Should Large Companies Use Corporate Credit Cards for Expense Management?

When you have a large number of staff on your payroll, a corporate credit card can seem like the perfect answer to your expense management woes.

Employees can borrow the card when they travel, entertain clients, or buy office supplies. The card belongs to the company, so they’re not out of pocket and you don’t have to reimburse them. And the credit card statement doubles as an expense report.

Sounds simple and straightforward, right?

Except that it isn’t.

While using a credit card means there’s no need for reimbursement, you still have to collect paperwork, reconcile every transaction, and balance the books.

More to the point, as you hire more employees and variable spend increases — that’s the cost of travel, client entertaining, and office necessities such as stationery and software subscriptions —  using a credit card may become increasingly impractical.

So how can you manage variable spend efficiently and effectively without one? Prepaid cards enable finance teams to have a smoother reconciliation process and a real-time overview of variable spend on an employee and departmental basis.

How companies use corporate credit cards for expense management

Expense process with prepaid cards

Corporate credit card usage typically works like so:

• The head of department (or, if the company has a flat structure, a senior  person) owns the card
• Employees borrow the card if and when they need it for business-related reasons
• Once they complete the purchase, they keep the receipt and return the card
• At the end of the month, you receive the credit card statement. You must also collect receipts from every staff member who used the credit card during that month
• You go through the credit card statement line by line, matching it to the receipts and making sure every transaction is within the company’s expense policy
• You input the data into your accounting system, so you can balance the books

Chances are, this is far more complicated than you originally thought, right?

From a practical standpoint, it also creates several issues.

What’s wrong with using corporate credit cards for expense management?

There are four main challenges when using a corporate credit card for expense management:

• A lengthy and often messy reconciliation process
• Too much admin
• The larger the company, the easier it becomes to max out the card
• What happens if not everyone is allowed use of the card?

Let’s dive deeper into each of these issues.

Reconciling transactions

The most commonly touted benefit of using a corporate credit card is that there’s no need to reimburse employees. This is true. But it doesn’t make expense management any easier. It simply switches one burdensome process for another.

To begin with, credit card providers typically issue statements once a month. Given that tens — if not hundreds — of employees may be using the same card, you may get lumped with a nightmarishly long statement.

Worse, receipts are spread around several different individuals who may store them incorrectly or misplace them. And as accountant and money mentor Gail Bainbridge notes:

“Missing receipts may mean you can’t claim back all of your expenses or VAT.”

Gail Bainbridge – accountant and money mentor

Lastly, there’s less accountability when several people are sharing one credit card, because you can’t immediately attribute specific transactions to individuals. This means finding out who spent £75 at the local pub on ‘client entertaining’ will take some doing.

Neverending admin

If reconciliation weren’t a time-hog, the job doesn’t end when it’s done. Next, you must input all that data into your accounting system.

Bainbridge puts it this way: “It probably isn’t the first consideration when choosing one, but the trouble with credit cards is they don’t always integrate with your accounting software.”

This leaves you with two choices: input the statements into your accounting software manually, or convert the statement into an uploadable format your software will accept. Either way, it’s not going to be fun.

All maxed out

The size of your card’s credit limit will depend on several factors. That said, assuming your business has a reasonably good credit score and meets all the provider’s other requirements, comparison website SmallBusinessPrices.co.uk reckons it could be somewhere between £10,000 and £50,000.

This seems like a lot, until you consider how much your staff spend on variable expenses.

Let’s crunch some numbers. Studies have found that UK businesses spend:

• Over $50 million a year (approximately £39 million) collectively on business travel
• About $5,000 a year (approximately £3,800) on software subscriptions
• £722 million, collectively, on stationery just between April and June 2019

The larger your business, the quicker variable spend will eat away at your limit.

More importantly, because your staff only borrow the card when they need it and don’t have access to the provider’s app, they won’t know if it’s close to the limit. As a result, they may inadvertently max it out, racking up charges and potentially hurting your company’s credit score.

The problem with restricting access to your corporate credit card

Perhaps you’ve decided interns, trainees, and juniors shouldn’t be trusted with the corporate credit card. Fair enough. But that doesn’t mean they won’t spend money on business-related expenses.

If this happens, you’ll have to pay them back, which means a laborious, admin heavy reimbursement process.

Just like that, you’ve doubled your workload.

Could prepaid cards be a better alternative to corporate credit cards?

If you thought a corporate credit card and expense management are a match made in heaven, all this should show you otherwise. Credit cards may remove the need to reimburse employees, but the reconciliation process is just as problematic.

To quote Soldo’s Finance Director Paul Murphy:

 “Far from being the simple, straightforward expense management tool they’re made out to be, credit cards are often a bureaucratic nightmare.”

Paul Murphy – Finance Director at Soldo

As it happens, there’s a way you can enjoy the benefits of a corporate credit card without the issues. And that’s where prepaid cards like Soldo’s come in.

Prepaid cards are pre-loaded with company money, so your employees aren’t out of pocket and don’t have to be reimbursed. The reconciliation process is also much simpler.

Here’s what the process would look like:

• Each employee has their own card, pre-loaded with a set amount of money
• The employee makes a purchase, launches the app (after receiving an instant notification), and uploads a photo of the receipt
• Log on to the dashboard to get an overview of variable spend across the business in real time. Soldo also has an API you can use to integrate the dashboard with your accounting software, like Xero, so it imports transactions automatically

This approach has several advantages over a corporate credit card:

You’re in control

You can load each card with a specific amount, depending on who the employee is. So the intern could get £50 a month, while your Head of Digital could get £2,000 a month.

You also get to decide what every individual can or can’t spend the money on. For instance, you could adjust the dashboard settings so certain employees can only use the card to pay for fuel.

Greater transparency and accountability

Because every employee gets their own card, you can see who spent money, how much, and on what at any time, straight for the dashboard. And because you can immediately attribute an expense to a specific individual, your employees will be less likely to play fast and loose with your expense policy.

Easier expense management

Employees upload receipts straight to the dashboard, so you don’t have to go around collecting paperwork.

Even better, the dashboard shows you transactions in real time. You don’t have to wait for a statement to come out to reconcile transactions or find out how much variable spending you’ve racked up. And because you can integrate with your accounting software, there’s no need to manually input data.

It’s time to take the sting out of variable spending

Corporate credit cards may solve some expense management problems, but they create equally troublesome new ones. The process is as tedious, admin-heavy, and time-consuming as reimbursing employees.

Luckily, you don’t have to settle for the lesser of two evils. With prepaid cards, you can do away with reimbursement AND with complicated expense management.

Who said you can’t have the best of both worlds?

Variable spending shouldn’t make your head spin. It should be simple, straightforward, and pain-free to manage. Read our e-book Introducing Variable Spend Management: Tackle spending sprawl and become a more productive, agile, data-driven business to learn how to take your variable spend management from mind-numbing to easy breezy.