Jun 10, 2020
5 mins read

The Ultimate Corporate Card Comparison: Prepaid vs. Credit vs. Debit Corporate Cards 

Boris Angelov - Principal Product Manager at Payhawk - the spend management solution of tomorrow. Boris Angelov
Corporate Card Comparison
Quick summary

No matter what industry you are in, chances are your company is struggling with managing its spending. Using cash or out-of-pocket payments makes it difficult to keep track of a company's expense life cycle. The first step in solving that problem was the introduction of the corporate card. Nowadays, there are three types of corporate cards that your business can benefit from - Prepaid, Debit, or Credit card.
This article explores how each one of them works and which might be the most appropriate for your business.

The Corporate Credit Card

At its core, the corporate credit card exists to offer employees the opportunity to spend on behalf of the company using a credit line. This means that the company can use the bank's money and pay in the future with the addition of interest. Sometimes the payments are spread over a period (this could even be years in some cases).Corporate credit cards are also one of the most popular payment instruments in markets like the U.S. Recent data indicates that businesses spend roughly $1,425 for every employee they send on a business trip. Unfortunately, unplanned expenses can arise, and travelers sometimes have to pay with their funds. This makes it increasingly difficult and time-consuming for the CFO, accountant, and the employee to manually track, report, and reimburse every cash and out-of-pocket expense for a hotel, restaurant, or flight. By becoming corporate cardholders, however, employees can spend on behalf of the company and not bother with reimbursements. At the same time, if there is an unplanned expense, they can use their line of credit to cover it. In turn, the finance director has greater visibility over spending, and the accountants' workload is reduced.Since the company distributes its funds to a large number of people, a common feature that often comes with a credit card is the ability to set spending limits. That way, the risk is somewhat mitigated.Most corporate credit card providers would also offer an array of perks. If you want to look at the different types of credit cards and rewards options, we have written a separate article dedicated to choosing the right credit card for you.Before rushing to the next bank that offers you a rewards program, it is important to look at how businesses use their corporate credit card in practice. In the UK, for example, only 13% of companies use credit cards. According to a UK Card Payments Research, the percentage of credit card holders incurring interest charges has declined by more than 30%.One of the reasons is that businesses are covering their credit card debt before the end of the interest-free period so that they don’t have to pay interest. Essentially, they are using their credit cards as debit cards. Unfortunately, corporate credit cards add an extra layer of complexity. The process of issuing is longer since the Financial Conduct Authority more tightly regulates credit. The eligibility checks include looking into tax information, establishing a credit history, and the company's overall economic structure. Normally, companies that need a faster and simpler option go for either prepaid or a debit corporate card.

The Promise of Prepaid Cards and P-cards

Instead of linking it to a bank account like a credit or debit card, the prepaid card has an electronic wallet that companies can send electronic money to. Despite not using their regular asset account, companies can top-up their prepaid cards at any time. Since employees can only spend the amount of money in their digital wallets, there is no chance to run up debt and damage the company's credit score.The most common use of a prepaid card is gift cards. Usually, funds are loaded into the wallet once (for specific retailers), and after there are no more funds, the card expires. Companies might use the cards for personal events of employees (birthday, for example) or as part of their compensation structure.A more efficient way of adopting prepaid cards is by issuing them for indefinite usage. Employees can treat them as a regular corporate card used for business expenses. They can also manage every aspect of their card through a mobile application. This would also allow expense management software to offer real-time transaction data to the management body.A P-card, short for purchasing card or procurement card, is a type of corporate credit card that is issued to employees of an organization for making authorized purchases on behalf of the company. P-cards are typically used for procuring goods and services necessary for the organization's operations. P-cards streamline the procurement process by enabling employees to make purchases directly from vendors without having to go through a lengthy requisition and purchase order process. They are often used for low-value transactions and are convenient for purchasing items such as office supplies, travel expenses, and other routine business-related expenditures. The benefits of using P-cards include increased efficiency, reduced paperwork, improved cash flow management, and enhanced control over expenses. Organizations can set spending limits and restrictions on P-cards to ensure compliance with their financial policies and prevent misuse. Additionally, P-cards often offer reporting features that provide detailed transaction information for tracking and reconciliation purposes. It's important to note that the specific policies and guidelines regarding the use of P-cards may vary from one organization to another.

Choose the right spend management solution with our RFI template

The biggest drawback of a prepaid card or P-card can be that they're not widely accepted. If you are running social ads with Google or Facebook or are managing some form of subscription, chances are your prepaid card or P-card will not be accepted. There are numerous cases where certain service providers, such as Google Ads, are blocking prepaid cards. In some cases, they are also declined at specific booking platforms, hotels, rentals, and even when trying to withdraw cash from ATMs.We have written a separate article on how you can rent a car or book a hotel that explains the limited capabilities of prepaid cards in more detail.Another thing to keep in mind is how you pay for the prepaid card. Since you don't pay interest on it, how you get charged mainly depends on your provider.The last thing you want to be aware of is hidden fees. Since no regulation forces pre-purchase disclosure of payments on prepaid cards, companies will often decide not to disclose that information. Before signing up with an issuer, you should review their terms and conditions to see how they plan to charge you.When it comes to fees, we, at Payhawk, are all about transparency. If you feel the same way, check out our Card Hidden Fees Calculator for instantly determining how much your bank is charging you on foreign payments. This project was created by one of our teams during our first internal hackathon.

Best of both worlds: Debit Cards

Fortunately, the corporate debit card can offer all the benefits of managing expenses and full acceptance regardless of the merchant, type of purchase, or location. The problem of corporate credit card is that it requires completing an extensive application process, including a credit check and providing your earning history. In contrary, the debit card allows you to get qualified faster and excludes the chance of overspending and debt.Take one of the most significant expenses for enterprises - Software as a Service (SaaS) spend. According to the latest Cleanshelf infographic on SaaS spend, the typical employee uses 44 apps to do their job, which amounts to more than $13k per employee annually. What is more concerning is that enterprises waste more than 30% of their spending on unused or duplicate software subscriptions—the faster your industry's adoption of SaaS, the higher the risk of waste.To manage this, the first thing you want to make sure is that employees are using company funds to avoid the need for reimbursement and to gain access to real-time data on your expenses. Secondly, you want to have a dedicated budget with a limit so that there can be no overspend. Since prepaid cards are not a suitable option for online subscriptions and you want to avoid the possibility of overspending that comes with a credit card, a debit card might be the best option that you have.

The disadvantage of a debit card is that it may run out of funds with no ability to borrow money. If there is an unplanned expense during a business trip, you may not have enough money in your account at the time to make a purchase.When designing our platform, we took that insight into account. We combined the best of both worlds - the limitless capabilities of the credit card and the simplicity and control of the debit card. At Payhawk, we decided to issue Visa debit cards and allow employees to request funds in real time through our mobile application. That way, they can get approval from a manager within the company and instantly receive funds into their card. That is how financial leaders using Payhawk have full accountability and transparency over the expense lifecycle. If you are interested in testing our platform and learning more about the benefits of our cards, please click here to schedule a quick demo with us.

Boris Angelov - Principal Product Manager at Payhawk - the spend management solution of tomorrow.
Boris Angelov
Principal Product Manager

Boris has a diverse product background from launching finance products to bringing payment programs to life. He is currently leading the Spend Controls product area focusing on enterprise features that bring visibility and control to finance teams.

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