The traditional expense report process is a drain on resources. The time to process reports, catch and correct errors, and finalize reimbursements takes hours of labor and unseen costs.
Businesses rely on corporate cards to streamline this process to save both time and money. But if you don’t implement them properly you may cause even more confusion and unnecessary work for your team.
To get you up to speed, we’ve broken down what corporate cards are, the benefits and challenges, and what to consider when choosing a card for your business.
What is a corporate card?
Corporate cards are ways of giving employees the ability to make purchases on the business’s behalf.
The employee is the cardholder in this situation. It’s their name on the card and they have the freedom to make purchases on the card which the business pays for.
Rather than go through lengthy reimbursement and approval processes, the employee can cover business expenses like travel costs, business meals, or in-the-field purchases on the fly.
For the business, they get more insight into what employees are spending on and how much to budget to meet their needs.
The different types of corporate cards
“Corporate cards” is an umbrella term that covers three different options, each with its pros and cons.
Corporate credit card
Corporate credit cards are connected to the business’s credit account.
Employees make as many purchases as needed and the business is responsible for paying down the balance at the end of the billing cycle.
Spending isn’t bottomless. There are monthly credit limits and transactions won’t go through if the card is above the credit limit.
Corporate charge card
Corporate charge cards are similar to credit cards as they carry a balance that needs to be paid down.
However, they don’t have credit limits and the balance must be paid in full each billing cycle.
There are high fees and penalties if the balance isn’t paid. In some cases, the card may even be frozen and unusable until the balance and fees are paid.
Corporate prepaid cards
Corporate prepaid cards carry a balance that’s funded by the business.
The business provides a predetermined amount and once the funds have been depleted, the balance needs to be topped up before being used again.
This is the best option for giving a hard cap on spending. However, it could leave the employee in a tough place if the balance is depleted and they need to make an emergency purchase.
The benefits of corporate cards
Whether you’re looking to save time on painstaking processes or make the most of improved security, corporate cards have positive impacts on multiple aspects of the procurement process.
Improved expense management
Rather than having a bottleneck that every purchase must go through, corporate cards enable employees to spend on what they need when needed.
Depending on the type of corporate card, you have options to restrict spending so that you still have control over what kind of transactions and for what amounts are being run through the business.
For example, a corporate prepaid card holds funds with a balance that can be topped up once they’re depleted.
If you want to allow employee spending up to a certain amount, this is a great way to make sure they don’t go beyond it.
Alternatively, look for corporate credit cards that have lower credit limits or spending controls. But beware of any potential fees or penalties that may come with exceeding credit limits.
Enhanced security features and protection
Credit card technology has progressed to protect card and account holders from fraudulent transactions, theft, or stolen cards.
In particular, look for corporate cards that offer:
- Fraud monitoring and alerts: Transaction histories are analyzed and if unusual or suspicious transactions are identified, the cardholder and business are both notified with the option of blocking the card or canceling the transaction.
- Zero liability protection: Cardholders are not held responsible for unauthorized transactions. Transactions can be disputed with the business not liable to pay for those amounts.
- Virtual cards: Rather than having a physical card, cardholders are given virtual card numbers that can be easily managed and deactivated if necessary. This reduces the risk of a card falling into the wrong hands. (Hint: Check out our virtual card here)
- Transaction limits: Restrictions on how many transactions can be logged on the card over a given time period. Limits can be set on different types of transactions like online, point-of-sale, or ATM withdrawals.
- Contactless payments: With contactless payments, the card information is encrypted which keeps your payment details private so it can’t be stolen.
Rewards programs
There’s a wide variety of credit card options out there and many offer rewards on transactions—including ours.
Some of the reward programs available are:
- Cash back: A percentage of transactions can be redeemed to pay down the balance, or is instantly discounted from the purchase. The cash back typically differs based on vendor and expense type.
- Points: Points accumulate on purchases and can be redeemed for rewards like gift cards or cash value towards paying down the balance. Bonus points may be offered for purchases at specific vendors.
- Travel miles: Similar to points, you earn miles on purchases which can be used to book flights, an ideal choice for businesses that have employees doing lots of traveling.
Each reward program has its pros and cons which can differ by provider. Shop around for providers and compare how the reward programs differ for each.
In particular, look at what vendors are eligible for bonus rewards. If you choose the reward program that gets bonuses at vendors you already frequent, you maximize the rewards you collect.
Corporate card challenges
Before you start offering corporate cards to employees, you need to know some of the risks and challenges that come with them. Here are four of the most common challenges and how to solve them.
Setting spending limits
You trust your employees with corporate cards, but even the most trustworthy person might accidentally go over budget.
Giving employees corporate cards means having less control over your business’s expenses.
While skipping the reimbursement process can ultimately save you time and open up capacity for working on more important tasks, you have to accept the potential risks.
In some cases, a cardholder will make more total purchases or spend above an allocated budget over a period of time.
In other cases, it might mean buying the premium, more expensive version of something. Maybe they opt for the computer mouse that’s twice the price of the basic model the finance team would have preferred.
These instances of a cardholder overspending add up over time. A one-time occurrence might be negligible when it’s all said and done, but repeat offenses cut into your budget consistently.
Some corporate cards offer spending controls to limit where the card can be used, what can be bought, and how much can be spent.
When in doubt, a corporate prepaid card sets a hard spending limit. By setting a hard cap, it’s up to the employee to be frugal and budget to ensure they aren’t left in the lurch with a depleted balance.
Monitoring misuse
While empowering employees to make their own purchases on the business’s behalf has benefits, it can be misused, like making personal purchases.
To avoid this, spend time reviewing transaction histories, collecting expense reports, and making receipts mandatory.
While some cards allow you to control what vendors a card is used at, it’s still possible to be misused without you noticing, like reimbursing a personal meal rather than a business meal.
There needs to be clear consequences for potential misuse. The corporate card policy needs to outline the terms of use including what’s considered misuse and what happens if the employee does anything that falls under it (more on that later).
Integrating into your accounting
It’s essential that you’re tracking spending on corporate cards consistently and accurately to review transactions and update your accounting.
If the corporate cards you’re using don’t integrate into your accounting, you’re adding significantly more work onto your plate. Each card will need to be regularly reconciled manually with balances checked.
The more cards you’re issuing to employees, the more of a problem a lack of integration becomes.
Check to see what your accounting system can connect with before committing to a corporate card.
The real-time insight is invaluable and saves you precious time spent manually entering transactions and reviewing the work for accuracy.
Training employees on card usage
No matter who you’re issuing a corporate card to, you need to ensure they’re trained on processes to ensure proper usage.
The corporate card policy has to be clearly communicated to any cardholders.
If there are any changes to the policy, have training on the changes to get everyone on the same page.
In general, make sure that any cardholders know:
- What’s the acceptable use of the corporate card
- The process of getting a purchase approved
- What documentation they need to provide
- What are the spending limits
- The consequences of card misusage
What to consider when choosing a corporate card
There’s no “one size fits all” corporate card option.
Instead, you need to think about how the card will be used then ask the following four questions to determine which is best for you.
What are its associated costs?
A corporate card should have a positive impact on your business. If you’re not careful, the card you pick could cost you lots of money in transaction fees, account fees, and interest.
If you want the flexibility to have a balance rollover past a billing cycle, you should look for corporate cards that aren’t going to charge you high interest rates or fees for doing so.
Then start looking at the associated fees for the card. In particular, fees levied on certain types of transactions add up quickly if that’s going to be part of the card activity, like foreign transaction fees for international payments.
If the card has low activity, maybe even going months without charges, account fees become incredibly costly for something that isn’t being used.
It’s worth looking at some past expense reports to get a feel of how the card will be used and experimenting with different fee structures to understand what will have the lowest cost.
Does the reward program match your usage?
Different reward programs suit different uses.
Start with defining the intended use of the corporate card.
Who is going to be using the cards and what are they going to be using them for?
With this jumping off point, you’ll get a clearer picture of what reward program suits your uses.
However, you shouldn’t get attached to a specific reward program without laying out some of the offered options.
For example, at first glance a card to be used for travel expenses might seem best suited for a travel miles rewards program.
However, a cash back program with bonus cash back with airlines, Uber, and hotels might make more sense.
Look for reward programs that offer bonuses for the vendors you’re most likely to use the card on.
Then you can start thinking about whether a points, travel miles, or cash back program is going to make the most sense for your usage.
Does it integrate with your accounting system?
While a corporate card inevitably means some level of reviewing transaction histories and usage, some setups minimize the impact of doing so to keep operations running smoothly.
Check with your accounting system to see if it offers integrations for the corporate cards you’re considering.
Ideally, you want something that updates in real time so you can track spending and usage as it happens.
You want something that helps you understand the spending patterns of the cardholders to ensure the card is being used for its intended purpose and can adjust policy on the fly if necessary.
With BILL Spend & Expense, you can manage your financial operations all in one place.
Connect your accounts payable, corporate card, and accounting data to get a full picture of your company’s spending.
Does it let you set spending limits and controls?
To keep some control over corporate card usage, look for options that offer spending controls.
Most corporate cards come with some level of spending control—credit cards have credit limits and prepaid cards have an exhaustible balance.
However, some options offer controls that get into the minutiae of transactions.
If you want to restrict what can be purchased using a corporate card, try to find options that limit usage to specific vendors or expense types. This lets you strike a balance between giving employees freedom and keeping spending in check.
Ideally, the controls should be set on each individual card. You want the option to give certain employees more or less freedom based on their role and seniority at the company.
Setting a corporate card policy
Before you start rolling out corporate cards to employees, you must set a corporate card policy and provide training. This sets the standard for how corporate cards should be used and what the consequences are for misusage.
Your corporate card policy should outline the following:
- Eligibility: Who is eligible to get access to a corporate card
- Approval process: How an employee can get approved to use a corporate card
- Approved uses: Which expense types or purchases the card can be used for
- Reporting responsibilities: Anything the cardholder is responsible for providing as part of using a corporate card (e.g. expense reports, receipts)
- Spending limits: What are the credit limits or balances a card has and when the balance resets
- Violations and consequences: What falls under misuse and what disciplinary actions will be taken
- Dispute process: What steps to take if there are unauthorized charges or fraudulent transactions
- Point of contact: Who in the company can be contacted if the cardholder has any questions about being a cardholder, the policy, or usage of the corporate card
The corporate card policy needs to be drafted before issuing corporate cards. Have it available to employees and be easily accessible for their own reading if possible.
Corporate cards that do more than spend
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Offering seamless software integration, flexible rewards, employee cards, and automatic expense management, you’re bound to find a card that works for you with no annual fees.
Setting budgets lets you control spend so you never have to worry about going over budget due to employee expenses.
