How Software-Enabled Corporate Credit Cards Give Organizations the Visibility and Controls They Need in Today’s Economy
Better spend management matters more than ever in today’s world, especially as more and more business purchases are made by credit card. The Ultimate Guide to Managing Corporate Credit Cards looks at how software-enabled corporate cards help organizations gain the visibility and controls they need. Topics include:
Business purchasing has changed rapidly over the last 20 years. Employees used to book business trips through a corporate travel agency, but now most prefer booking their own flights and hotels online. And instead of sending in formal purchase requests for a new keyboard or chair, employees order directly from Amazon.
Purchasing decisions often happen in a click. Employees today sign up for software subscriptions, pay for digital ads, order office supplies, and get a ride to the airport right from their phones—and all those expenses go on someone’s credit card.
Employees today sign up for software subscriptions, pay for digital ads, order office supplies, and get a ride to the airport right from their phones.
The good news about employee-driven purchasing? In most cases, decisions happen more quickly and, often, at better price points. The challenge: not only does this kind of discretionary spending add up, it’s hard to track.
WHAT IS DISCRETIONARY SPENDING?
Discretionary spending is any business-related charge outside of fixed costs like payroll, rent, and cost of goods. It’s the printer cartridge order here and the software subscription there. It’s a new headset, a Google ad, a Lyft ride, or any other number of small or large expenses.
These charges rack up surprisingly fast when every employee has the ability to spend at their fingertips. Many businesses report that these costs add up to 25% of their budgets or more.
Paying by card is fast, easy, and secure—for the spender. But for accounting, card spend can be tricky to manage. Transactions that used to be invoiced and painstakingly tracked now hide in lengthy credit card statements and batched expense reports.
Transactions that used to be invoiced and painstakingly tracked now hide in lengthy credit card statements and batched expense reports.
Finance teams don’t know who spent what, and for what reason, until employees submit expense reports at the end of the month, or until someone reconciles card statements manually. Tracking card spend can add days to the typical month-end close.
Any process inefficiencies you’ve been able to live with become completely intolerable. When the pandemic threw all of us into a health and economic crisis last spring, finance teams sprang into action to evaluate cost controls and ways to optimize spend (while closing the books remotely for the first time). Many organizations realized that they can no longer wait for last month’s financial results to trickle in. They need to make quick, informed decisions based on up-to-the-minute data.
THE PANDEMIC HIGHLIGHTED THE NEED FOR BETTER, MORE TIMELY DATA
Of the companies we polled for our 2020 Expense Management report, 67% have been working to improve their data tracking in response to the pandemic. One of the top initiatives listed among large companies is “improving data tracking, reporting, and dashboards to help decision-making.”
Simply put: looking into the rearview mirror won’t help you drive through the curves ahead.
Finance teams know they need better ways to manage employee spend. Employee-driven spending decisions will continue–and increase–when travel resumes and people return to the office. And business leaders will increasingly depend on finance teams to have the accurate, up-to-date data they need to know where they stand, make informed decisions, and be proactive.
Center’s Ultimate Guide to Managing Corporate Cards details how organizations can get the visibility and controls they need while empowering employees to spend to keep business moving forward.
Many expense systems and software are based on old data and technology. They were built for yesterday’s business needs, not today’s. Employees may still spend hours on a task that should take minutes.
But now more than ever, businesses need to be able to respond quickly to changing situations and needs. They need streamlined solutions that offer full visibility into where they stand now, not a backwards look at what was spent last month.
Even advanced enterprise-grade solutions like Concur, Coupa, and Expensify have significant structural problems. They still require too much manual effort just to close the books, placing a heavy burden on the back office. These solutions also often lack the ability to implement appropriate spend controls and visibility into spending that’s already happened.
The impact is significant. The amount of manual effort delays the month-end close and the availability of reporting data. The lack of visibility leads to what our controller Brian Maslen calls “spending inertia,” which can erode profitability over time. And when business leaders lack the capability for timely data analysis, they resort to managing spend through broad cuts instead of nuanced insights.
When business leaders lack the capability for timely data analysis, they resort to managing spend through broad cuts instead of nuanced insights.
Legacy workflows and systems like expense reporting, revenue forecasting, and AP processing slow timely decision-making because they’re built around a batched model. For example, expense reports, which group together expenses for reimbursement, are typically submitted at the end of the month, when it’s too late to take action. Waiting a month in today’s economic climate can seem like an eternity.
For businesses of all sizes, shifting to real-time expense management offers a number of benefits:
WHAT’S THE DIFFERENCE BETWEEN EXPENSE MANAGEMENT AND SPEND MANAGEMENT?
Expense management refers to the systems organizations use to track, review, pay, and account for employee-driven expenses. In the past, travel and entertainment expenses made up the bulk of these expenses. Today, employee expenses extend from employee meals and office supplies to software subscriptions and digital advertising.
Expense management is a subset of the broader spend management process, which identifies and manages every single dollar that a company spends. And not only what it spends, but how, why, and when a company’s money and assets are spent. It incorporates the complete process, from purchasing to posting to the GL to analysis and planning.
Company credit cards are the simplest, most secure option for most business expenses. They eliminate the need for complex procurement tools and processes, check processing, and ACH payments. You can set up better control over working capital and improve your cash management position by moving check payments to cards, and you may even earn money back on your expenses through rewards or rebates.
You can set up better control over working capital and improve your cash management position by moving check payments to cards, and you may even earn money back on your expenses through rewards or rebates.
A good corporate card program also offers proactive controls and accountability. You can set limits, lock and unlock cards, and track and code expenses along the way, instead of waiting until after the fact.
A corporate credit card program also offers a better experience for employees. They don’t have to carry a large balance on their personal cards, put their credit score at risk, or wait weeks or months to be reimbursed for what they spend, let alone keep track of their credit card statements and fill out paperwork to be reimbursed. If they’re on the road, you can offer them improved duty of care through roadside assistance, lost card assistance, or medical evacuation in case of an emergency.
Some companies only issue cards to their highest spenders, use a mix of corporate cards and p-cards, or offer employees the choice of using their personal cards, but this flexibility comes with a significant cost.
The first cost is time, because reconciling accounts and coding individual transactions is typically a painstaking manual process, made worse when expenses aren’t reported on time. Your finance team will burn days every month hounding their colleagues for expense reports and receipts.
Reconciling accounts and coding individual transactions is typically a painstaking manual process, made worse when expenses aren’t reported on time.
The second cost is visibility, because you don’t know what’s been spent on personal cards until employees submit expense reports. Before then, you have to spend time making estimates and accruals, and then correct them once the real numbers come in. There’s simply no easy way to look at the data together and spot potential issues like duplicate Zoom subscriptions or using non-approved vendors. And if you’re using shared department cards or p-cards, the lack of visibility into who spent what makes it almost impossible to hold budget managers or departments accountable for their spending.
P-CARDS ARE OFTEN AN ACCOUNTING CHALLENGE
P-card spend—the growing amount of departmental expenses that go on a shared purchasing or p-card—often happens completely outside of traditional expense software. Accounting teams shoulder the burden of reviewing p-card statements, identifying which employee made purchases, tracking down receipts, and then manually coding expenses directly to the ERP.
Can your team handle these processes? Sure. They probably already are. But should they, if they don’t have to? It’s important to consider what they could be spending time on if they weren’t chasing receipts, processing expense reports, or spending days each month to get the books closed.
MANUAL WORK STILL TAKES UP THE BULK OF TIME FOR FINANCE TEAMS
For our 2020 expense management survey, we asked finance teams what single activity takes up most of their time and where they would allocate more time if possible. They responded that routine, highly manual, often paper-based activities like invoice processing and expense management take up most of their time today, while they’d like more time for strategy and planning, process improvements, and cross-department collaboration.
According to our last couple surveys, expense processing and invoice processing were the top two activities for finance teams. Day-to-day operational work often keeps finance teams from the critical strategic, collaborative, and process improvement work their organizations need them to do, now more than ever.
Views on corporate cards tend to fall on one end of the spectrum or the other, like being a Mac or a PC person. There are some who remain fundamentally opposed to giving corporate cards to employees, despite the potential benefits. Here are the most common reasons we’ve heard, and some new ways to think about them.
In the past, this was a valid concern. Adding new cardholders, and suspending or closing those cards, might take a call to the bank, stacks of paperwork, and a turnaround time of several business days. When an employee left the company, shutting off a card too early might result in an accidentally canceled shared software subscription, while shutting it off too late could open the door to fraud.
The good news is that forward-thinking tools make these tasks far easier and friendlier. Booking travel and calling a car have evolved to be far simpler, faster, and mobile-friendly, and so has card management.
Booking travel and calling a car have evolved to be far simpler, faster, and mobile-friendly, and so has card management.
We find that many CFOs have a deeply ingrained belief that holding reimbursement over their employees’ heads gives them more control over business spending. This is really an illusion, however, because it’s impossible to see that spending until days or weeks after the fact, and most expenses are approved without a close review anyway. Another concern CFOs express is that distributing corporate cards broadly encourages wasteful spending.
This is really an illusion, because it’s impossible to see that spending until after the fact, and most expenses are approved without a close review anyway.
Our research shows that employees want to do the right thing; they just need clear policies and the right tools. Four out of five business travelers we surveyed consistently make cost-conscious decisions, adhere to company policy, and generally try to be reasonable with their expenses. And nine out of ten said they would “never” claim questionable expenses as work expenses.
A better approach is to have proactive controls and clear policies built into the process to guide spending as it happens, not after the fact.
Some companies, especially early-stage ones or ones that don’t qualify for credit, like the idea that having employees use their own card offers extra “float” since the reimbursement cycle is stretched out.
In reality, it’s a lot to ask of employees to basically float their employer money by putting expenses on their own cards and then waiting to get reimbursed. In our recent survey, 63% of employees who use their own cards for business expenses worry about potential negative effects, like interest charges and less money available for personal purchases.
It’s a lot to ask of employees to basically float their employer money by putting expenses on their own cards and then waiting to get reimbursed.
Flexible credit options are available to most organizations, even startups and newer organizations. Leveraging those options along with more proactive planning are better for building a strong fiscal culture based on trust.
For some employees, this may be true. For others, carrying a balance on their personal cards may actually be a burden, especially given the increased uncertainty and financial pressures of COVID-19. Their available credit may be reduced, affecting their ability to pay for personal expenses like gas and groceries.
For some employees, carrying a balance may actually be a burden, especially given the increased uncertainty and financial pressures of COVID-19.
They may be subject to late fees or sizable interest charges if they have to wait for reimbursement. And late payments and higher credit use can negatively affect individuals’ credit scores over time. A World Economic Forum study reports that 59% of the workforce is made up of millennials and Gen Z, who generally have less established credit.
HOW DO EMPLOYEES REALLY FEEL ABOUT USING PERSONAL CARDS?
In our recent survey, 30% of finance professionals reported that their colleagues wanted to use personal cards so they could get rewards and points. We followed up with 529 business spenders who travel for work or make purchases for their companies.
Seventy-nine percent agreed that “employees want to use personal cards because they can earn rewards, points, or cash back.” But 49% have to use their personal card because their company either doesn’t issue cards or just didn’t give them one.
And for the nearly 70% who carry a balance on their personal cards, there is added stress and risk of financial impacts.
Your organization has decided to distribute corporate cards to employees. But which to choose? Companies have a range of options, from cards issued by their banks to traditional programs like American Express or Diners Card to newer software-enabled card programs that directly integrate spend and expense management.
Corporate card programs have competed based on points and rewards for decades, but what businesses need most now is visibility and flexible controls.
Corporate card programs have competed based on points and rewards for decades, but what businesses need most now isvisibilityandflexible controls.
In fact, our recent survey data shows that rewards are the least important benefit when organizations choose corporate cards. What they’re really looking for is a simpler way to track spending and procurement, a better employee experience, and built-in tools to ensure compliance, detect fraud, and protect travelers.
THE PROBLEM WITH TRADITIONAL CORPORATE CARD PROGRAMS
The financial data from traditional and bank-issued corporate cards must be imported and then integrated into a company’s expense reporting and accounting systems. These systems are notoriously clunky. They require a lot of data manipulation, and reporting is often delayed by anywhere from 24–48 hours up to weeks. New software-enabled cards were designed from the start to track expenses from the moment of purchase through review, audit, analysis, and integration to accounting systems, all with easy-to-use administration tools for finance and simple, real-time expensing apps for spenders.
It turns out that many elements of card programs themselves are pretty standard. It’s really the ease of administration, the integrations, and the software that offer the most value.
It turns out that many elements of card programs themselves are pretty standard. It’s really the ease of administration, the integrations, and the software that offer the most value.
There are a number of factors to consider here. Here are some key questions to consider:
You can also consider whether these costs might be offset with rebates or rewards, although some organizations put too much emphasis on getting a big cash rebate. What good is an annual rebate if you’re locked into high fees, software subscriptions and additional expenses for support and key features?
WEIGHING REBATES AGAINST ALL OTHER COSTS
Consider an organization with 50 spenders and $1 million in annual spend. A 1% rebate would be $10k per year. But if they’re paying a $55 annual fee for each employee, that’s $2,750. Add $10 per monthly expense report for every spender for another $6,000, and they’re basically breaking even. And that doesn’t even include the time or costs for software deployment, support capabilities, and add-on features.
Before you roll out your program, build support with employees by explaining the initiative’s goals and purpose. Better spend management is good for the whole company. It increases visibility and helps people be more agile. It gives teams and individuals the tools they need to be accountable. It helps everyone achieve their goals and be successful.
Our research has shown that the pull of points is strong, and many employees continue to use their own cards even when they have the option of using a company card. Here are some suggestions for shifting the conversation away from points and explaining the benefits of using company cards consistently.
Involving the whole team in contributing to the success of the business can go a long way.
If you’re really getting pushback from employees on the points, you might consider offering an additional bonus or perk like an airport lounge pass or backup child care. It also doesn’t hurt to have in your back pocket the fact that the true value of points is typically pennies on the dollar.
WHAT IS THE REAL VALUE OF A POINT?
While most cards reward you with one point per dollar spent, when it comes time to redeem them each point is worth less than a penny—often half a penny. So while you may feel great because you have 10,000 points banked, in reality those points are only worth around $50.
The next consideration is to determine your strategy for card distribution. It’s fine to have a mix of individually issued and shared departmental cards, as long as everyone is on the same overall card program.
The next step is to set up the right policies for your company size and culture. You want to find the right balance between control and flexibility. And certainly, the more you can build policies and controls right into the system, the more successful your organization will be in terms of compliance and staying on budget.
Evolving Fiscal Culture As You Grow: Starting Strong (up to 100 employees)
Evolving Fiscal Culture As You Grow: Scaling (100 to 1,000 employees)
Evolving Fiscal Culture As You Grow: Stabilizing (1,000+ employees)
Next, consider what kinds of approval workflows you will need. You can stick to the basics (spender to manager), but you might also consider where exceptions make sense. For example:
As you roll out your program, it’s important to communicate expectations clearly, and to have a clear channel where people can ask questions about the rules, like what they should do about rental car insurance, or whether it’s all right to expense home Internet while working remotely. Discuss, decide, and communicate it, so everyone is up to date. Build the new rules right into your expense management program wherever you can.
As you analyze individual and team spending habits, you might identify the need for coaching to point out opportunities for spending more strategically or resetting habits, such as using preferred vendors consistently. It’s all too easy for counterproductive behaviors to take root in the crush of day-to-day business, but making coaching a priority keeps everyone on track, increases accountability, and strengthens your fiscal culture in the long term.
It’s all too easy for counterproductive behaviors to take root in the crush of day-to-day business, but making coaching a priority keeps everyone on track, increases accountability, and strengthens your fiscal culture in the long term.
Also be open to adjusting policies in response to changing conditions. If the majority of your team is working remotely, you might shift spending on office snacks or birthdays to self-care perks or an allocation for improving home office setups. When you have the right tools, it’s easy to make adjustments, keep everyone on the same page, and build alignment.
Center is a complete spend and expense solution that delivers immediate visibility and flexible, streamlined accounting, all in real time. Because Center includes an integrated corporate credit card, all transactions appear immediately right in your dashboard or mobile app.
Real-time visibility means there’s no need for lengthy corporate card statement reconciliation and accruals. Center even reduces manual coding and recoding of transactions by learning from your behavior to code transactions more accurately.
It’s easy to customize Center for your organization. You can add fields like job number or project number, and you can create your ideal expense policy and automatically audit every transaction against it.
Best of all, Center is free. There are no contract minimums, overage fees, or up-charges for features like reporting, audit, and customization. Center also comes with excellent US-based customer support. We’ll even train your finance team so you’ll be up and running in just a few days or weeks. Ready to learn more? Set up an on-demand or live customized demo.