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Travel Expenses: Hard Cap or Dynamic Budget?

Management of travel expenses. How do companies calculate the budget and how much money do they allocate for business trips? What is better: hard cap or dynamic budget?

March 16, 2021

Travel expenses are one of the most mismanaged aspects of finance in modern business. Most companies fail to develop clear expense policies and standards, leading to confusion for both travelling staff members and company administrators. It also leads to a situation where expenses are often much higher than they need to be as there is no clarity around what spending is acceptable. 

To avoid overspending in this area, it’s worth investing some time in establishing clear guidelines for travel expenses. This should involve considering hard cap budget and dynamic budget to work out what will work best for your company.

There are many new travel solutions on the market, helping to manage spending and business travel overall more efficiently. Companies will save time and money. SoldoutNight is ideal for companies to stay organized when it comes to business travel management. The platform is free, easy to use and web based.   

What is a hard cap budget?

A hard cap budget is one with a set limit for a business trip. This means that an employee will be allocated a maximum amount that they are allowed to spend for the trip. For example, a company might set a limit of $150 per day to include three meals, transport such as taxis or Ubers, and other expenses considered appropriate by the organization. If an employee goes on a two-day trip, they would have a maximum budget of $300. For a week-long trip, they would have a maximum budget of $1,050 for the entire duration. 

If an employee comes in under the hard cap budget set, this is a positive for the company. If they go over the budget, then they will be responsible for the additional charges.

What is a dynamic budget?

A dynamic budget is a little more sophisticated. It is based on the destination, travel dates and current market rates to provide a more accurate expenditure figure. For instance, somebody travelling to Singapore during peak time will have a much larger budget than somebody travelling to Manila in the off-season.

Dynamic budgets are typically set by looking at similar trips and the associated costs. Companies will look at trips to similar destinations during similar seasons, then create a budget based on that information. 

Which type of budget is best for travel expenses?

Each type of budget has advantages and disadvantages. The hard cap budget requires less time to allocate, but won’t be as accurate and increases the likelihood of some staff going over the budget if they travel to an expensive destination. Dynamic budgeting is more accurate, however does take more time to set up.

It really depends on your organization and travel requirements as to what type of budget is right for your company. If you have limited travel needs and go to the same places only a few times a year, then a hard cap budget might be a suitable option. However, if your employees travel regularly to a wide range of destination then investing in a dynamic budgeting system is likely to be much more effective in the long run.

Regardless of the budget you choose, there are many travel expense systems that can help you to track your expenditure. While they may require a small investment upfront, they are sure to save you money in the long run as they can help you to reduce overspending on business travel.