Cash Flow Protection

The 4 Methods of Employee Spend to Avoid 

Here’s what to avoid when preventing messy business expense tactics.

Employee business expenses: a necessary (and expensive) part of running a business, and an inevitably time-consuming task to manage. To complete jobs, employees typically need to purchase supplies from different retailers or contractors; this can be anything from construction jobsites, to running your office space, to travel expenses.  Even if you’re the only employee for your business, you still ultimately pay for supplies/services. Although the size of your company may impact how difficult it is to keep track of all employees spend, there’s no workaround to avoid incurring different expenses that cut into your profit margins.  

So, if this aspect of being a business owner is truly expensive and tasking, what’s the best way to manage your costs and your time? Many companies across industries have a few common ways they utilize their employee spending: 

  1. Employee reimbursement 
  1. Petty Cash  
  1. Per Diems 
  1. Card Sharing  

Some may even adopt a combined (hybrid) method of them, along with submitting expense reports. Each one has their own set of challenges, so it’s important to understand how each traditionally functions, and why to avoid them.  

Employee Expense Reimbursement

Employee expense reimbursement is the most common form of employee expense management. Essentially, employees pay out-of-pocket upfront for employee business expenses and hand in physical receipts or expense reports to their finance department. Finance will then reimburse these employees, usually by the end of the month during their normal reconciliation cadence. 

Many companies avoid giving every employee- from top to bottom- their own company credit card. This is usually because of the amount of spending lower-level employees do on a daily basis; giving them access to their company’s full credit line without set spending controls is too risky.  

Why, then, is employee expense reimbursement an inconvenient way of employee spending? While it makes sense to limit who can use a company credit card, employees must pay out of their personal finances to do the very job they get paid to do. This, generally, isn’t ideal for employees, especially if it means waiting until months end to put money back into their pocket. It can also be time-consuming for finance departments to collect expense reports and write checks for reimbursed expenses at the end of the month while simultaneously assuring every personnel expense is accurate and submitted on time. There’s also a chance that employees submit receipts for reimbursed expenses that aren’t fully or even remotely related to employee business expenses.  

If your company currently utilizes employee expense reimbursement in any way, here are the primary reasons to avoid it: 

Petty Cash

Petty cash is another common form of employee expense reimbursement . This process is mainly common in certain industries, such as property management (or other similar companies that have a corporate location managing multiple locations). With petty cash, a corporate location will often mail or digitally distribute funds to each location for deposit. Each separate location will then spend within the allotted amount or “stash” of cash; typically, managers or employees of that location use it on a need-to basis (i.e. when they need to replenish supplies).  

Some may consider this one of the more outdated methods of employee spend management, and it certainly presents the highest risk of misplacement (or misuse). Checks (or cash) sent through the mail may get lost. It’s also easy for employees to lose cash in their day-to-day tasks. On the back end, each respective location’s finance department will handle expense reports and other receipts to reconcile the amount of petty cash spent within a given month. As the nature of running a business goes, employees may miss deadlines in submitting their respective expense materials (such as receipts).  

Another concern with petty cash accounting, although maybe not as frequent, is the possibility a company location needs more funds than they are given. This is where, in some cases, you face a hybrid form of both petty cash and something additional. Once a location needs more than its allotted petty cash to pay for necessities, there are only a few options to get funds to them:  

  • peer-to-peer virtual payment (instant deposit typically accrues a convenience surcharge) 
  • mailing additional funds through the mail (expensive if overnighted)  
  • standard company credit card on-hand (needing more receipt proof for reconciliation)  
  • employee reimbursement (more receipts to manage) 

All in all, if your company currently utilizes petty cash, here are the primary risks you may face: 

Per Diems

Cash stipends are like petty cash systems frequently used in companies that have multiple employees deployed amongst various job worksites. This includes industries such as construction, landscaping, HVAC, nonprofits and home healthcare.  Businesses that also require certain employees to travel also utilize per diems so they can pay for travel expenses they incur without the need for reimbursement. In layman’s terms, a per diem is an allotted amount of funds (usually by cash or check) given directly to employees to use as they need for expenses. The employees can then pocket these funds and use them however they want. 

For these companies, tracking isn’t the issue; businesses that issue per diems typically aren’t looking to track each transaction separately. Rather, the biggest issue to worry about with per diems is convenience. Usually with a traditional cash per diem, the issues are similar to petty cash in that they can easily get lost and it’s harder to issue additional funds to employees on-the-spot. It can barrel into another case of needing to reimburse the employees for whatever amount they paid out-of-pocket. The ideal per diem situation is consolidating those funds onto a reloadable card.  

In summary, the biggest concerns of cash per diems:  

  • Inconvenience (difficult to issue additional funds) 
  • Lost or misplaced funds  

Card Sharing

Some would consider a credit card the best and most practical alternative to the above employee spend methods. While that is partially true, even standard credit cards have expense discrepancies. Small businesses with very few employees may prefer to consolidate their business spending to one card. To do this, business owners either make purchases for their employees or have them share the same business credit card.  

While this is practical for businesses with a few employees, it still creates extra work when collecting receipts. It also means, however, that employees must be together to make purchases; when they need to be in different places, that may be problematic for productivity. There’s also no true way to justify real-time purchases made on a company credit card if employees use cards outside of a receipt.  

If companies do give each employee their own corporate card, that means even more receipts/expense reports to collect without real-time reporting and transaction visibility. Here are the top reasons you should avoid company credit card sharing:  

  • Lack of real-time transaction visibility  
  • Inconvenient for employees to purchase supplies  
  • Messy transaction tracking  

Less Common Forms of Employee Business Expense Payment Methods 

While the 4 methods previously mentioned are the most common forms of employee business expense management , there are others that are less common (but equally important) to avoid:  

  • Reloadable gift cards 
  • Supplier/warehouse contracts 
  • Peer-to-peer payments  

Here are a few problems each of these can cause: 

Reloadable gift cards:

companies resort to reloadable gift cards to consolidate per diems on a card, or to give employees a consolidated expense payment method without giving them access to a company credit card. The problem with them? They aren’t truly “reloadable” at will; admins will need to keep purchasing new cards every time they need to issue funds to employees. This gets expensive from their activation fees, and there’s still no visibility into spending if your company needs to itemize each transaction.  

Supplier/warehouse contracts:

this is a practical way to purchase supplies that normally aren’t stocked every day (such as building materials) by your local retailer. Companies in landscaping, maintenance, or construction typically rely on this so employees can stop in and grab whatever they need without the need to pay for supplies.  

The problem here? If these suppliers are out of specific supplies, employees may need to pay out-of-pocket. This also doesn’t offer employees a versatile way to pay for repairs, maintenance, or gas for the vehicles they drive to get to and from different jobsites. It also doesn’t allow them to get food while on the job.  

Peer-to-peer payments:

some companies prefer to send money directly through a virtual payment to an employee’s personal checking account. While it’s convenient on the front-end, the reconciliation process still requires employees to submit expense reports/receipts. The more employees your company has, the more likely you are to be sending these payments many times a day. These funds usually need to be deposited instantly, resulting in additional convenience fees through these respective payment apps; the alternative is for employees to ACH these funds into their bank (a 1-3 business day waiting period). Not to mention, there’s no way to verify 100% of these funds were used only for expense-related purchases.  

Alternatives to Employee Spend Management Processes

The best way to move forward with an alternative is to implement a system that gets rid of all card sharing, cash stipends (per diem), or employee expense reimbursement. Instead, move toward finding a spend management platform that can streamline and consolidate these expense payment methods. Achieving a quick spend management process involves refining the way you pay for supplies.  

Using a spend management solution like U.S. Bank Spend Management will give you this alternative, consolidate your purchasing to a trackable card, and ultimately make reconciliation easier on the backend. It gives businesses the freedom and flexibility to give each employee a virtual credit card for business expenses, set budgetary spend limits on each, and customize spending controls so they can only spend for specific reasons.  

The Bottom Line  

More traditionally aligned business expense methods will ultimately make it more difficult to manage business spending; that’s why it’s best to avoid them. Give your company and its employees a streamlined way to handle your company overhead costs so it saves you time, money, and effort.