Prepaid credit cards are hardly a new or novel concept. People have been using reloadable cards for years. So it seems almost laughable that it has taken the tech industry so long to find a way to make prepaid credit cards relevant in the business world.
For small and mid-size businesses, the prepaid card should be of special interest since smaller businesses are especially vulnerable to fraud. Research shows that they are likely to incur the same median fraud loss as larger companies but only 40 percent of them ever recover stolen assets. Most businesses spend up to 20 hours a week managing employee expense reports and large organizations have entire departments dedicated to detecting inter-company fraud. The time and money American businesses invest in making sure employees use company funds correctly is astounding.
“Prepaid cards are obviously about more than creating a more functional way to manage employee expenses,” says Farhan Ahmad, founder and CEO of Bento. “Securing assets, better-supporting employees and creating doors of opportunity that might not have been there otherwise are all achievable aims of these cards.”
So why the excitement? Here are four ways prepaid credit cards are improving business:
Reduces chances of fraud
Almost 60 percent of fraud in small businesses comes from non-cash misappropriation, skimming and check tampering. Smaller businesses just do not have the resources available to police expense returns.
The idea behind prepaid cards is to reduce the possibility of fraud. Through electronic receipts, employers can see exactly what the cards are being used to purchase. Many card providers include remote access control, so employers can shut down cards immediately if necessary. The security provided in the cards makes trusting employees easier. Companies who hire a lot of temporary employees might feel more comfortable letting them use the prepaid credit card than they would letting them handle petty cash.
So, while lowering the risk of fraud is critical, making the workplace more trusting and efficient is certainly a plus.
Allows for better management
A large problem with employee expenses is that budgets are not often adhered to strictly. This may only amount to a few extra dollars a week, but over the course of a year, or several years, loose regulation of employee expenses can add up.
Ahmad estimates that expense reconciliation is probably one of the biggest, unrecognized drains on a small business’s resources. “You have to consider the lack of control there is over company assets once they are placed into another set of hands,” he writes. “It isn’t that your employees don’t have what’s best in mind for the company, it’s that they aren’t the ones who have to justify the budget. That’s your job.”
Prepaid cards provide an extraordinary amount of internal controls. Advances in technology have helped the industry customize the operational parameters of prepaid credit cards, like limiting access to certain merchants through category code blocking. They allow employers to regulate how much money is available and what those funds may be used on.
Opens opportunities for struggling businesses
Getting off the ground, and staying off it, is the primary struggle for small businesses. Managing finances is an arduous task and sometimes, the capital is just not there to support the goals of the business.
For businesses with immediate financial issues, a prepaid credit card does a lot to help keep loose ends clear while expenses are put back in order. Small business owners understand how thin the margin for error can be when trying to stick to a budget. Any tool that can reduce uncertainty is helpful.
Saves time and money
Ultimately, the greatest benefit of the prepaid credit card is that it simplies employee expense management and, by extension, the operation of business. The manpower invested in reconciling expenses, the paper trail involved in receipts and justification forms, all disappears. The nearly 20 hours a week offices spend on employee expense reports – gone. Prepaid credit cards are the obvious answer to this daily problem.
And now, there is a simpler answer to gas cards, travel reimbursements, and office errands. Prepaid cards not only simplify the process (thus saving time), they create a more secure environment for responsibly distributing business resources (thus saving money).
Making the change is simple and has an immediate impact on the bottom line. That is what small business owners need to know when considering making the switch to prepaid credit cards.