What are T&E expenses?
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Managing T&E is an essential factor of running virtually any business, but like most expense management initiatives, it can be a bit more complicated to track expenses than you might expect.
In this article, we'll explain what T&E means, why it’s important to manage, and some of the common challenges businesses face when attempting to keep T&E-related spending under control.
What is a T&E expense?
T&E stands for “travel and expenses,” but is sometimes also referred to as “travel and entertainment.” T&E expenses refer to those expenses employees incur while traveling on business and entertaining clients, including rental cars, tolls, and other out-of-pocket expenses incurred during a business trip.
Is T&E an operating expense?
Yes, T&E (Travel and Expenses) is an operating expense, covering costs like business travel expenses and entertainment expenses. In accounting, operating expenses, including T&E costs, are recorded on a company's income statement below the gross profit, showcasing the costs incurred in the day-to-day operations of your business. This recording helps stakeholders understand your company's operational costs and financial health.
What is T&E in a contract?
T&E (Travel and Expenses) in a contract refers to the policy for claiming travel and related expenses during the contract's execution. It outlines reimbursement rates, approval processes, and who bears these costs.
This section of a contract helps to ensure that expenses are managed fairly, providing a clear framework for both parties to understand and agree upon the allowable travel costs for business purposes, helping to avoid potential disputes.
Why is T&E management important for businesses?
T&E expenses can add up quickly, and often constitute a significant percentage of operational costs. So, it’s important to establish procedures to manage T&E spending effectively. Here are a few reasons why T&E management matters for businesses:
Tracking T&E effectively can prevent unexpected costs
T&E is often a necessary and inevitable aspect of doing business, but without a system in place to track spending, accounting teams can get backed up dealing with costs they didn’t anticipate. Regarding business expenses across the board, it’s best to keep surprises to a minimum.
Inaccurate or insufficient reporting of T&E can result in tax complications
T&E costs are tax-deductible, but because they can span a large range of expense categories, it’s important to demonstrate to the IRS that each purchase is in fact business-related. Incorrect expense reports can trigger audits, so accurate reporting is crucial.
For this reason, you’ll want to be thorough with your record-keeping, being sure to keep an organized log of all relevant invoices and paper receipts. A well-structured workflow for managing receipts and approvals can significantly streamline the payable process.
Controlling what can (or can’t) be purchased is critical for reducing T&E costs
While it may be tempting to send employees on their way with a corporate credit card to cover expenses on a business trip, when this is done without any controls or restrictions, it can result in frivolous and unnecessary spending.
This is why many businesses find it helpful to use cards with predetermined or actively managed permissions regarding which vendors can be purchased from, as well as what can or can’t be purchased on behalf of the business.
What are some common challenges associated with T&E?
Managing T&E can be particularly challenging and is often cited as the second most difficult cost to manage, following payroll.
These challenges evolve with technological advancements and modern payment methods, and often become harder to tackle as a business grows. Here are a few common challenges around managing T&E expenses:
Expense reimbursement is complicated, and delays in repayment can cause a strain on operations and damage to employee trust. Tools like expense automation can help employees log T&E-related purchases and make the overall reimbursement process more efficient.
Unclear expense policies
Many businesses make the mistake of maintaining unclear travel policies and leaving rules around T&E spending open to interpretation. While you want to provide financial support to your employees while they’re traveling on business, this doesn’t mean that you should open up the floodgates to unnecessary purchases.
Having clear policies in place around T&E allows employees to spend responsibly and with more confidence, in addition to eliminating the need for finance teams to constantly approve individual purchases.
If you need help creating your own expense policy, check out our expense policy template and generator.
Error-prone reporting and data entry processes
Using manually updated spreadsheets to keep track of T&E spending can present a number of challenges for businesses.
Not only can it increase the risk of an error or miscalculation, it also places an unnecessary burden on employees to double and triple-check entries when they should be focused on more important tasks, like interacting with valuable clients and representing your business in a positive light.
Manage your T&E expenses with Ramp
Once you’ve defined your company’s T&E policy, streamline your expense management process with Ramp.
Our corporate cards let you set custom vendor controls and spending limits, and our automated expense management software tracks and categorizes your employees’ expenses in real-time.
Interested in learning more about T&E expenses? Check out our report on T&E benchmarks to see how much businesses are spending on travel expenses.
Or, learn more about Ramp’s corporate cards with expense management software.