Travel Cost Sinkhole

You won the contract, and it looks great… until you realize travel costs are going to eat you alive. It really hurts if you’re a small business, and it’s worse when times are hard and margins are thin.

So don’t let it happen to you. Make sure you and your client agree beforehand, formally, about such details as:

  • Will travel expenses be direct billed to the client, or must you submit them on invoices for later reimbursement by your client? Direct billing to the client is great for you. It nearly eliminates your financial risk on travel costs because you have hardly any travel cost to absorb for a billing cycle. Smart clients make it work to their benefit, too. I have seen a client do it to maximize their discounts as a high volume source of travel business.
  • What counts as travel time? Will it be billed only as actual time at a client site, or portal-to-portal? “Portal-to-portal” means billing begins when the worker departs to go to a client site and ends when the worker returns.
  • Is time spent traveling billable at the regular rate or a reduced rate? Is it subject to a daily ceiling?
  • Will you drive your own car, how will the cost of using your car be reimbursed? Or must you drive a rental car? In either case, is any special insurance required, and if so who pays for it?
  • Will you make your own travel arrangements, or does the client want you to use their favorite agency and discount programs?
  • Will air travel be first class, business class or coach? Does this apply to long international flights too? Does it apply to train travel? If your client demands that you use discount tickets, who picks up extra costs for any necessary changes that cause financial penalties?
  • Will lodging and meal expenses be on a reimbursement basis, or a per diem basis? Per diem is easier in terms of paperwork, but may not be feasible in some countries.
  • Who pays and arranges for special requirements such as visas, vaccinations, traveler’s medical kit, and insurance that is valid in a foreign country? One company sent a consultant and his family abroad for a six month assignment. He assumed his client was arranging visas. The client didn’t. His entire family found itself in Immigration Hell. Remarks: Health insurance is not the only kind to consider. For example, in some regions, kidnap insurance is recommended.
  • For foreign travel, must you hold reimbursement requests until a credit card bill arrives, or is a standard formula used to estimate reimbursement based on currency conversion from receipts? If the latter, which currency exchange rate table will be applied? Remarks: For a fixed price contract, either stipulate that the price is in the currency you prefer, or make provisions to cope with a rapid fall in the exchange rate for your currency. One of my clients recently paid another vendor about 28% extra for a fixed price job because this was missing from their contract.
  • Can the client terminate your contract while you are in the middle of travel to perform it? If so, who is responsible for your travel costs to return home? While abroad on business, my login accounts for that contract suddenly terminated. I belatedly realized nothing in my contract would make the client pay my way home if my contract was severed in mid-trip. Fortunately, a manager had only forgotten to file a routine renewal form.

Spell out the details up front to save your profit margin–and as a bonus, your relationship with the client will be smoother because you have done away with a potential source of friction.