1. They’re the worst. One-third of finance pros admit that they don’t submit their expense reports on time.
  2. 20% of reports that get submitted actually violate the company’s travel expense policy (think reimbursement requests for souvenirs or multiple alcoholic drinks consumed at dinner)
  3. Upwards of 32% of companies use excel or spreadsheets to itemize and file expense reports.
  4. 37% of companies have switched to some kind of web-based expense reporting solution.
  5. A staggering 43% of employers still use a manual process, which includes reports made using pen and paper (…what?!)
  6. Small businesses make up the largest percentage of companies using manual systems.[1]

3 Quick Tidbits About Expense Policies

  1. Ready for a crazy statistic?  Only 79% of companies even have a clearly defined expense policy, and a whopping 65% of companies with policies manually review reports for policy violations.
  2. The majority of companies reimburse employees for the full cost of a meal, but they ask the spenders to keep it “reasonable.” That’s pretty subjective depending on who’s doing the reasoning.
  3. One-third of businesses have clearly defined limits, and only about 13% have a fixed allowance for meal expenses.
  4. Per diem for lodging is not too common.

What Are Per Diems?

Per diem is latin for per day. In the business world, per diem is a sort of daily allowance for food and necessities, usually doled out for employee travel. They are usually a fixed rate designed to pay for travel expenses. Many companies offer per diem to employees who travel for business reasons. Expense reporting/reimbursement is the most common alternative to per diem.
With expense reports, companies only reimburse employees for actual expenses. Here’s an example: Erin spends $100 dollars on a hotel, $50 on food, and $25 on taxis while on a business trip. Erin would save their receipts and attach them to an itemized expense report. Their company would then reimburse the employee for the $175 that they spent while doing business.
There is one other alternative for handling travel expenses that bypasses filing expense reports or doling per diems. It’s the best of both worlds and we will circle back to that option.
per diem and prepaid corporate cards

Per Diem vs. Expense Reports

To find the best option for your company, it’s best to weigh them side by side. Here’s the breakdown:

Advantages to using per diem

  • Less paperwork. Record keeping is less of an issue when you simply hand your employee a stack of cash. That means no keeping track of receipts, and no reconciling or subsequent auditing process to worry about
  • Empower employees to choose. You basically give the traveler more control along with the stack of cash. They get to control where they eat, how much they spend, and which hotel they book. If they spend their cash in the first few days, the company doesn’t need to worry about the overspend. If they pinch their pennies and pocket the difference, the company doesn’t spend less, but they also don’t overspend.
  • Increase spender awareness. Similar to establishing a budget, per diem encourages the employee to advocate for smarter spending decisions. Most employees won’t dip into their personal accounts to supplement a lavish dinner. They will typically use the per diem as an allowance, which encourages them not to overspend.
  • Travel expenses become predictable. If the finance department knows that each person will only ever spend $100 per day while traveling on business they can project anticipated spending. They can predict yearly or quarterly spending based on how many people travel, for how long, and how often rather than worrying about late expense reports of differing amounts. They also won’t sweat reconciling, and then auditing every expense report receiving it. This also leads to more timely billing if you have to through client reimbursement into the mix.

Disadvantages to per diem

  • Complicated to develop. Employers should base the rates of their per diem on where and when the employee travels. They shouldn’t expect an employee to spend the same amount in New York City as they would in Decatur, GA. Costs in London differ from expenses incurred on a business trip to Thailand (mmm…street food).
  • Requires continual updating. A per diem should not be treated as a policy that your company develops one time. Cost of living fluctuates and affects the cost of travel. Even if you develop several versions of your policy (i.e., urban vs. rural, low-cost vs. high cost cities, domestic vs. international), some locations won’t fit into those neat little boxes. In addition, they could change over time. If you go this route, we would recommend auditing the policy at least yearly to adjust your per diem allowances in case prices have dropped or jumped in a given location.
  • Client reimbursement. If clients pick up a tab or reimburse for meals, granting an equal per diem to the employee for that day could result in a needless expense for the company. To complicate things more, if a client covers the cost of a trip AND picks up the tab, they could end up paying for one meal twice. Not ideal.

Worst case per diem scenarios

  • Policy inequities. Per diems can lead to employees trying to abuse the system. If an employer does not pro-rate the daily rate based on departure and arrival time, etc., employees could try to schedule their departures in the afternoon and their returns in the morning so that they receive a full day’s funds when they only need half a day’s allowance. If they do this consistently, they will get a much higher per diem than someone who leaves early and gets home late–not so fair.
  • Gaming the system. Turning an employee into a frugal traveler looks fantastic on the surface, but you could create a monster. If the employee becomes hyper-focused on saving money to pocket the excess cash, they could make decisions that poorly reflect on the company. For example, they could book a hotel room in a sketchy neighborhood (dangerous), or drink gin and tonics instead of eating dinner (sad…and a little dangerous), or not pick up the check for a client when appropriate (bad for business). One way to avoid this is to pad their per diem or have them expense the client meals that they cover, but that kind of defeats the advantage of minimal paperwork (a.k.a., the per diem purpose, a.a.k.a., the purpose).

Divvy vs. Per Diem ruler, pen and blueprints

Weights and Measures

Here are some considerations to weigh before finalizing the right policy for your company.

  1. Think about whether your current policy needs a revamp or an update. If it’s working and not leaking money into the ether, maybe stick with it. However, if you can meet the needs of your company in a simpler way with increased control, you should probably consider a changeup.
  2. Evaluate the needs of your company and determine if a new policy would benefit your bottom line. It’s important to also weigh company appearance and select the process that strikes a balance between benefiting the client, employee, company, and shareholders.
  3. If you land on per diem with expense reports, make sure that you’ve got clear policies and auditing procedures in place to safeguard and benefit all parties involved.

Now that we’ve laid it all out in clear terms, it’s time to choose between per diem and expense report filing, yes? Not actually. We do apologize for that. There is one more option that we alluded to in the beginning, but we needed to build up to the magic trick before pulling a rabbit out of our top hat.

The Divvy Way

There is a way to eliminate cowboy spending on business trips (spoiler alert: its Divvy). Take away the incentive to overspend and the possibility of abusing a per diem policy (reimbursement and excess per diem cash). Divvy is a smarter corporate card that integrates with the Divvy App, a budgeting and expense management platform that lives on whatever device you prefer (smartphones, laptops, tablets, microchip brain implants, you get the idea).  You set budgets and policies, and employees spend using their Divvy card or Divvy virtual cards. Only approved funds get sent to their cards, so nothing slips through the cracks. Everything is accounted for from swipe to books. That’s it. Travelers don’t need to save paper receipts or file expense reports. All of it generates automatically as employees spend and you see the end result in neatly organized Divvy Live Reports. Oh, and it’s free.

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