Indian firms are missing out on significant savings

New Delhi: According to a survey conducted by American Express Consulting demonstrates that the rapid revenue growth of Indian companies seen over the last decade has been matched by a corresponding increase in business related travel expenditure.

The survey goes on to highlight opportunities for Indian companies to leverage this increased spend to negotiate improved discounts with key suppliers.

“The survey demonstrates two important themes. Firstly, the expense management strategies of Indian companies have evolved significantly since 2001, with business leaders increasingly recognising the importance of controlling their T&E expense. Secondly, this evolution needs to continue further if Indian companies are to match the savings generated by their global peers,” Head of American Express Commercial Card Firdaus Mogul said.

The report surveyed 114 companies across India. The responses of these companies were then benchmarked against strategies employed by Corporations in the United States and Europe, to evaluate performance versus global best practice.

During the survey, 74 per cent of Indian respondents indicated that their T&E spend had now increased to more than Rs 1 crore per year, compared to an average of only Rs 17 lakhs in 2001. This trend looks set to continue, with 91 per cent of Indian companies forecasting increasing T&E expenses in 2008 – with half forecasting increases in excess of 25 per cent.

“High levels of T&E expense are a relatively new phenomenon in India and Indian companies have yet to fully exploit the significant economies of scale available through consolidated bargaining with key suppliers”, commented Prashant Aggarwal, Head of American Express Consulting, Japan and Asia Pacific.“

Supplier’s will always negotiate with regular customers, but only if the customer can demonstrate consistent buyer behaviour. The use of multiple payment methods such as cash advance, invoice and personal card limit Indian company’s ability to demonstrate this behaviour, resulting in increased expenses for the business”.

Key findings

Of the companies surveyed, 36% stated that an increase in overall T&E costs was the main factor driving their desire to improve their expense management processes. This is in stark contrast to global companies who have as their primary focus on improving compliance with policy.

79% of companies use Corporate Card as payment method, up from 33% in 2001; of these, 41% adopt the best practice of mandating use of the Card for all chargeable business expenses and have streamlined their back-end accounting processes by shifting away from other payment methods such as cash advances, personal cards and direct invoicing which prevents companies from receiving full supplier spend visibility and resulting negotiating opportunities.

Two T&E spending categories – air travel and hotels - account for more than 70% of total T&E expenditure.

Air travel is now an increasingly important cost to Indian companies. Costs related to air travel now accounts for 42% of T&E expenses, an increase of 10% since 2001. This trend contrasts starkly with the reduction in the proportion attributable to non-air travel, which has fallen from 21% in 2001 to just 13%.