Leakage and Invisible Travel Spending
The word “leakage” has unpleasant connotations in virtually every context imaginable. Travel management is no exception.
Leakage is invisible travel spending that takes place outside of an approved channel. This out of contract spending typically does not show up in reporting provided by an organization’s travel management company (TMC). When employees circumvent the official booking procedure their company has in place, it creates holes in travel policy enforcement, expense reporting, rate negotiation, and duty of care tracking.
But the various forms of leakage are not equally damaging. Sometimes leakage is the corporate travel equivalent of a dripping sink, and can be fixed with a few tweaks to a company’s booking guidelines and reporting systems. Other times, however, it’s like a busted septic tank. The key here is to sniff trouble at the first whiff, before the leakage leads to a huge mess of travel overspending. Persistently high leakage is a sign of underlying weakness in a company’s travel program. Travel management is only effective so far as employees can be convinced to utilize the systems that are in place to control costs and improve reporting.
Causes and Effects of Travel Leakage
Business travelers book outside of approved channels for a few key reasons. One is a perceived lack of convenience in using their company’s official booking tool or corporate agent. Another is a widespread belief among travelers that they can find better prices by shopping online.
Whatever its motivation, out of system bookings create a challenge from the perspective of cost control. Though an employee might comply with vendor and spending guidelines when they go outside of the official booking channel, there’s no guarantee they will. In comparison, online booking tools (OBTs) offer more reliable methods for ensuring policy compliance, such as selectively displaying compliant flight and hotel options, or requiring pre-approval for certain high-cost, last-minute bookings.
Bookings made outside of official channels can also lead to higher costs in the long run by undermining travel procurement efforts. Airlines, hotels, and rental car companies grant discounted rates based on proven travel volume. Every trip that goes undocumented weakens an organization’s negotiating position. Leakage also makes expense reconciliation less efficient, since purchases made outside of a centralized system require employees to submit (and accounting departments to review) receipts from multiple vendors.
Aside from problems related to cost control and expense management, leakage has the potential to compromise employee security. Duty of care standards require companies to ensure employees remain safe while traveling for work. Without visibility into an itinerary at the time of booking, it’s difficult to track employees and locate them in case of emergency.
Leakage is then a multifaceted problem. On the individual trip level it’s associated with uncontrolled spending and duty of care breakdowns, while on aggregate it causes problems for data capture and rate negotiation.
To summarize, travel leakage can have the following adverse effects:
- Reduced effectiveness of spending control measures.
- Lost supplier discounts and reduced leverage in rate negotiations.
- Inefficient expense reconciliation.
- Incomplete data for travel program management and policy optimization.
- Lack of visibility into traveler location for duty of care tracking.
How To Address Travel Leakage
Some amount of leakage is all but inevitable. One recent survey from the Global Business Travel Association found that even among travelers who reported having used their company’s approved online booking tool, 40% occasionally booked trips directly with suppliers or on a travel site.
These transactions would once have been written off as unrecoverable leakage – that is, invisible, non-compliant spending. Increasingly, however, they’re being accommodated as an accepted alternative to booking made through the traditional channels. With a pragmatic travel policy and adaptive reporting system in place, open market bookings can safely coexist along with those made through an OBT or TMC, and leakage can be recovered.
Identify Sources of Leakage
Leaked travel spending is problematic because it doesn’t show up in the official reporting provided by a travel management company, but it’s rarely fully invisible. Employee expense reports offer a way to trace leaked spending back to its original source. Travel-related spending can usually be identified by vendor name (e.g. American Airlines, Hilton, etc.) or the expense description field (e.g. “June Trip to Chicago”). By conducting an audit of historical expense reports, accounting teams can zero in on the source of travel spending happening outside of an approved system.
In many cases, a particular type of travel transaction is causing leakage. For example, non-compliant spending might be a bigger problem for hotels than it is for airfare. If a hotel purchases unattached to a flight purchase are being submitted for reimbursement rather than being made through an official channel, it could be a sign that employees are not finding suitable hotel options in the OBT. In this case, it’s advisable to reevaluate whether the preferred and/or approved hotels are meeting the needs of traveling employees.
Reviewing expense reports also will also identify the employees who most often go outside of policy. Leakage is harmful, but not necessarily intentional. Employees who book trips outside of an approved channel might not be aware they are running afoul of policy, let alone that their individual transactions create larger problems for their company’s travel management efforts. It’s not always apparent to employees why booking business travel should require a different procedure than the one they use to book their personal travel. Periodically reminding employees about the booking guidelines specified in the company travel policy helps; even better is sharing information about the cost implications of non-compliant travel spending.
Promote and Incentivize Compliance
Leakage happens for a reason. Business travelers book outside of official channels because they prefer open market alternatives. Travelers have a diverse set of priorities – convenience, brand loyalty, desire for more choice – but in each case, they resist the using official corporate systems. To motivate policy-compliant, cost-effective travel, an increasing number of organizations are designing incentive programs that reward employees for making company-friendly booking decisions, such as using a preferred vendor, spending under budget, submitting expenses on time, and booking through the company OBT.
Improve Data Capture Systems
Travel management is evolving. In a world in which employees have more options for where to book, it’s essential to have a back-end system for aggregating data from all vendors and booking channels, whether that’s a specific hotel or airline, Expedia, the official OBT, or even Airbnb. To learn more about how Rocketrip solves leakage and provides a comprehensive view of travel spending, read about our Insights analytics dashboard.