement department. However, there are many other variations where the travel personnel may hold a part-time role or may work in other departments, including facilities, finance, human resources or operations. In all cases, however, it is no longer regarded as best practice but essential practice for a successful programme to deploy a corporate card. A recent survey of 300 finance and accounting professionals identified the following as the key challenges faced in the T&E management process: FIGURE 2: KEY CHALLENGES FACED IN THE T&E MANAGEMENT PROCESS Manual data entry and inefficient processes 45% Inability to enforce corporate travel policies 42% When a company introduces a corporate card to manage its T&E spend a wide range of stakeholders in the organisation benefit in a 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, 2011 Every single one of those challenges is addressed through deployment of a corporate card, and so too are several other core strategic travel programme objectives. Overall, the benefits of using a corporate card can be divided into five areas: Controlling costs through improved policy compliance and budget monitoring Increasing purchase 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 Improving travel-related processes for other corporate stakeholders, including finance and human resources CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 5

FIGURE 4: ORGANISATIONAL GOALS FOR TRAVEL CARD PROGRAMMES Increasing convenience for the employee-traveller Obtaining rebates or other incentives from the card issuer Improving process efficiency by eliminating the paper-based expense reporting process Obtaining better data about travel spending to promote compliance with travel policy 49% 43% 38% 37% Source: 2011 Corporate Travel Card Benchmark Survey of 1,234 travel card programme administrators, Palmer & Gupta. A travel policy is the backbone of any managed travel programme. It has many functions, such as fulfilling duty of care obligations, and it is also key to controlling travel costs. TRAVEL MANAGEMENT OBJECTIVE 1 CONTROLLING COSTS THROUGH IMPROVED POLICY COMPLIANCE AND BUDGET MONITORING A travel policy is the backbone of any managed travel programme. It has many functions, such as fulfilling duty of care obligations and it is also key to controlling travel costs. Among its savings-related objectives, a travel 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 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 CORPORATION 6 ADVANCING INSIGHTS ADVANCING COMMERCE.

Blocking merchant categories Corporate customers of issuers can apply more detailed controls for cardholders, such as blocking use of cards for specified merchant categories. MasterCard has 743 different merchant category codes to define and distinguish the 32.8 million outlets (as of October 2011) where it is accepted. Working with their card account manager, clients can set rules that let employees use their card for appropriate business purposes in establishments such as hotels, restaurants and gas stations, but not for personal items like electronics or jewellery. The ability to prevent cardholders from purchasing items that aren t deemed to be company-related. 5 SENIOR ACCOUNTANT, FORTUNE 500-SIZE CORPORATION Control Through Reporting Every time a traveller uses a corporate T&E card, it generates automated management information about how much they have spent, where they have spent it and when. Travel managers can easily compile reports from their card management information system to monitor spend compliance. For instance, they can run a report to see all restaurant spend of more than $100. Without a corporate card, this would be a laborious task unlikely to yield a complete answer. Managers can also run exception reports on cardholders who have made transactions outside of a travel policy. The growing importance of card acceptance Some card issuers have much wider acceptance than others and this distinction becomes important for compliance reasons. If a card is not accepted at numerous hotels and restaurants, then it is difficult to gain full oversight of T&E spend. Acceptance is growing in importance as workforces become increasingly mobile and geographically diverse. Mobile employees are having to spend more on numerous items, such as stationery, which would once have been purchased centrally. Visibility of this spend is only possible if it is channelled through a card with widespread acceptance. Control at a Cost-Centre Level One of the greatest strengths of corporate cards is that card numbers effectively act as unique identifiers for each cardholder. It is therefore possible to trace exactly who in the organisation has paid for any transaction with a card. As a result, costs can be correctly assigned to the appropriate cost centre, which allows the manager of that cost-centre to track travel spend closely against the allocated budget. WHY CARD DATA? Card data provides a company with the most complete picture of an employee s travel expenses. Travel buyers can obtain spend data from other sources, most notably the travel management company (TMC) that books their flights, and perhaps accommodation and car rental as well. However, while TMC data is usually of a high standard, it only covers what is booked before a trip. It does not cover spend incurred during a trip. [Spend not covered by TMC data includes items such as restaurant bills and in some cases the final cost of bookings that were originally made through the TMC.] Example: Air ticket a traveller buys an economy-class seat through a TMC for $300, then upgrades to a $600 seat in business class at the airport, or adds extras such as checked baggage for $25. In either case, the final amount recorded on the corporate card is higher than what was booked through the TMC. Example: Hotel booking travellers often book hotel rooms directly, and the spend data would be lost without a corporate card. Yet even if the hotel is booked through the TMC, the data only covers the room rate. In contrast, the card data states the full amount paid at check-out, including extra items such as food & beverage and internet access. Extras add on average 30% to the final hotel bill. Some hotels, including most major chains in the US, provide what is known as folio data to card companies, giving a full electronic breakdown of all the items listed on the cardholder s bill. CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 7

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. 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 in negotiations. TRAVEL MANAGEMENT OBJECTIVE 2 INCREASING PURCHASE SAVINGS THROUGH IMPROVED SUPPLIER NEGOTIATIONS Detailed card management information gives travel managers accurate data about how much they spend with each airline, hotel and many other categories of T&E supplier. Knowing exactly how much their company is spending helps travel managers obtain consistently better deals from suppliers for two main reasons: Suppliers can make a precisely tailored offer if they have a clear picture 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. It tells suppliers that the client is able to steer policy and deliver business to preferred suppliers and redirect 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 as a result of card data usage 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. 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 CORPORATION 8 ADVANCING INSIGHTS ADVANCING COMMERCE.

Savings Through Card Rebates Cards reduce supplier costs in another way: where a commercial agreement includes a spend-based rebate. Therefore, it is important to choose a card with the widest possible acceptance to maximise the proportion of the company s T&E spend that is settled by card and eligible for a rebate. TRAVEL MANAGEMENT OBJECTIVE 3 INCREASING PROCESS SAVINGS THROUGH AUTOMATED PAYMENT AND RECONCILIATION OF T&E EXPENSES A corporate card automates payment and reconciliation of T&E expenses, thus eliminating time-consuming paper-based invoicing and enabling several other key corporate processes to be automated. Streamlined Processes Automated Travel and Expense Management In recent years, there has been a major drive by companies to automate their travel processes (such as moving to online booking) and expense management. Benefits include: Lower processing costs Better visibility of data Faster processing Greater accuracy Here are two examples of how cards play a crucial role in travel and expense process automation: Online booking tools Many companies now use corporate online self-booking tools, which allow travellers to book their own trips. Key benefits are lower travel management company fulfilment charges and lower average prices (owing to travellers feeling obliged to select the cheapest options offered). When travellers book flights online, and pay by card, they ensure both the booking and payment information will be captured. Expense reporting tools An increasing number of companies are introducing automated expense reporting systems. In many cases (43% in 2010, up from 23% in 2004), the expense tool takes a direct feed from the card issuer that allows all payments made through the traveller s card to be automatically pre-populated into their expense report. This reduces the overall time to process an expense report by 54% and ensures much greater accuracy in their reporting. In terms of total employee time (travellers, clerical staff and accounts payable), it costs US $67 to process a typical paper-based expense report but only US $30 to process an automated expense report with pre-populated card data. 7 An increasing number of companies are introducing automated expense reporting systems. In many cases, the expense tool takes a direct feed from the card issuer that allows all payments made through the traveller s card to be automatically pre-populated into their expense report. CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 9

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 from cards into the general ledger of an enterprise resource planning system. Data feeds are sent daily in a compliant format that can be imported easily into the financial software the company uses. Streamlined Processes Automated Financial Management Automated feeds flow spend data from cards into the general ledger of an enterprise resource planning system. Data feeds are sent daily in a compliant format that can be imported easily into the financial software the company uses. Processing time is also accelerated considerably. With corporate T&E cards acting as unique identifiers for employees, data can 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 and expensive administrative process of issuing pre-trip foreign currency to international travellers is eliminated. 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 a travel 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 travel administration. 10 ADVANCING INSIGHTS ADVANCING COMMERCE.

Convenience and Safety A 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 CORPORATION TRAVEL MANAGEMENT OBJECTIVE 5 IMPROVING TRAVEL-RELATED PROCESSES FOR OTHER CORPORATE STAKEHOLDERS, INCLUDING FINANCE AND HUMAN RESOURCES Finance Many of the benefits described in Sections 1-3 above are of direct relevance to finance departments, but there are also finance gains that may not be immediately apparent to the travel manager. Examples include: Treasury Improved liquidity optimises working capital by delaying settlement of debts, typically (on average) for as much as 30 days. Improved banking relationship strengthens relationship and provides opportunity for preferred pricing with a 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. Accounts Payable Lower administrative costs efficient, automated processes allow reassignment of personnel to more strategic initiatives instead of basic administrative functions. Budgeting/Planning Forecasting allows historic data analysis as a guide to future spend and helps calculate accruals for anticipated T&E spend. For more information on this subject, MasterCard has published a companion white paper entitled Corporate Travel & Expense Payment Cards The Benefits For Finance Departments. To obtain a copy, see the contact details at the end of this document. CORPORATE TRAVEL & ENTERTAINMENT PAYMENT CARDS THE BENEFITS FOR TRAVEL MANAGERS 11

Human Resources Non-compliance deterrence Cards help to reduce non-compliant spend significantly and thus avoid disciplinary issues because employees know that their card spend can easily be audited for non-compliance. Corporate protection As an industry standard, a corporate card programme includes corporate liability waiver insurance. If an employee uses a card to buy goods or services outside a company policy (e.g., for gambling), then the corporate client is compensated for the unauthorised spend, so long as it has clear policies and procedures in place to control employee card use. There is no comparable insurance for inappropriate payments by invoice. Temporary staff Another challenge for HR is how to make payments for irregular workers, such as temporary staff, contractors, apprentices, trainees and interns. It is not usually appropriate to authorise workers in these categories to buy services on account. In addition, it is not usually appropriate to give them their own T&E card, but there are suitable payment card alternatives. Examples include one-time virtual cards for a fixedvalue transaction with a specified supplier, such as paying a hotel bill for a trainee or commercial pre-paid cards which have fixed funding amounts with spending controls. Employee induction Issuing a corporate card to a new employee is an important part of the induction process, making them feel they are part of their new company. It is also an ideal way to instruct new hires about travel policy and their responsibilities relating to T&E spend. CONTACT For further information about how MasterCard can help you, please contact either of the following: Al Diamant Senior Managing Consultant Global Commercial Knowledge Centre, North America MasterCard Advisors al_diamant@mastercard.com Max Chatterjee Vice President Commercial Cards UK & Ireland max_chatterjee@mastercard.com ENDNOTES 1-9 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 analysis and opinions, and are presented for your information only. ADVANCING INSIGHTS ADVANCING COMMERCE.