Frameworks & Finance

Get smarter in 5 minutes a day.

To reimburse employees or give them a credit card... that is the question.

credit cards spend management Jul 13, 2023

Anyone who has been in the finance department for any length of time learns to HATE receipts.

Crumpled, non-existent, or “Jane has it” leads to a whirlwind of messages and frustration.

You thought the dog ate my homework was bad? Wait until you here “you didn’t tell us we couldn’t”…

Everyone hates credit cards and credit card policies, but exception after expectation leads to accounting fatigue and conflict with non-accounting coworkers.

As a response to this frustration, some businesses have stuck with reimbursement only for most employees.

But with the advance of technologies and easy to use credit cards, are those days behind us?

Today I will dig in… to reimburse or issue a credit card… that is the question.

Expense Reimbursement: is it still relevant?

Reimbursement is inherently “sexy” for businesses:

  1. It puts the responsibility on the employee to report it
  2. It allows companies to operate easily in low-trust environments
  3. Companies can delay paying for the expense, depending on payment frequency
  4. Companies can deny frivolous or unnecessary expenses, changing who’s at risk
  5. Employee financial risk means spending is generally lower and more sporadic

So, for years, employees defaulted to this system. I know a rather large company that for years gave out no company credit cards and required employees to submit an expense statement once a month.

They’d then take 30 days to pay out those expenses. There were getting 60 days to delay paying the expenses, but also putting a financial burden on their employees.

And, this is where we see how inherently bad it can be for employees:

  1. Money comes out of pocket
  2. If the employee fails to report it timely, they won’t get paid
  3. Loss of receipt can mean employees get stuck with legitimate expenses
  4. Buy on trust, not on guarantee

Here is the reality: as a business owner, you’re responsible for the health of your business. Putting your employees at financial risk, when there is no benefit to them, is bad policy. “But they get points” I can hear you saying right now… Do you count your Chick-Fil-A points in your net worth? Of course you don’t… because they’re irrelevant.

In the same way, credit card points feel nice sometimes, but they’re immaterial in the big picture. One missed receipt and all those points benefits are gone.

As the business owner, you’re responsible for cash flow and keeping employees engaged. There is too much of an opportunity for a reimbursement policy to contribute to employee apathy (see the above example).

When should you do reimbursement?

Sorry for the rant… but even still, there are reasons to stick with reimbursements. What are they, you ask?

Infrequent expenses. If an employee is only charging items 2 or 3 times a year, it’s more burdensome for both parties to maintain a card. Stick with reimbursements.

Low dollar purchases. If they’re buying a meal or two, this isn’t grounds for a card (unless it’s more frequent). And this isn’t “low” to you, this is low to the employee. For your lower end employees, no purchase for reimbursement may be reasonable. You’ll have to judge yourself.

Unplanned. Sometimes things come up. In these cases, reimbursement allows you to move forward with the purchase.

If any of the above are “broken,” a card should be issued.

Purchasing things a few times a month? Get them a card.

Buying something more than a few hundred dollars as a manager? Get them a card.

Have planned recurring purchases? Get them a card.

A new era of corporate cards

With online platforms that provide for easier issuance of credit cards and more streamlined reimbursement, the old way of expense reimbursement is behind us.

Not too long ago, corporate cards were very similar to expense reimbursement.

Once a month, Accounting would provide a statement to employees with charges on their corporate card. Employees would gather backup and make notes, then submit the report back to accounting. Accounting would then ask questions and code transactions. This whole process could take a week or more and was done once a month.

The new way? Weekly or daily credit card reconciliation.

The new way looks like this:

  1. Employees are issued or not issued cards based on roles (frequency & amount of charges)
  2. Reimbursements are processed within a week (and sometimes days)
  3. Credit card receipts are uploaded and matched immediately

Let’s use Brex as an example:

  1. A new employee starts. Through an integration with an HR system, the employee is automatically created in Brex and issued a company card.
  2. This card is set up with predefined limitations or policies (on vendors, types of charges) and credit limits that align with their role or position at the company.
  3. When needing to charge something new, the employee can use the physical card number or request a unique virtual card. That card goes through an approval process set up by the company. Once approved, the employee can use this virtual card, with a unique credit card number, to pay.
  4. Receipts are immediately requested or automatically pulled and added to the transaction from integrated services.
  5. Accounting reviews the expense and integrates it into the accounting software.

5 steps may seem like a lot, but those 5 steps happen with only a few actions needed by the employee, their supervisor, and accounting… all most likely done with automated emails or mobile push notifications.

Before you had an issue of overspending. Now, with physical and virtual cards, you can create extremely custom scenarios that limit employee spend to budget amounts. This is great for giving employees more freedom while at the same time providing easier budget compliance. See this example from the email software Superhuman on how this worked for them.

The new corporate card has a ton of advantages over the old way and expense reimbursements.

Benefits of the new way

With new platforms like Brex and a few others (see my breakdown of these here), the credit card process has become 1,000x easier.

I’ve listed 11 benefits below, which are likely just scratching the surface:

  1. Ease of use
  2. No more physical paper
  3. Streamlined processes save time
  4. Better overall compliance (Heirloom cited 96%)
  5. Unique credit card numbers for each transaction/vendor
  6. Quick processing of transactions (for both credit cards and reimbursements)
  7. Integration of reimbursements into the credit card process (allowing quick reimbursement)
  8. Speed of workflow means accounting and financial stakeholders get their numbers quicker
  9. Spending is easier to control (with custom card configurations of virtual cards)
  10. Less accounting man-hours needed

One major benefit that I think often gets overlooked is the “stress to employees” metric.

Your revenue-generating employees have a better relationship with accounting, which helps them feel more connected to the organization as a whole.

Your accounting staff doesn’t have to be “the bad guy” asking for receipts and documentation. This saves them time and allows them to spend it on more beneficial tasks, like improving financial reporting.

If you have a big organization with lots of cards, you could even reduce (or not have to hire) additional staff. Because every organization is different, I can’t tell you how much this will save. Before these platforms, even 15-20 credit cards could result in lots of man-hours being needed. Now, an hour or two of review each week is typically enough.

Next Steps

Credit card and reimbursement policies are never the top priority, which means they’re often stuck in the stone ages.

So what should you do?

  1. Review your current policies. Ask:
    1. In what ways are they burdening your staff? Both accounting and card users (or reimbursement requestors).
    2. How long is the process taking?
  2. Is there a software solution that can ease that burden or decrease the time it takes? If so, how much time is saved?
  3. What will that time saved free up to do instead? What financial impact will that have?

If the financial impact is substantial, it’s time to get to work.

Our goal should be to:

  1. Reduce time to process
  2. Reduce employee time investment
  3. Increase employee satisfaction

If you are interested in seeing a template policy, reply to this email and I can send you one.

This article was sponsored by Brex. I’ve partnered with Brex to go deeper on some spend content in the coming months and they have a great platform that is on the cutting edge of AI and Automation, making your life easier so you can focus on the business. Check them out here.


Level-up your business finance knowledge in 5 minutes a week

Join 20k+ business owners and leaders how to read financial statements and grow their business every Thursday.

You're safe with me. I'll never spam you or sell your contact info.