Handle Business Travel Costs Brilliantly
You made the big sale, and it looks great… until you realize travel costs are going to eat you alive. That hurts, especially when you’re a small business. It’s awful when times are bad and margins are poor, or when (as in this image) you unexpectedly have to use a more expensive mode of transport than you anticipated and priced into your offer.
So don’t let travel costs get you down. Make sure you and your client agree up front to handle business travel fairly, not in ways that empty your pocket.
Set the Rules Up Front
Determine how travel costs will be handled before starting a contract with a customer. Leaving it unsettled until too late can ruin your relationship with your customer!
Issues to Settle No Matter Where You Go
General issues that apply whether you do business locally, nationally or internationally
- Will you drive your own car? If so, how will the cost of using your car be reimbursed? Must you drive a rental vehicle, perhaps because a car will not do (as in the photo) or perhaps because your insurer insists you cannot use a personal vehicle? In either case, is any special insurance required–and if so who pays for it?
- What constitutes travel time? Can you bill only for actual time at a client site, or portal-to-portal? Portal-to-portal means your billing clock starts when your worker departs to go to a client site, and ends when the worker returns. This issue can be worth a lot to a business that does local on-site work and spends a lot of its working time just going from site to site.
- It is also crucial if you might have to spend time waiting at the client site. A student in one of my non-credit courses has an ice business–and has the equipment to “make snow.” In Houston, Texas, that’s highly prized for grand openings and fancy parties. It is also needed by filmmakers because snow in Texas isn’t common enough to count on when a crew is filming. The first time a filmmaker hired a few hours of snowmaking, it was for some scenes shot 200 miles away in Austin, Texas. The ice company put in a fixed price bid to cover travel time there and back, and the few hours of snowmaking. They didn’t realize the few hours of snow would be spread over two to three days. They had to absorb the cost of paying their crew for all that time, putting them up in a hotel, feeding them, and keeping the refrigeration equipment running. They still provide snow for filmmakers (and love doing it), but they price the cost of waiting into the travel portion of their bids.
- That brings up another question. Can you bill for time spent traveling at the regular rate? If not, can you bill for it at a reduced rate? Is it subject to a daily ceiling?
- Will travel expenses be direct billed to the client, or must you submit travel costs on invoices for later reimbursement by your client? Direct billing to the client is wonderful for you. It cuts your financial risk on travel costs to nearly zero because you have hardly any travel cost to absorb for a billing cycle. Smart clients use this to their benefit, too. I have seen a client do it to maximize their discounts from airlines and hotel chains as a high volume source of travel business.
- Does the client want you to use their favorite agency and discount programs, or will you make your own travel arrangements?
- Will air travel be first class, business class or coach? Does this apply to long flights too, or does the class of travel depend upon the duration of the journey? Does it apply to train travel? How about ferries or ships?
- If your client requires you to use discount tickets, who pays extra costs for any necessary changes that cause financial penalties?
- Will lodging and meal expenses be on a reimbursement basis, or a per diem (flat rate per day) basis? Per diem is easier in terms of paperwork, but may not be feasible in some countries.
- For per diem or mileage reimbursement rates, what will be the source of the rates? In the USA, the federal General Services Administration publishes tables of per diem rates each year that will be accepted by the Internal Revenue Service on tax returns. You can get this at www.gsa.gov. Similarly, in the USA the IRS publishes standard mileage reimbursement rates each year. Not all countries publish such standardized guidelines.
- How much travel will you need to do? Setting limits on travel is necessary in fixed price contracts. Otherwise, a customer that insists upon extra on-site attention could rapidly eliminate your profit margin for the project. If your contract is not fixed price, excessive travel could tie up key staffers so much that they are unable to satisfy other clients. When you set limits on travel, you can include a clause that allows additional travel on specified terms. If more site visits are needed in mid-project, the client will be able to book them and will know in advance how much that will add to the bill.
International Travel is More Challenging
Don’t be like I once was–don’t find yourself on the other side of an ocean, realizing your contract doesn’t require the customer to pay your way back home if they terminate a project while you’re far far away!
Issues to Settle for International Travel
Crossing borders makes travel more interesting (and more complex).
- Who pays and arranges for special requirements such as visas, vaccinations, traveler’s medical kit, and insurance that is valid in a foreign country? (By the way, health insurance is not the only kind to consider. For example, in some regions, kidnap insurance is recommended.) One of my clients sent another consultant and his family from the USA to the UK for a six month assignment. The consultant assumed our client arranged visas. The client didn’t. For his entire family, landing at Heathrow was Immigration Hell.
- For foreign travel, must you wait until credit card bills arrive before you request reimbursement for those transactions, or can you use a standard formula to estimate reimbursement based on currency conversion from receipts? If the latter, which currency exchange rate table will be applied?
- For a fixed price contract, can you specify that the price is in the currency you prefer, or must you make provisions to cope in case of a rapid fall in the exchange rate for your currency? In 2008, one of my clients had to pay a vendor in another country about 28% extra for a fixed price job because my client’s purchasing department neglected to protect itself from currency fluctuations. (No, that windfall didn’t go into my pocket. It belonged to another vendor.)
- Can the client terminate your contract while you are traveling to perform work for the contract? If so, who is responsible for your travel costs to return home? While abroad on business, my login accounts on my client’s computer systems suddenly quit working. I belatedly realized nothing in my contract would make the client pay my way home across the Atlantic if my contract was canceled in mid-trip. Luckily, a manager had only forgotten to file a routine renewal form.
- Do you need to take any special steps so that you or your client can recover VAT charges on travel costs?
- Will Customs duties be charged on anything that is being hand-carried during travel on behalf of your client? How will you recover the cost of those duties? Are there any particular steps you need to take to satisfy Customs officers, such as carrying special paperwork? Perhaps most importantly, is it legal to transport everything you are expected to transport across borders?
- How much access to cash and credit will you need while traveling on behalf of your client? Are there limitations on how much you can take with you? Are there safety considerations that require you to bring money in a specific manner, such as using traveler’s checks that cannot be used by anyone else if they are lost or stolen? Do those incur fees, and if so, who pays the fees?
What About Visas and Permits?
International business travel often requires entry visas or work permits. Pin down who will pay for them!
Your Credit Cards May Not Work in Another Country
Do you live in the USA and plan to go to the UK on business? Your credit cards will not be accepted by an increasing number of merchants because they do not have European chip-and-PIN security. Make plans to be able to get cash in case you can’t use your business credit cards while on travel for business abroad.
The material in this article is from just one slice of what is in my book for small businesses that want to get their customers to pay fairly. This book is a complete rewrite, update and major expansion of the material in the first half of my wider ranging 2003 book.
Although this book is USA oriented, a colleague in the UK has been using the ebook version of it. He has three businesses and is generally successful with them. He apologized for not having finished the ebook quickly “because every few pages, I realise there’s something else I need to do for my business, so I have to run off and do it!”
If it has done that for him (not even in the country it was written for) and helped me collect thousands that would otherwise have been late or never paid, imagine what it can do for you!