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Rewards offered by credit cards tempt business travelers to overspend. A good travel policy helps curb this disturbing trend.

A good travel policy stops bad incentives from credit cards

Business travelers are given many incentives to spend too much. Nowhere is this more true than with credit card rewards. An effective travel policy is essential to tilt the scale in the direction of savings.

It’s no surprise that credit card rewards encourage people to spend more. Credit card companies offer a variety of rewards beyond cash back. Frequent flyer miles and other travel rewards are the most common. One experiment showed that consumers were willing to pay twice as much for sports tickets when a credit card was accepted. More typically, consumers are willing to pay 5% to 10% more when using a credit card. However, a typical reward is worth just 1% of the price of the purchase. This illustrates how cards encourage people to make decisions that are not in their best interest.

The credit card rewards problem is much worse for business travel. Employees often choose an airline or hotel where their credit card gives bonus points even if it is more expensive. They are bombarded with offers for upgrade packages which offer modest benefits but include extra rewards. These rewards are compounded when purchased with their rewards credit card.

Rewards are front and center on employees minds as they travel. The miles and points they are earning from their flights and hotels serves  as a subtle reminder to spend more on meals and entertainment that they can charge to their credit card. Employees have little incentive to save money because the company is picking up the tab.

Can a travel policy curb this behavior?

Here are some strategies a travel manager can use to fight back:

  1.  Require employees to use a corporate credit card. Corporate cards pay cash back to the company instead of the employee.
  2. Use a ghost card to book travel. A ghost card is a single credit card used to pay for travel for many employees. The ghost card is perfect for employees who don’t travel often enough to need their own corporate credit card.
  3. Develop an effective travel policy. Require travelers to book with the lowest cost vendors. Set sensible limits on meals and entertainment.
  4. Notify a manager when travel is reserved outside of the travel policy.

Keeping track of corporate credit cards and enforcing a travel policy used to be a lot of work. Today. an integrated travel and expense system automates the process. Contact us and we will show you how!