Per Diem Vs. Actual Expenses: What's Better?

Per Diem Vs. Actual Expenses: What’s Better?

Per Diem Vs. Actual Expenses: What's Better?Controlling your expenses within a company is very important. It can be extremely easy for you to go over spending limits if you don’t have some type of regulation set in place. When business travel costs are necessary, what can your company do with its limited budget?

There are one of two methods to choose from when figuring out expense reports: a fixed per diem, or actual expenses, which has the business traveler provide receipts to report the actual cost of the expense. Let’s see why a per diem may be the way to go regarding your expense reports.

Advantages And Disadvantages Of A Per Diem

With that being said, there are advantages and disadvantages for both approaches. Having a per diem allows employees to avoid collecting tons of receipts. As long as the cost for traveling is under the per diem rate, there is no need to have any type of proof of purchase. It also allows you as the business owner to have a better grasp on the various travel costs presented to your company. In other words, you’ll have an easier time budgeting travel costs within the company.

With that being said, a per diem can also pose some problems. Firstly, it can become difficult to set forth a fixed per diem rate for travel when places around the globe may have different prices for similar services. For example, a mid-scale hotel in the United States may only cost $150/night. However, the same exact establishment in London may cost twice as much. Do you adjust the per diem accordingly? It can also pose a problem during special cases, where a client may extremely important and crucial to the company’s success. You wouldn’t want your employee to have to limit their meal options for a special client because of per diem restrictions would you? In cases like those, a per diem rate may provide more obstacles rather than clearing any.

What Will You Decide To Use?

It might be best to employ a per diem approach for normal travel situations. However, actual expenses may be the way to go in special cases. Because of its demand for supporting documentation, it may be more time-consuming and labor-intensive to adopt actual expenses. Your employees will need to be organized in maintaining receipts, and it will take longer for your accounting staff to review travel costs. This can lead to discrepancies that take time to investigate and resolve. An automated expense report software can eliminate some of these headaches; allowing employees to enter their receipts into a software that is linked to the entire company.