COMMENT: Robert Kirby (Sep 7)

It is time for the plain truth about the benefits of corporate liability card agreements, Robert Kirby, ceo of Spendvision, argues 

Robert Kirby

In this age of hyper cost-consciousness, I find it counter-intuitive that some banks and other corporate card issuers are marketing personal liability agreements to organisations, rather than stressing corporate liability structures.  My business mission is to help firms around the world bring tighter control over their corporate card expenditures through web-based expense management automation.  The feedback I receive from many customers is that personal liability, in which individual employees are responsible for paying card charges directly, adds too many administrative burdens and financial risk to managing expenditure effectively.

Personal liability has a side-effect of encouraging employees to use their personal cards for business spend in order to earn card-based reward points. As a result, organisations miss the chance to capture important data on corporate spend, and that means missed opportunities to monitor spend, leverage more buying power with preferred vendors and reclaim taxes paid.

Simply put, personal liability is getting in the way of more efficient buying processes and expense management. Corporate liability, on the other hand, where organisations pay employees' charges centrally, is the best all-round option for a commercial card programme. Corporate liability can help banks grow their business and - at the same time - assist companies in controlling costs.

Why are companies signing on for personal liability? I've heard all too many customers tell me that they believe the arrangements better insulate them from ultimate responsibility for payment defaults, late fees and other penalties. That's a mistaken perception, but understandably so. After all, enormous risk is at stake. In one area alone, corporate travel and entertainment (T&E) spending, a 2009 Accenture survey commissioned by American Express found that global companies last year "entrusted employees" with an average of $500m to $1.2bn in T&E spend. Another study of more than 70 countries by the US-based National Business Travel Association and Expedia Inc.'s Egencia unit, estimates that businesses spent $929bn on corporate travel and meetings in 2008, up more than 35% since 1998. The study also predicts that, by 2013, business travel spend will rise to $986bn.

Corporate Liability - The Best Option for Companies and Banks

Corporate liability is the most effective option for companies' commercial card programmes - including areas of cost-control and risk management.  Some of the main arguments for corporate liability versus personal liability include:

• Central pay is the cleanest, most efficient method for payment and expense processing (convenient for cardholders who needn't worry about paying bills, as well as for corporations who settle with the issuer). It is also the least risky, especially working in tandem with online expense management tools. With a minimum of administrative fuss, companies can pay issuers once per cycle and still gain the benefits of float. In contrast, with individual pay/personal liability, companies must devote more manpower to process hundreds of expense reports, reimburse employees and enter financial data into back office systems.
• Companies have greater power to insulate themselves from risk with corporate liability - ensuring outstanding balances are paid on time, as well as avoiding hefty late penalties and interest charges and, in the worst case, defaults and cancellation of cards.
• Individual pay structures are inconvenient for many employees. It's been my experience that companies often assign T&E cards with personal liability to employees who earn low wages. Employees must often use personal funds to pay card bills to avoid late payment fees and interest charges while their companies' process and approve expenses. If companies are tardy issuing reimbursements, employees are further disadvantaged. It's a burden that could be easily avoided with central pay/corporate liability arrangements.

Corporate liability is also good business for banks. In many parts of the world, companies use procurement cards structured with corporate liability to buy a wide variety of indirect purchases, including T&E (for example, air bookings).  Clearly, banks could fill a corporate need for more flexibility on indirect purchases - and capture more charge volume - by issuing more corporate liability T&E cards or so-called, one-cards.

The Power of Corporate Liability & Expense Management Technology

If corporate liability is the backbone of higher compliance, 24/7 web-based expense management technology is the engine that propels many companies to mitigate risk, reduce processing costs, control employee spend and negotiate better deals with suppliers.   

Expense management technology platforms support the aims of corporate liability. For example, the automation:

• Provides real-time visibility of cardholder charges through daily data feeds from banks. That boosts corporate managers' ability to oversee budgets and track expenditures. Full data visibility provides employees with a strong incentive to comply with spending rules;
• Incorporates companies' spending policies and rules (for example, transaction amount thresholds, allowable merchant categories and preferred vendors) and red-flags unauthorised charges so that supervisors can review items and seek supporting documentation;
• Automates expense reporting and various back-office tasks, for instance, processing, reviewing and reimbursing expenses, as well as entry of charges to ERP systems;
• Provides comprehensive reports on employee expenditures that companies use to spot trends in maverick spending and analyse new buying opportunities with vendors.

Today, more companies are recognising the overall benefits of corporate - rather than individual - liability structures for their card agreements.  Corporate liability helps companies tighten their grip on expenditures and reduces administrative labour and costs involved in processing expense report data.

When companies manage their corporate-liability card programmes with expense management automation, they add a powerful measure of visibility to employee charges, driving policy compliance and helping to reduce burdensome administrative processes.

"Expense Management Strategies for an Economic Downturn," January 2009

"Global Business Travel Spend Projected to Exceed $986 Billion by 2013; China to Outpace U.S. in Growth,"  NBTANational Business Travel Association: NBTA was renamed in February 2011 to the GBTA (Global Business Travel Association). It provides its members (business travel management professionals) with education and information press release, July 23, 2009