The Pros and Cons of Corporate Prepaid Cards

The Pros and Cons of Corporate Prepaid Cards
Contents

What is a corporate prepaid card?

Companies use corporate cards to reduce the paper trail needed to reconcile business expenses because expense reports are a waste of time. A prepaid corporate card is a payment card with preloaded funds employees can use to make purchases. 

Prepaid business cards often target businesses that can’t qualify for credit. As a result, cards also may charge higher fees.

Prepaid business cards vs credit or debit cards

Prepaid company cards are most commonly an alternative to corporate credit cards. The main difference is that credit cards let employees borrow on credit, even if it’s out of line with corporate expense policy. With a corporate prepaid card, employees can’t spend more than the funded amount and incur debt.  

How about business debit cards? Rather than being pre-funded, corporate debit cards are connected directly to your company’s bank account. Overdrafts are possible if you run out of funds.

One confusing trait—prepaid cards can technically be classified as debit or credit cards by the merchant, even though there’s never a line of credit.  

How does a corporate prepaid card work? 

A corporate prepaid card is generally widely accepted because it works on common payment networks like Visa or Mastercard. Direct deposits or links to your bank account allow convenient funding. Prepaid business cards are simple to load, reload, and use. 

The benefits of corporate prepaid cards

Controls total spend 

You decide when and how much to load funds on each prepaid card. The total amount on the card acts as an overall spending limit. 

Eliminates employee reimbursement 

Your employees don’t want to put up the cost, and you don’t want to deal with refunding employees for business purchases. Companies often take eight days or more to process reimbursements, leading employees to absorb costs or even cancel meetings to avoid fronting costs.  

Safer than cash and cheques

Cash is not the safest option while traveling as it can be lost or stolen. Cheques also present challenges as they are not widely accepted and are highly inconvenient. In contrast, prepaid corporate cards can be reported lost or stolen. They’re generally accepted wherever major credit and debit cards are. 

No credit check

Applying for a prepaid card does not trigger a credit inquiry that would impact your credit score. You can apply even with no credit or poor credit.

The drawbacks of corporate prepaid cards

Limited control options 

Spend control is based only on the amount preloaded on your prepaid card. If the card runs out, it must be manually reloaded. If your employee wants to use the card like a gift card, you don’t necessarily have control over the vendors or categories. Purchases may still need to be reviewed after the fact. Limited spend control means limited budget control. 

Limited visibility 

Keeping up with pre-funded but unused funds creates additional administrative headaches in tracking cash flow. Without the ability to enforce corporate spending policy and automate approvals in real-time, you can’t have clear budget to actual reporting.  Most cards let you see transactions across all cards online but lack the ability to immediately categorize spending into your actual budget.

Limited flexibility

Without reliable budget to actual reporting, you also don’t have the information to adjust budgets quickly or empower teams to do so. Issuing new cards isn’t as easy when you have to first fund the card.

No interest earned

Cash keeps your business afloat, but money remaining on the card does not earn interest. It stays idle until spent. You have to walk the line between minimizing continuous reloading and having too much non-interest-bearing cash. Prepaid corporate credit cards also don’t have perks like cashback or rewards.

High fees 

Make sure to review the fine print on prepaid cards for employees carefully. What these cards don’t cost you in interest, they may take out in fees. You might run into monthly, activation, or ATM fees that cost a pretty penny even before you swipe!

No line of credit 

If the money isn’t there you are out of luck. These cards do not provide credit even in emergencies when cash flow is tight and vendors are breathing down your neck.  

True expense management: Lola.com  

Rather than holding onto your money, Lola’s card solution is connected to your bank account and transfers total spend at the end of every month. Meanwhile, the money has been sitting in your own accounts, acquiring interest and being accessible if needed.

According to the Federal Reserve, 70% of small businesses have outstanding debt. The best way to get ahead of funding needs is to stay ahead of employee spending.

Lola.com takes corporate spending control to the next level. Every card comes with a budget and policy that allows you to set limits by cardholder or spending category. Non authorized or out-of-budget purchases can be automatically declined. With Lola, you have granular control, flexibility, and visibility. 

If you do need to increase a budget, then you have the ability to immediately adjust the limit. Every employee can have a card, and you still have complete control of the spending. You see what they are doing in real-time and ditch the expense reports and repetitive tasks.

Choose the solution that reduces the amount of work for your finance team, your employees, and yourself. Set the budget, sit back and relax, knowing it can’t be abused.

 With Lola you’ll be able to:

  • Get unlimited virtual cards
  • Place buying power in the hands of employees
  • Limit spending by employee and category
  • Immediately adjust limits when needed
  • Monitor spending and activity in real-time
  • Ditch the business expense reports
  • Enjoy accounting software integration with Quickbooks, NetSuite, Xero
  • Never go over budget again

Lola.com is the spend management solution that keeps you on budget.


About the Author: Anna Yen
Anna Yen, CFA, has nearly 2 decades of experience spanning financial markets, cryptocurrencies, and digital marketing. Currently she manages digital assets at FamilyFI, working to empower families with financial literacy.