Your Corporate Card Is Watching You

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Two years ago the Lake Forest (Ill.)-based company began to mandate the use of corporate cards. Purchasing administrator Susan Westover said that the mandate has helped the company reduce spending and noncompliance with travel policy.

"When it comes to travel, the largest cost is noncompliance to company policy," said Eduardo Vergara, senior vice-president for global commercial cards at American Express (AXP). He added that employees will frequently book their business flights on personal cards to accrue frequent-flier miles. "Most travelers feel that they are their own best travel agent, but the reality is that policies save money for the company," he said.

Tenneco figured out that it would save money on gas—an evermore costly expenditure—if employees rented fuel-efficient cars instead of driving their personal vehicles. "This was requested but not pushed last year," Westover said, but this year it will become part of the official company policy.

"One of our clients was able to save $10,000 on water," said Marcie Verdin, senior vice-president for large market commercial products at MasterCard (MA). "The employees were buying the expensive bottles of water." The client used MasterCard's Enhanced Folio program a tool that provides corporate travel managers with a detailed breakdown of employee expenses, to find that company employees had expensive tastes. MasterCard also has Travel Dashboard, a data reporting tool that provides greater insight into the overall performance and compliance of travel programs. Aberdeen research group shows that 24% of companies report some level of fraud related to corporate card programs.

Rapid Reimbursement Is Key

Employers can also choose to restrict the use of corporate cards automatically by enabling business travelers to pay for flights, car rentals, and hotel accommodations, but blocking card use at retail stores. MasterCard is currently developing a feature called inControl that will allow employers to monitor employee spending in real time by sending e-mail updates each time a card is used.

Business travelers who use their corporate cards might have to forgo some perks of traveling on the company dime. Unauthorized long-distance calls and $20 martinis at the hotel bar might be harder to sneak by travel managers, but corporate cards have the advantage of convenience.

On average, corporate card users are usually reimbursed within five to six days as opposed to 10 to 12 for employees that use personal cards, says American Express' Vergara, who added that reimbursement was the most important issue for a frequent business traveler. Some card issuers also have executive corporate card programs that provide additional benefits for select employees. Features of an executive card can include access to an airport lounge, concierge services, and travel upgrades.

Companies may use one of two types of card payment arrangements: a corporate liability agreement in which the company receives and pays the card bill or an individual liability agreement in which an employee pays the bill and is reimbursed after submitting an expense report. According to Richard Palmer, a business professor at Eastern Illinois University and co-author of the RPMG survey, there is no significant difference in client satisfaction between these two methods. Individual liability agreements are nonetheless the more popular choice among S&P 500-size companies, the survey shows.

Potential to Expand to Midsize Companies

The greatest challenge for businesses with corporate card programs is ensuring that a card is paid on time. Each month, around 4.8% of employee payments at a company with an individual liability agreement are delinquent and 14% of the travel card statements submitted to companies with corporate liability agreements are unsupported by receipts, according to RPMG Research.

Businesses also cited employee preference to use personal cards, inadequate distribution of cards to employees, and budget limitations as barriers to implementing an effective travel card program. Card issuers are investing in better reporting technology as they compete for clients, because, as the RPMG survey suggests, employers are concerned with access to more detailed information on employee spending. But business travelers list customer services as a top priority.

Travel budgets may be shrinking this year, but financial analysts and card issuers say the corporate card market will continue to be profitable even in the softening economy. Spending on corporate cards has increased by about 12% in each of the last five years and by 14% in 2007, according to Aberdeen Group's Bartolini, who added that there is still tremendous potential for card programs to expand down-market into midsize and small companies. "Midlevel companies don't know they can also be successful in negotiating first-supplier deals," Bartolini said. "For very small companies, one of the benefits is a prenegotiated saving program—for example, co-branded cards with airlines."

U.S. Bank anticipates that its T&E portfolio will grow at a rate of 8% in 2008. Robert Abele, president of the bank's corporate spending division, said that the ever-increasing cost of travel will encourage businesses to use corporate cards. "Inflationary pressure is driving a lot of the growth, and airlines are now starting to pass those expenses to the consumer," Abele said. "We are starting to see companies managing their spending, and we think inflation is driving a lot of growth in this sector."

Just be careful about those $20 martinis.

Tatyana Gershkovich is an intern at BusinessWeek.com.