Smart, secure and streamlined payments convert your AP department from a cost center to a revenue generator.
This post was originally published on May 6, 2016 by Keith Stone. Updated November 2022 by Nicole Fitz Rawlins
An integral part of maintaining a business’ budget is the ability to control company spending. However, monitoring spending is often done after the money is spent. The responsibility of avoiding overspending that leads to budget issues belongs to both the company and its employees. Controls should be put in place early on to prevent overspending. And employees need to be aware of the company spending policy from the moment they are granted access to company funds.
As businesses grow, they often have multiple employees with spending authority acting on the company’s behalf. So, whether it’s salespeople on the road or members of the leadership team, access to company accounts is a necessity. And it’s also imperative that it is controlled.
Many businesses find it more effective to issue corporate credit or debit cards to their employees. It’s less time-consuming and more convenient than reimbursing employees for company expenses paid through personal accounts.
But granting an employee access to your business accounts can be risky. Every industry has suffered the loss of many long-term employees in recent years, followed by an influx of new employees. As a result, handing over a company credit card requires a lot of trust from someone who may be a new hire.
In addition to employee missteps or fraud, businesses must also protect themselves against lost or stolen cards, which can then be used illegally. By having a set monthly spending limit on credit cards, your business can control the amount that can be spent during that time. But there are several ways to establish account spending limits.
There are several ways that companies can protect their finances. One of the most effective is establishing a clear policy for business spend. A formal company spending policy sets the budget, terms for company expenses, and rules or restrictions for anyone with access to company funds.
Though it should be avoided, business purchases on personal accounts are relatively standard. Company reimbursement policies and procedures allow for a step-by-step process for employee reimbursements. It makes the employee aware of what the company is and is not responsible for and requires close review and approval.
Pre-approvals help control spending before the money is spent. It pushes employees to work out projected expenses ahead of time or pay out of pocket. However, there are times when a purchase is urgent and doesn’t allow for the pre-approval process. For example, when schedules suddenly change, a traveler can’t wait for the authorizer to return from lunch to approve a plane ticket purchase.
Tracking expenses from card statements is another way to monitor company spending. However, this task is tedious and often requires chasing down employees for receipts they may have misplaced. In addition, the use of physical credit cards can be a disadvantage that could add to company expenses.
Physical credit cards can be lost, stolen, or otherwise mishandled. Pre-approvals are somewhat realistic estimates of costs and are only convenient in some situations. Reimbursements can be messy and lengthy processes. And company spending policies must be strictly followed by everyone to be effective.
Some businesses automate many of these processes, making them easier to manage. Still, having visibility into expenses is one of the best ways to monitor and control company spending.
Virtual credit cards can resolve many issues associated with overspending on company cards.
While setting low credit card limits is helpful, a virtual card would make the process easier for everyone involved. For example, employees would only be able to use the card for pre-approved expenses. And reviewing employee purchases would be a matter of matching each expense with the virtual card number generated for that expense.
With a virtual card, there is no physical card to steal. The card numbers also cannot be used outside of their intended purchases. The potential for internal fraud is significantly lessened with the kind of real-time visibility that virtual cards provide.
Along with making it easier to balance the books at the end of the month, there are several positive results to setting spending limits. Here are seven benefits of setting limits on your business accounts.
Some employees feel the company won’t notice if they have a fancy dinner while on the road. They may even make personal purchases with the company card. Sometimes, employees believe the company can afford it, so it’s not a big deal. Unfortunately, this kind of thinking leads to unnecessary and unreasonable expenses. Even if your accounting team personally reviews every single line item, these kinds of fraudulent charges sometimes slip through.
Companies can avoid these expensive situations with a pre-determined spending policy and a clear understanding of what kinds of expenses are not allowed.
Once a business issues a physical credit card to employees, its risk of fraud increases. An employee who uses a card to make purchases across the country could easily lose that card or have it stolen. A spending limit minimizes the damage that a stolen credit card could cause.
Having spending limits gives you the power to set your monthly budget. Your employees won’t be able to spend more than the allotted amount for the month. This will give you the oversight needed to allocate money to travel expenses, office supply purchases, and other typical overhead costs without exceeding expected budget thresholds.
Knowing there is a limit may lead some employees to curtail their daily spending. Employees will rethink what is truly needed before buying when the purchase can potentially be denied. Having to justify the purchase if it exceeds the limit can also prevent unnecessary spending. You can also add internal policies to your credit card-imposed limits, including a set amount of spend each day for food and lodging.
Businesses have to build credit the same way personal credit is built. Bills should be paid on time and in full. Credit shouldn’t be seen as limitless for the business. Business News Daily states, “It’s recommended that a business owner use no more than 30% of their total credit limit.”
If your accounts have high balances on an ongoing basis, it can eventually damage your credit, even if you’re paying the balance each month. A credit limit can help keep those balances low, protecting the business credit you’ve worked hard to build.
Monthly expense monitoring is time-consuming, especially when several shareholders have access to company cards. Having a set spend limit cuts down on the work the personnel assigned to monitor and approve expenditures will have to do. This is especially true if the limit is relatively low.
There are alternative ways to curtail employee spending and catch fraud, including setting up notifications every time a charge is made. But this type of monitoring causes stress for business leaders who should be investing their time in more important activities. Spending limits allow them to avoid this additional step without being at risk of not having any protections in place at all.
With today’s automation tools, businesses can easily place spending limits on the cards they issue to employees for expenditures. By putting maximums in place, they can cap the amount an employee can spend each day, week, or month. This helps reduce fraud and the extravagant spending associated with unlimited corporate credit card accounts. When combined with accounting tools, spending limits can help improve productivity and make budgeting more predictable.
Corporate Spending Innovations (CSI) is a global FinTech leader providing innovative payment solutions to world-leading brands across all industries. CSI automates and digitizes B2B payments with a safe and highly secure cloud-based payments platform. For a more efficient way to manage payables, including virtual credit card, B2B Payments Network, ACH, and check, book a demo here.
CSI is an Edenred Company, the global leader in payment solutions for the working world.