Just Say No: Stop Asking Employees to Front Business Expenses
Don’t let your employees front the bill for your business. There are plenty of reasons why it’s not fair to them or ideal for your business. Here’s the tip of the financial iceberg.
Whether it’s $10 or $1000, companies should not ask employees to pay upfront for anything.
You don’t know their circumstances, you don’t know what’s going on behind the scenes, and really, it’s not their responsibility. Asking employees to do this adds financial pressure on them.
That’s what corporate cards or petty cash is for.
So why shouldn’t companies ask employees to use their personal cards for business expenses?
1. Not everyone can afford it… for many reasons
2. Late reimbursement can mean extra costs to employees
3. Employees are stuck with expenses that don’t get approved
4. Your accounting books aren’t always accurate
Cha-ching 💰… Not all employees can afford it
Let’s start with the biggest issue—not all your employees can afford to pay for something upfront, even if it’s on their credit card.
Everyone has monthly expenses they’re responsible for, like rent, food, and transportation. Some employees might be making enough to get by, while others might have saved up for those Super Bowl tickets or their dream vacation. (Those Jimmy Choos aren’t going to buy themselves!)
Some employees might not have enough of a credit card limit to pay for a $1000 conference ticket.
And what if they don’t even have a credit card?
Not all employees are comfortable disclosing that they can’t manage this request, no matter the reason. It’s not your business to ask, and they shouldn’t have to have that uncomfortable conversation.
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Tick tock ⏰… On-time reimbursement
So, intentions might always be right, but delays happen and sometimes reimbursement isn’t as fast as we’d like. And in most places, it takes at least one month to get reimbursed.
This means employees have to either pay off the whole amount with their personal funds orrrrrr incur interest charges for late payment. With the average credit card interest rate sitting at 14.56% (as of April 2022), that leaves room for some hefty interest charges. Were you planning to reimburse that too? The uncomfortable truth: most companies don’t.
This can bring undue financial pressure on your employees, not just because of the additional interest charges, but it also affects their credit score if they don’t pay it back on time. Ouch!
Denied ❌… Expenses don’t get approved
In some instances, employees might think they can expense something but later find out they can’t. And then they have to eat the cost. Unlike a perfect slice of New York pizza, there’s a very bitter taste when that happens, and no amount of craft beer can rinse it away.
Not all companies have a detailed expense policy that employees can review before making purchases. And in most cases, if they were asked by a manager or senior colleague, they have no reason to doubt they’ll get reimbursed.
Make sure everyone is aware of reimbursement policies to avoid this in the first place.
Carry the 4 🧮… Balancing your books
Expense reports cost your finance team time to process every month. Time they can be doing more fun things, like calculating EBITDA, COGS, or P&Ls.
Really, though, not everyone submits expense reports every month. And if these expenses aren’t reported when they were actually purchased, your books aren’t officially balanced.
That also means that your EBITDA, COGS, P&L, and other fancy spreadsheet equations probably won’t be accurate.
As a bonus, ClearSpend can control (over) spending
Once upon a time, there was a young woman named Rachel who worked for Vanity Fair. Her friend Anna tricked her into paying $62,000 for a trip to Marrakesh. TL;dr Rachel put all the charges on her corporate card, believing Anna would reimburse her immediately.
Vanity Fair could have mitigated this problem if they’d had ClearSpend. That’s because you can control your spending directly from your dashboard.
What does that look like? It means you can say that Rachel’s card can only be used for camera equipment and film. And you can also limit how much she can spend within that category on a daily, weekly, monthly, or even a per-transaction basis.
You can also create and fund a virtual card in minutes and get as specific with those limits as needed… e.g., $1234.56 per month. So, there’s no chance she’ll run off to Morocco and accidentally expense $60,000.
With you in control, you don’t have to stay on hold for hours hoping to resolve any blocks or have to wait until Monday to reactivate a card. You can automatically track expenses and receipts, and your books won’t ever be out of balance again.
ClearSpend can help you get around these issues
With unlimited virtual cards, the ability to control spending, and real-time card management, ClearSpend lets you take the burden of expenses off your employees while putting you in control.
And did we mention it’s free?