Owning a business can bring on multiple headaches for multiple reasons.
Employee expenses can quickly sabotage the work of the financial department of any company. Companies, in the past, had to rely on two main methods for paying employee expenses. One way was to open a line of credit with a national credit card and then give it to the employee. The second way was to simply reimburse the employee once he, or she, turned in receipts.
Both have advantages but both can create quite a few disadvantages for businesses. Neither offer much flexibility, though they got the job done after a lot of headaches.
The Aberdeen Group, a Boston based Harte-Hankes company, has researched the problem between managing employee expenses and the corresponding expense management problems that can arise when there are not firm limits or the company does not have enough credit established to provide employees with a company expense account. Christopher Dwyer has written several reports showing that 60 to 70% of companies are always looking for new ways to manage expenses.
One simply solution to manage employee expenses is prepaid cards. These cards are allotted a certain, pre-authorized, dollar amount by the accounting department, manager or owner of the company. The employee is then given the card which can be used precisely as a credit card. Yet, this happens without the hassle of opening up lines of credit that can potentially be abused.
These prepaid cards, like the Green Dot Card, are safer than cash, and are accepted where other major credit cards are accepted. There are a few limitations to using any card, but they are easily overcome. It helps the a common dilemma; few employees can easily pay for expenses out of their own pockets and then wait patiently to be reimbursed. The prepaid card eliminates the need for compensation. The employee is given a set dollar amount and that is restored once receipts are turned in.
As far as accounting practices go, the prepaid card has the advantage of an online list of transactions, similar to that of a credit card. The accounting department, or manager, can go online to view everything. This helps in those rare instances when receipts get lost or misplaced.
An additional perk of a prepaid card is the limit set by the owner. Credit cards for businesses tend to have open limits. This can be problematic for fledgling companies starting out with smaller lines of credit. The potential for abuse is there and mismanagement of the credit card can bring financial stress to the employer and employee. Prepaid cards eliminate this stress by allowing tight financial control over expenditures.
Expenditures that need limits above what the card holds can be dealt with on a case-by-case basis.
There are a few limitations to a prepaid card that should be addressed. These cards are not ideal for expenses such as a car rental unless the amount on the card is over a certain amount. Some larger purchases can freeze the card so it is beneficial to review the prepaid card policy prior to handing it out and educating the employee on its benefits and limitations.
Prepaid cards are definitely a simple solution to keeping employee expenses down and having easy accountability. They do not tax credit lines and can easily be canceled should the need arise. They can even be personalized with the business name and/or the employee’s name as well.