How To Decide On Corporate Card Limit For Employees

Remember the frustration of spending hours reconciling expense reports at the end of the month? Then discovering that some employees have gone over budget without your knowledge?

Corporate cards— both physical and virtual — offer undeniable convenience for employees. Yet, without proper limits, they can quickly become budgetary challenges. This guide will equip you to set effective corporate card limits, ensuring responsible spending and optimal financial control for your business. 

What is a Corporate Card Limit?

A corporate card limit is the maximum amount of money an employee can spend on their company-issued corporate card within a certain period, such as per day or month. 

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By setting spending limits on employee cards, 

• Businesses can better control their finances and ensure employees' spending stays on track. This can also help create a culture of financial responsibility within the organisation. 
• Employees can be mindful of what they are buying and avoid going overboard.

Types of corporate card limits

There are many kinds of limits you can set on corporate cards based on the amount, vendor, and approval process. Each limit serves a specific purpose in helping you manage your company's finances effectively.

Daily limits

Daily limits cap how much an employee can spend in one day. You can use this to control daily spending and prevent unauthorised or excessive purchases. For example, you might set a daily limit of 200 AED for meals or office supplies. This helps keep everyday business expenses manageable and within budget.

Monthly limits

Monthly limits set a maximum expenditure for a corporate card over a calendar month. This helps businesses maintain a clear overview of monthly spending. This limit is perfect for employees responsible for managing regular expenses that occur every month, such as utility bills or software subscriptions.

Approval-based limits

These limits require a manager’s approval for any transaction over a certain amount. This adds an extra layer of control for big purchases. For example, you might require approval for any purchase over 5,000 AED. This ensures significant expenses are reviewed and necessary.

Pro Tip: Consider using corporate card solutions like Alaan to set up spending rules and automate expense approvals based on employee groups, projects, and spending categories. With Alaan, you can easily create various types of customised limits, ensuring precise control over your expenses.

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All-time limits

All-time limits are for one-time expenses, like special projects or big equipment purchases. These limits stay in place until adjusted. For example, you could set a 10,000 AED limit for a new office renovation. This helps control spending on large, infrequent purchases.

Zero-limit

Zero-limit cards stay inactive until you manually set a spending limit, which allows tighter control over spending. You can use this for employees with special spending needs or departments requiring strict oversight. For example, you can issue a zero-limit card to an employee who will be spending next month, allowing you to set a specific spending limit when the time comes.

Speaking of preventing unauthorised spending, did you know setting these limits is effortless with corporate card issuers like Alaan? With a few simple clicks, you can establish spending controls, ensuring your employees stay within budget and preventing unauthorised expenditures. 

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Factors to consider when setting corporate card limits

When determining corporate card limits, several key factors should be considered to ensure they align with the company's financial objectives and operational requirements. Let us look into the essential considerations for setting effective corporate card limits:

1. Employee Role

Setting corporate card limits based on employee job roles is crucial. Different roles within the organisation may have varying spending needs and responsibilities. For example, sales representatives may need AED 2,500 monthly for client meetings and to build relationships. Meanwhile, the marketing team might need AED 5,000 a month for advertising and events to attract new customers. Setting these specific budgets and adjusting them as needed allows you to ensure everyone has the funds they need without overspending.

2. Average Transaction Value

Next, to set effective corporate card limits, understand how much employees typically spend per purchase. That way, you can set credit limits that match their average expenditure. 

For instance, if your employee typically spends around AED 200 per purchase, you can set a credit limit of AED 200 on his corporate cards to ensure that s/he does not exceed his average expenditure.

Also, consider using approval-based limits for bigger purchases. This keeps things running smoothly while maintaining control over your company's finances.

3. Frequency of Purchases

Remember, it is not just about how much employees spend but also how often they swipe their cards. ​​Employees who make frequent purchases may require higher credit limits to accommodate their operational needs, while those with sporadic spending patterns may benefit from lower limits to prevent unnecessary expenses. For example, in a company, the marketing team might have frequent expenses for advertising campaigns, while the IT department might have larger, less frequent purchases for new equipment.

To control corporate spending, examine your historical spending data to identify your frequent spenders. Then, set limits based on each employee's average number of transactions. We recommend setting daily or weekly limits if you have employees who frequently make many small purchases.

4. Typical Expenses

When setting corporate card limits, it is important to consider the typical expenses employees incur. By categorising these expenses into groups like travel, office supplies, and client entertainment, you can set targeted limits for each category. This helps ensure efficient budget allocation and spending control.

To get started, create a clear corporate card policy that outlines what expenses are allowed and what are not. To simplify this process, we have created a quick template you can use right away.

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Next, set limits based on how much you usually spend in each category. For example, you might set a monthly limit of 1,000 AED for travel expenses and 500 AED for office supplies.

Remember to review your expense categories regularly to ensure they match your business's needs. This will keep your spending under control and ensure everyone is on the same page. 

5. Budgetary Constraints

Aligning corporate card limits with the company's overall budgetary constraints is essential. This means aligning your spending limits with your financial goals, company revenue, and resources. Suppose your business has a monthly budget of 5,000 AED for marketing expenses. You would want to set limits on your marketing team's corporate cards accordingly. You can set it at 2,000 AED for the event marketing team, 2,000 AED for paid media marketing, and another 1,000 AED for social media promotions; this will ensure no team goes over budget.

Setting clear budgets for each expense category is vital to keeping your finances in check. Decide how much you can spend in each area and stick to those limits. 

Review your spending regularly to ensure it stays within these limits, and add more funds if needed. If you consistently exceed your budget in certain areas, consider reevaluating and adjusting your limits accordingly.

6. Risk Tolerance

Perform due diligence and understand the level of risk you are willing to take before setting card limits. For example, if you are a small business on a tight budget, you might prefer conservative spending limits due to lower risk tolerance. Conversely, larger companies with ample resources might be more comfortable with slightly higher risk levels.

To manage risk effectively, implement extra controls for situations with a higher risk of overspending or misuse. For instance, you could use approval-based or zero-limit cards for certain transactions. Integrated corporate card providers like Alaan also offer detailed audit trails that record all transaction activities and communications in real time. These additional measures add layers of security and oversight, ensuring that all spending is closely monitored and approved. 

How to set up a corporate card limit for your business?

Setting up limits for your corporate cards is a relatively simple process. Here are a few basic steps you can follow:

1. Determine your spending categories

The first step is to identify the different categories of corporate card expenses your employees will make. These could include travel, office supplies, marketing, and so on. Knowing what types of purchases you make will help you set more accurate limits.

Pro Tip: Simplify this process with platforms like Alaan, offering easy-to-use menus for setting categories.

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2. Classify employees

Classify your employees into executives, middle managers, engineers, etc. Employees in senior or client-facing roles may have higher spending needs than junior employees. For instance, a sales executive may need a higher limit for business travel and entertainment expenses, while a junior developer might have more limited needs like monthly software subscriptions.

3. Analyse historical spending data

If you have used corporate cards before, look at your historical spending data. This will give you an idea of how much is typically spent in each category and by whom. Use this information to set initial limits aligning with your business spending needs.

4. Set limits for each category

Once you have identified your spending categories and analysed your data, it is time to set limits for each. Consider factors such as your overall budget, risk tolerance, and the frequency of purchases in each area.

5. Decide on limit types

As discussed, you can set different limits, such as daily, weekly, monthly, or approval-based. Daily and weekly limits are great for controlling frequent, smaller purchases, while monthly limits work well for larger, less frequent expenses. Approval-based limits add an extra layer of oversight for big-ticket items.

6. Communicate with employees

Make sure to communicate your corporate card policies and limits to all employees using the cards. Explain the reasoning behind the limits and emphasise the importance of responsible spending. Discuss not using the corporate card for personal expenses. Encourage employees to reach out if they foresee needing a higher limit for a specific purchase or project.

7. Monitor and adjust limits as needed

Regularly monitor your spending and adjust limits as needed. Your spending patterns will likely change as your business grows and evolves. Stay on top of your data and increase or decrease limits as the situation warrants. Staying flexible will help you maintain complete control over your finances.

Best practices for setting corporate card limits

Here are some best practices to ensure your corporate card program runs smoothly:

1. Educate employees: Communicate spending limits and expectations to all cardholders. Include this information in your company corporate card policy and provide regular reminders.
2. Set automated alerts: Set up automated alerts for employees approaching or exceeding spending limits. Timely notifications help them stay within their budgets and avoid potential issues.
3. Review regularly: Employee roles, spending habits, and company needs evolve over time, so review and adjust limits regularly to ensure your program remains adaptable and practical.
4. Audit transactions: Periodically audit employee transactions and look for unauthorised purchases, cash advances, transactions outside working hours, excessive restaurant bills, missing receipts, reimbursements, or any unusual spending patterns.
5. Sync cards with expense management tool: Integrate corporate cards with your expense reporting software. This will streamline data collection and tracking, simplify reconciliation, and save valuable time for both employees and finance teams.

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Set customised card limits with Alaan corporate cards

Alaan offers a comprehensive solution for businesses looking for customised corporate cards and streamlining expense management in a single platform. With Alaan, businesses can easily tailor card limits to suit their specific needs, monitor spending in real time, and benefit from seamless expense reporting and reconciliation. 

Moreover, Alaan's corporate cards and spend management platform offers real-time insights into your team’s spending patterns, enabling finance teams to make better decisions. For example, they can pinpoint and address overspending in specific departments, such as marketing, by analysing expenses by category and adjusting budgets accordingly.

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With Alaan's corporate card solution, you can establish effective spending controls, promote financial responsibility, and maintain a healthy corporate card program that aligns with your overall business objectives. 

Ready to get your expenses on track? Talk to our team today.