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Mastering tail spend management can save time, improve productivity and reduce business travel costs.
An Uber ride here, a coffee with colleagues there… Business travel involves a variety of small transactions that need to be accounted for. This type of ad-hoc expense falls under the umbrella of a procurement term called tail spend.
Although these business travel expenses might seem low-value, they’re anything but low-stakes when added together. Small travel expenses may involve multiple suppliers and often fall outside of policy. Without a strong tail spend management system in place, they increase your administrative burden and could impact your bottom line.
Below, we’ll take a closer look at the challenges presented by poorly managed tail spend, while outlining tail spend solutions and best practices to follow. By creating an effective tracking system, you’ll gain clearer insight into the small, hidden travel costs that could otherwise derail a budget.
Tail spend refers to a high volume of low-value purchases made throughout the course of a business trip.
Tail spend typically involves:
The term follows what’s known as the Pareto Principle, or 80/20 rule. This states that 80% of business travel spend will be with 20% of suppliers, such as airlines and hotel groups approved by company travel policy.
That leaves 20% of total spend to be made with 80% of suppliers. Although the total spend is relatively low, the volume of transactions and suppliers is high, creating a long, growing tail of expenditure.
In addition to being spread across a multitude of suppliers, tail spend covers a variety of departments and categories.
By its nature, business travel involves many of the small, one-off expenses that contribute to overall tail spend. Traveling employees often make these purchases due to last-minute needs and convenience. Examples include:
Low in value but high in frequency, these little costs quickly add up without a tracking system in place.
Without adequate tail spend management solutions, small, high-volume transactions can spiral out of control.
The primary challenge to overcome is limited data visibility. As business travelers purchase items on the go, they use a variety of platforms and vendors to do so which makes spend harder to track. Small purchases aren’t always logged properly, giving your business less data to work with when it comes to travel expense optimization.
When an employee’s rushing to meet a flight connection or facing a canceled hotel booking, adhering to company policies might not take priority. In cases like this, employees will opt for the speedier, more convenient purchase. This makes in-policy cost control more difficult, leading to inefficient spending.
Tail spend leads to a series of small, low-value invoices and receipts to sort through. Without an automated expense management system, these are time-consuming to approve, record, and reimburse.
To offset the challenges above, tail spend management focuses on tracking, categorizing, and controlling those frequent, small purchases for greater visibility. And with greater visibility, your business will be better able to reduce costs and admin time. The benefits are many.
An effective tail spend management solution consolidates suppliers. For example, using a solution like Booking.com for Business gives business travelers access to a wide range of accommodation, flights, and hired cars in one self-serve platform. This overview improves expense tracking capabilities. With set budgets, employees can make sure their preferences fall within approved limits.
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Tracking and consolidating tail spend reduces exposure to non-compliant suppliers. It becomes easier to enforce policies, with employees less likely to make these unauthorised small purchases. At the same time, automated tail spend management solutions capture and record small transactions, like transport tickets, in real-time using tools like digital receipt scanners.
With greater visibility over business travel transactions, an effective tail-end spend management strategy helps prevent fraud while controlling expenditure. Encouraging employees to comply with existing policies improves duty of care, while reducing maverick spend.
Build on your initial analysis with greater control over employee spending on business trips. As you build your corporate travel policy, be specific when it comes to approved business travel expenses.
Set up team booking guidelines, spending limits and contact information with this simple online tool.
One way to make spending expectations clear for business travelers is by setting a fixed per diem. This daily allowance covers travel expenses that typically make up tail spend, including things like meals, lodging, and incidentals. Per diems remove the need for detailed receipts for every small cost.
Guidelines are suggested by government organizations like HMRC in the United Kingdom and the General Services Administration (GSA) in the United States, though rates are ultimately up to your own company policy.
Another strategy is to issue approved purchasing cards for tail-end expenditures. These automatically record transaction details, smoothing the ordering process and solving the payment visibility issue for finance teams.
Virtual cards for business travel provide an ideal way to simplify spend management. Finance managers can set up separate cards for each expense category and designated budget, setting per diem limits to keep tail spend in check. And with no physical card present, they reduce the chances of payment fraud, and real-time transaction sharing gives both travel managers and travelers notice when limits are reached.
It’s best practice to make expense reporting and reimbursement as user-friendly as possible for traveling employees. Today, this involves a combination of automation and apps. One of the historic challenges of tail-end spend management has been the manual process of transcribing multiple receipts into expense reports, which often leads to errors and lost productivity. Instead, use document scanning apps. These allow business travelers to snap a photo of their receipt, upload it into a central system, and receive automatic approval.
To take control of your company’s tail spend, you must first analyze it. A tail spend analysis gathers data points from past trips to find out how, where, and why traveling employees are spending money. Follow these tips to maximize the benefits of your analysis.
Determine the timeframe for your analysis, such as the past fiscal quarter or year. Then, you can gather data from business travel expenses reports, accounts payable, and booking platforms to form your overview of travel-related tail spend.
Breaking transactions down into categories helps to identify common areas of expenditure. While this often includes things like meals, ground transport, incidentals, and client entertainment, for the most accurate analysis you should tailor categories to your business’s travel activities.
In addition to looking at the types of expenses your business travelers are paying for, you should also look at where they’re spending money. Are they making small purchases with vendors that could be consolidated?
Another important step of any tail spend analysis is determining how to best store and share this information. At this stage, using a digital software solution is recommended to cleanse, extract, and report data in a clean, sharable dashboard format. With clear output reports, all stakeholders gain better visibility over tail spend, paving the way for cost-saving opportunities.
Over time, you can use quantifiable metrics to determine how well your trail spend management program is working. This includes relevant KPIs like per-transaction costs, cost savings achieved, and booking platform compliance rates. Examine productivity improvements alongside these cost and compliance metrics, such as invoice processing times.
As with any business strategy, the success of tail spend management relies on training and communication. Before rolling out digital tools to enhance productivity and compliance, ensure they’re user friendly and explain the benefits to both business travelers and finance teams.
Digital tools provide the most effective way to manage tail spend in real time. In fact, according to a Boston Consulting Group study, firms using digital solutions to actively manage tail spend can cut annual expenditures by 5% to 10%.
Manually aggregating and organizing tail spend data for all business trips is a time-consuming process, and prone to human error. With the best spend management software you’ll be able to streamline all aspects of travel and expense management.
Here are a few features to look for when comparing tail spend solutions.
Tools like Expensify import business travel expenses from corporate credit cards to automatically generate tail spend reports, and come with optical character recognition for receipt scanning on the go.
One of the best ways to manage tail spend in business travel is by standardising the booking process. With Booking.com for Business, business travelers can book and manage their own itineraries. Get the best rates on business hotels, flights, and corporate hired cars, all within an approved central platform. And with streamlined oversight of traveler spend, you’ll be able to better identify patterns and opportunities for savings.
Wondering just how much you could save with our business travel management solution? Try our Savings Calculator to find out in just seven questions.
Taken in isolation, tail spend purchases may seem small and inconsequential. A morning latte or bus ticket may not seem worth tracking as a business travel expense. But over time, small purchases contribute to a large pool of undocumented expenditure, which can be a real accounting headache. And in the case of business travel, tail spend might also mean missing out on cost savings when employees book away from approved platforms.
This is why tail spend management is so important for businesses of any size. With a combination of spend management software, expense tracking apps, data analytics tools and travel management platforms, gain full visibility over tail spend.
Business travel involves a series of small, frequent transactions initiated by employees. When traveling for work, employees will need to make purchasing decisions in time-limited situations that fall outside usual spending patterns. These types of low-value, high-frequency transactions contribute significantly to a company’s tail spend.
Examples of business travel expenses include rideshares, taxis booked directly by employees, entertainment expenses, and meals. Incidentals like airport snacks, drinks, and unplanned nights in accommodation will also contribute to tail spend, as will ancillary fees like luggage and Wi-Fi.
To gain control over business travel tail spend, companies must first identify where it’s coming from. Through analyzing data, you’ll be able to learn where your business travelers are spending money, looking for ways to build structure into these situations through policy. Additional strategies include using spend management software, issuing payment cards that track expenses in real time, and providing receipt scanning apps.
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