What Are Prepaid Business Credit Cards?

Prepaid business credit cards offer a flexible and straightforward way to handle company expenses. But what exactly are these cards, and how can they benefit your business?

Key takeaways

• Better Budget Control: Prepaid cards let you load funds ahead of time, helping you manage spending and avoid debt.
• No Credit Checks: You don’t need to worry about credit scores or accumulating debt with prepaid cards.
• Watch for Fees: Compare fees and features carefully, as prepaid cards usually don’t offer rewards and might have additional costs.
  
  

How do prepaid business credit cards work?

Prepaid business credit cards function differently from traditional credit cards. Instead of borrowing money up to a credit limit and paying it back later, you load money onto the card in advance. 

With traditional credit cards, you can spend up to a certain limit and then repay that amount, usually with interest. Debit cards, on the other hand, draw directly from a business bank account, limiting spending to the available balance. Prepaid cards, however, require you to load money onto the card beforehand. This can offer more control over your spending and reduces the risk of going into debt. 

One of the big benefits is that you can easily add funds, as and when you need them, helping you to stay flexible with your cash flow. Plus, you can set spending limits to keep track of expenses and prevent overspending. 

Benefits of using prepaid business credit cards

Easy expense control and budgeting

With prepaid business credit cards, it’s easy to stick to your budget. You can load only what you need and set spending limits, making it simpler to keep track of expenses and avoid overspending.

No credit checks or debt accumulation

Since prepaid cards use funds you’ve already loaded, there’s no need for credit checks or worrying about accumulating debt. It’s a straightforward way to manage spending without impacting your credit.

Simplified employee expense management

Prepaid cards can be handed out to employees for business purchases, which simplifies tracking and managing their expenses. You can monitor spending in real-time and streamline expense reporting.

Improved cash flow visibility

Prepaid cards offer immediate insights into your cash flow since transactions are tracked instantly. This helps you keep a clear view of your financial situation and make informed decisions.

Reduced risk of overspending

By using prepaid cards, you limit spending to the amount loaded on the card, which helps prevent accidental overspending and keeps your budget intact.

How to choose the right prepaid business credit card

Choosing the right prepaid business credit card involves looking at several factors and asking the right questions.

Factors to consider 

• Fees: Check for any setup, transaction, or monthly fees that could impact your overall costs.
• Features: Make sure the card has features that meet your business needs, like spending limits or expense tracking.
• Integrations: Choose a card that works well with your accounting software to simplify expense tracking.
  
  

Questions to ask before selecting a card

• What fees are involved, and how will they affect my budget?
• Does the card have the features I need for expense management?
• Can I easily load funds and manage employee spending?
• What kind of customer service and support does the provider offer?
  
  

Implementing prepaid cards in your business

Getting started with prepaid business credit cards requires a bit of planning.

Tips for rolling out to employees

To introduce prepaid cards to employees, start by sending out an email that explains why the cards are being issued, how they should be used, and the benefits for both the company and the staff. Next, provide clear guidelines with easy-to-follow instructions on what purchases are allowed, how to report transactions, and any specific rules. Hold a kickoff meeting or webinar to go over the new system, answer any questions, and address concerns. 

Follow this with training sessions to show employees how to use their cards, including checking balances, reporting transactions, and dealing with any issues. Use real-life examples to make it clearer and more relatable. Lastly, provide an FAQ document or a video tutorial they can refer to whenever they need help.

Best practices for setting spending limits and policies

Establish policies

• Develop a policy document: Write a clear policy outlining the acceptable use of prepaid cards, including spending limits, types of expenses allowed, and the procedure for handling lost or stolen cards.
• Communicate expectations: Share the policy with all employees and ensure they understand the importance of following it. Provide a summary of key points in the initial communication and during training.
  
  

Customise limits

• Assess needs: Evaluate the roles and responsibilities of each employee to determine appropriate spending limits. For example, set higher limits for employees who need to make frequent or high-value purchases.
• Set up limits: Configure the spending limits on each card according to your assessments. Use the card issuer’s online portal or contact their support team if needed.
• Review and adjust: Regularly review spending patterns and adjust limits as necessary to match changing business needs or employee responsibilities.
  
  

Integrating with accounting software

Find compatible cards

• Check integration options: Look for prepaid cards that offer integration with your accounting software. Review the card issuer’s features or consult their customer support to ensure compatibility.
• Request demos: If possible, request a demonstration or trial of the integration features to see how well they work with your existing systems.
  
  

Automate reporting

• Enable automated features: Use the card issuer’s tools to automate expense reporting and reconciliation. Enable features such as automatic transaction uploads to your accounting software.
• Set up notifications: Configure alerts for transaction thresholds or unusual activity to stay informed about card usage and avoid potential issues.
• Regularly review reports: Monitor the automated reports to ensure accuracy and address any discrepancies promptly. Use these reports to track spending and maintain control over your budget.
  
  

Potential drawbacks and limitations

While prepaid business credit cards offer many advantages, they also have some limitations.

Lack of rewards programmes

Unlike traditional credit cards, prepaid cards typically do not offer rewards programs, which can be a downside for businesses looking to earn points or cash back on purchases.

Possible fees

Some prepaid cards come with fees, such as activation fees, transaction fees, or monthly maintenance fees, which can add up over time. It’s essential to evaluate these fees before choosing a card.

Limited credit-building opportunities

Since prepaid cards do not involve borrowing money, they do not contribute to building business credit. Businesses looking to establish or improve their credit profiles may need to explore other options.

Capital on Tap vs prepaid business credit cards

When it comes to choosing between a Capital on Tap Business Credit Card and a traditional prepaid business card, the differences can significantly impact how you manage your business finances. Here’s how the two options stack up:

Preloading flexibility

• Capital on Tap: Businesses can preload funds onto their Capital on Tap card, similar to how a prepaid card operates. This allows for better control over spending as the preloaded amount can be set according to specific budgets or spending plans.
• Prepaid cards: Limited to the amount loaded, with no additional credit facility.
  
  

Credit limits

• Capital on Tap: Access practical credit limits up to £250,000, providing substantial financial flexibility.
• Prepaid cards: No credit limit; you can only use what you’ve preloaded.
  
  

Rewards and benefits

• Capital on Tap: Earn 1% cashback on all spending, with the option to redeem points for gift cards and more. No annual fees or hidden charges.
• Prepaid cards: Generally offer no rewards; any benefits or discounts are limited and often not as valuable.
  
  

Employee spending controls

• Capital on Tap: Set customisable spending limits per employee and receive real-time transaction notifications.
• Prepaid cards: Basic controls, often requiring manual adjustments and less detailed oversight.
  
  

Money protection

• Capital on Tap: Preloaded funds are safeguarded under Electronic Money Regulations, providing additional security.
• Prepaid cards: Funds are kept separate but may not be insured like bank deposits, with varying protection levels depending on the provider.

For enhanced flexibility, rewards, and control, choose the Capital on Tap Business Credit Card. Apply now to see the benefits for yourself.

The bottom line

Prepaid business credit cards offer a practical and flexible solution for managing company expenses. While they come with some limitations, like the lack of rewards and potential fees, their straightforward approach to spending and easy integration into financial processes can make them a valuable tool. By understanding how they work and evaluating your specific needs, you can determine if a prepaid business credit card is the right choice for your business.

This does not constitute financial advice. Please consult an accountant or financial advisor if you would like more information.