Corporate P-Cards: How to Use Them for Maximum Advantage
P-cards can replace your corporate credit cards.
If you rely on credit cards, you would have 2-3 cards issued to the executives, which are shared with the employees. Though it seems a great method to ensure approval and budget control, it has many loopholes.
The finance teams are running after employees for receipts, employees are waiting on OTPs and approvals, and the CFO is not satisfied with the numbers.
You look for alternatives and land on p-cards.
P-cards (or purchase cards) are corporate cards you issue to your employees for business expenses. Then, be it purchasing a SaaS or making vendor payments, employees use it for all work-related spending.
What Is the Difference Between a Credit Card and a P-Card?
While both cards are used exclusively for business expenses, there are many differences.
Credit cards make expense management difficult, with no visibility into where the money is going. An executive shares a single card with their team, creating a chaotic financial situation.
The card owner struggles to manage a constant stream of payment requests. Employees are left hanging with delayed payments, waiting for approvals. Especially in bigger companies, finance teams struggle with reconciliation and zombie spending (which is when a company continues to pay for something that isn’t used anymore, or when it pays for services that former employees had used).
On the flip side, if you use p-cards, you can issue each employee a separate card for corporate expenses. Each card has a specific budget and restrictions to ensure control and facilitate approval without delays.
For instance, you issue a card with a $500 monthly limit, restricted to office supply vendors like "Office One."
In this way, you manage budget control and approvals without losing visibility or having to micromanage.
What Is the P-Card Process?
Moving from a credit card to a P-card isn’t complicated. Here is a step-by-step process of how you can provide your employees p cards and start using them:
Step 1: Generate Corporate Cards
The first step is to choose the type of card you want for your employees: physical or virtual. While a virtual card can be set up in under a minute, a physical card takes about 2-3 days to get delivered.
Physical cards work well for those who travel or have on-site jobs, making petty cash management easy. Contrarily, virtual cards support secure online purchases, such as buying SaaS tools or paying for digital advertising campaigns.
Once you decide whom to give a card and what type, set the budget and policies. You can incorporate the following policies to customize the cards:
- Specify the budget and replenishment frequency of the budget on the card- daily, monthly, or yearly.
- Define the purpose of cards by enabling only specific general ledgers (GL), labels, and tax codes.
- Switch on/off the ATM withdrawal option.
- Enable auto-lock for cards in case of receipt policy violation, where if the receipt isn’t attached in 7 days, the card is frozen.
All these customization options offer you better control without having to chase employees later. Deciding the budget, frequency, and vendors ensures that the card is used rightfully.
For instance, you would switch off ATM withdrawal for virtual cards that are meant for buying SaaS tools. Likewise, you can establish a monthly replenishment schedule to maintain sufficient funds while preventing excess spending.
Apart from this method, your employees can also request to activate the P-cards. They explain the card's purpose, after which the admin can approve/reject the request.
Now that the employees have cards in their hands, let’s see how you can better manage corporate spending with them.
Step 2: Manage Expenses Via Centralized Dashboard
Every expense on the corporate p-card is visible in real time on a centralized transactions dashboard. You get key information such as merchant name, expense category, card information, amount, and approval status.
Along with this dashboard, you get a dedicated tab for each expense where all its information is available.
You can review the key information such as receipt, department, merchant, date/time, expense category, etc. you can also download the receipt, approve/reject the expense, and check the activity log.
The activity log keeps track of all the conversations that have been happening with a particular transaction. Traditionally, companies use email and Slack, which makes communication messy. With this log, they can keep all their conversations and important information in one organized place.
Step 3: Create Approval Workflows
Approval workflows ensure that each expense follows a defined hierarchy for approval by the right stakeholders. You can customize them depending on different amounts, departments, and other factors.
It is a simple no-code system where you create workflows based on if-then rules.
A custom approval workflow ensures timely and effective approval without having to run after dedicated team members. Each of them receives a notification as soon as the expense takes place, and they can approve it easily.
Approvals and employee reimbursement become easy with a frictionless workflow like this.
Step 4: Report and Reconcile Expenses
Integrating your cards with your accounting systems becomes the last step to facilitate reporting and reconciliation.
Once you integrate with your accounting software, you can enjoy complete visibility and control over your corporate expenses.
You get a dedicated insights window to track expenses and identify trends. You can add custom filters and export these for further analysis.
To understand the entire process better, book a demo and see how you can benefit from switching to a corporate p card.
Why Shift From Traditional Methods to Corporate P Cards?
Credit cards seem simpler, where a bank gives a few credit cards to share among the teams. But here’s why it doesn’t work:
- It is difficult to track who spends what, how much, and why.
- Employees wait for OTPs and approvals, delaying payments and reimbursements.
- The chances of zombie spending increase because the same card is shared. This also becomes one of the loopholes which leads employees to misuse the cards.
- The admins have to chase employees for receipts during reconciliation.
While these are just a few, relying on credit cards can cause chaos in expense management. Here are some reasons corporate p-cards are a more suitable option today:
No More Shared Cards
You ditch the whole system of sharing credit cards, which is the root cause of limited visibility. With corporate p cards, you can issue any employee a dedicated card for specific expenses.
So, if you issue Rashid from the marketing department a virtual corporate card for running Ads, he can not use it otherwise. He will be accountable for any unnecessary expenses beyond the specified budget.
This means more visibility and control over corporate expenses.
Easy Receipt Management
Corporate cards make receipt management easier with OCR technology in the following ways:
- Submitting expense reports at the end of the day becomes easier as it auto-populates all the information
- Uploading receipts in bulk upload with OCR handling the rest makes the process faster
- Detecting duplicate receipts becomes simpler as OCR eliminates the risk of manual errors
Apart from OCR, you also get the option to split the transactions to make the accounting process easier. Here, for each transaction, you can split the amount into a separate category, GL account, tax code, etc.
For instance, a $300 expense can be split into $200 for software purchases and the remaining $100 as consulting fees. Each will have a specific category, GL account, and corresponding tax code.
Corporate cards give more visibility and control over finances.
Although both credit cards and p-cards can have specific budgets, p-cards enable you to set specific policies and rules.
For instance, you give an employee a $1,000 monthly budget but restrict them to using the card only for office supplies purchases.
Similarly, you can set a $500 monthly limit for marketing expenses and restrict the card to "Ad Campaigns" and "Promotions," ensuring focused spending.
Another benefit is to assign monthly, yearly, and weekly budgets.
For instance, you can allocate an annual budget of $500,000 for the marketing department but assign a weekly budget of $10,000 for ad campaigns.
This facilitates flexibility for the teams to function better and gives the finance team more control over resource planning and allocation.
Receipt uploading becomes simpler when all you have to do is click a picture on WhatsApp and hit send.
After each transaction, employees get a notification to upload the receipts via WhatsApp. With this simple integration, receipt capturing becomes simple and fast.
Not only is the receipt captured, but stored under the relevant transaction tab with all its information intact. OCR makes it easier to extract key details and populate expense reports.
Admins can approve these expenses, and reconciliation becomes a breeze.
Eliminate Corporate Card Fraud
P-cards give you more control and security. From setting custom policies to raising alerts in case of duplicate receipts, p-cards ensure that employees don’t misuse the cards.
Additionally, the custom approvals workflows and dedicated activity logs reduce the chances of oversight. This system helps prevent unauthorized spending.
For instance, an employee tries to use the card for a personal expense, like an expensive dinner.
The custom approval setup will alert the admins. The active activity log with documented conversations will further ensure that no personal expense is charged on corporate cards.
Get the Most Out of Your Corporate Cards
Transitioning from credit cards to corporate p cards can be an exciting move. But to make the most of it:
- Set an expense policy outlining the guidelines that will govern the corporate cards. This practice will also become the pillar for a healthier financial environment to support internal control over financial reporting (ICFR) efforts.
- Understand the hierarchies in the company to create approval workflows accordingly. Find a balance between control and micromanagement. Managers should be informed about expenses without being excessively involved in them.
Do this right, and you will have better visibility and control over your finances. The employees will not be left hanging for approvals. The finance team will be at peace, and the CFO will have more faith in the numbers.
Find out how much your business can save with Pluto
Discover your savings with Pluto's Cost Saving Calculator and take control of your expenses. Unlock cost-efficiency now!Calculate Now
Learn how Pluto is helping Keyper to eliminate petty cash spending and optimize spend managementRead More
At Pluto Card, our mission is to assist businesses of all scales make well-informed choices. To uphold our standards, we follow editorial guidelines to guarantee that our content consistently aligns with our high-quality benchmarks.
STOP Wasting Time & Money
Let Pluto do all the heavy lifting, so your team can focus on things that actually matter and add to your bottom-line. A 15-minute call will be enough for us to show you how Pluto can help.
You may also be interested
Top 6 Spend Management Software for Businesses in the UAE (2023)
Managing business spend is a key concern for most companies. The use of spreadsheets, paper receipts, paper vouchers and handwritten notes makes processes inefficient, time-consuming, and resource-intensive. It also reduces the finance team’s visibility over the company’s spend.
The lack of control over spend causes stress within finance teams, who lag behind due to lack of visibility. Moreover, the cash chaos leads to unspoken internal resentment wherein CFOs think that their teams aren’t providing the necessary key financial insights they require.
A spend management platform can solve this problem. But not every software offers the same functionalities and benefits. You need to select the one that has a good UX and in-depth offerings, enables more reporting, is flexible and scalable, integrates with your ERP, supports the complexities of your business, and has robust security. It should also fit into your organizational structure.
To help you choose the most suitable one for your organization, this article will cover the top 7 spend management software to manage your corporate spending.
What Is Spend Management Software?
A spend management software is a tool that helps manage corporate spend, i.e., all non-payroll expenses. It does this by:
- Simplifying capture, storage, and retrieval of receipts and documents to reduce the risk of misplaced receipts
- Deploying approval workflows to ensure that business spending follows the company's approval hierarchy
- Providing real-time visibility into business expenses, helping to identify any irregularities
- Generating alerts when an expenditure violates company policies
- Automating employee reimbursement processes to reduce delays in employees getting paid
- Maintaining a complete audit log, including spending approvals and changes
- Easily sync with your ERP/accounting tool for streamlined month-end close
- Managing petty cash expenses by tracking and recording small, miscellaneous expenses in real-time
- Facilitating payment capabilities to handle outgoing financial transactions
- Integrating corporate cards for real-time expense tracking and control spending
- Facilitating procurement processes for the purchase of goods and services
- Handling invoice management to ensure timely payment and record-keeping to foster healthy vendor relations
Hence, spend management software provides financial visibility and control.
Top 7 Spend Management Software
These are the top 7 spend management software to consider:
Pluto is a spend management platform for enterprises that transforms your finance processes with automation to provide more visibility and control. It brings together the spenders, savers, and sourcers of your business to offer a complete revolution from a chaotic spend management system to a seamless collaborative workflow. It is the fastest way to manage your finances, including account payables and employee reimbursement.
- Custom approval workflows that adapt to the company's hierarchy for timely and accurate approvals
- Facilitate intricate multi-layer workflows to adapt to complex hierarchies to support seamless purchase requests and purchase orders
- Unlimited corporate cards with budget controls to maintain expenses within corporate policies
- Offers zero-balance cards, which get funded once the expense is approved.
- Card-specific policies to make branch & subsidiary-level reimbursements easy
- Ability to add comments and document the conversation along with other transaction details to maintain a comprehensive audit log
- View-only access available for external accountants to review financial data without making changes
- Automated receipt capture through OCR, with the ability to support bulk upload via WhatsApp and emails
- Alerts in case of duplicate receipt uploads to avoid fraud and compliance issues
- Custom expense reports to overview business expenses and spending trends
- Integration with accounting platforms like Netsuite for advanced general ledger (GL) coding, tax tracking, vendor syncing, etc.
- Secure document storage with a 5-year audit log and bank-grade encryption
- Enables branch & subsidiary-level spend tracking (not offered by other platforms)
- WhatsApp integration to make receipt upload easy
- Offers up to 2% cashback on all non-AED transactions
- Independent PCI DSS Level 1 Certification
- Slightly longer on-boarding due to corporate card offering
- Integrates with all other major ERPs except Tally
Procurify simplifies spend management by accelerating the approval and reconciliation process. It helps to track the business spending with real-time tracking and breaking down data silos. With a core focus on simplifying invoice payments and management, it helps businesses in vendor and spend management.
- Ability to approve requests based on attached receipts and leave comments for clarification
- Custom budgets for different departments or projects
- OCR to auto-extract invoice data with a dedicated centralized invoice box and automatic matching with purchase orders
- Detailed reports based on different departments, categories, or other relevant parameters
- Tailored expense request forms to capture specific information relevant to the organization's needs
- Compatibility with multiple currencies, streamlining international expenses
- Storage of all expense-related documents, including receipts, invoices, and expense reports
- Integration with ERP to sync expense data
It has standard all-in-one pricing of $2000/month. But custom pricing quotes are provided for add-ons like more users, more domains, NetSuite integration, on-premise training, implementation services, and on-premise hybrid implementation.
- Easy to make amendments, for instance, to invoice amounts, which helps when raising a PO before receiving the invoice
- Responsive support team when handling technical issues
- Does not offer corporate cards in UAE
- Only supports procurement based spending
- Poor reporting capabilities—lacks functionality
Spendesk combines approvals, corporate cards, expense reimbursements, and invoice management to automate the spend management process. Specifically designed for finance teams, it offers real-time expense tracking and offers custom workflows for complete control. By consolidating all payments, it provides a spend management solution that enhances financial transparency.
- 100% digital expense reports
- OCR technology to capture and extract key details from receipts
- Expense claim history, available anytime, anywhere, for quick and accurate reporting
- A mobile app for quick reimbursement requests by snapping a photo of receipts
- Real-time expense monitoring to spot errors and missing receipts and stay compliant
- Automates categorization of expenses and VAT account
- Detects duplicate invoices and errors to support three-way matching
- Tracks all purchase orders and invoices with the ability to schedule payments
Request the sales team for a custom quote. A free trial is available.
- Single purchases are straightforward and simple
- Easy to integrate with an SSO provider, making login easy and secure for users
- Handy drag-and-drop receipt functionality
- Virtual cards are glitchy, with merchants rejecting transactions that have already gone through
- Some basic features are not included in the basic option where they should have been (i.e., memorizing accounting patterns for vendors).
- Corporate cards have defects (especially for travel expenses)
Airbase simplifies expense reporting with AI and ML. It ensures quick, hassle-free, and smart corporate expense management. It is an automation solution for SMBs and large enterprises. It packages various modules such as AP automation and corporate cards to ease the spend management process for accounting teams and employees.
- OCR to populate details, including GL category, date, amount, and purpose
- Ensures compliance by sending reminders and, if needed, locking cards until policies are met
- Reminders to upload receipts, eliminating the need to chase employees for receipts
- Custom approval workflows and budget limits for physical cards
- Real-time alerts for suspicious activity, enabling quick responses to potential fraudulent purchases
- Supports onboarding with a self-service vendor portal and custom questionnaires
- Facilitates payments and approvals, including multi-subsidiary support, international currency, and real-time GL sync
- Real-time audit trail with receipts, notes, and documentation for transparency.
Request the sales team for a custom quote.
- Intuitive and easy to use; no training or previous knowledge required
- Seamless approval workflows
- Poor reporting capabilities
- The mobile app is slow and takes time to load pages
- SSO-based login sometimes takes a few tries
- Not suitable for complex branch-level approvals and expenses
Coupa is a cloud-based automation platform to manage business spending, ranging from procurement to expense management. It facilitates supply chain optimization by providing visibility and control. It streamlines expenses, reduces risk, and ensures compliance by automating reporting, simplifying reimbursements, and offering mobile tracking.
- Offers virtual payment cards for pre-approved expenses, speeding up the reconciliation
- OCR technology and integration with accounting software eliminates manual data entry
- Provides expense reports with intelligent algorithms to prevent fraud and ensure compliance
- A centralized view of all expense spending, enabling accurate assessment
- Enables visibility and control over travel expenses before they occur, ensuring budget control
- Simplifies procurement by offering a centralized area for comparing items from various suppliers and managing punchouts and hosted catalogs
- Provides real-time visibility into purchase orders, order lifecycle, and order line availability
- SmarterTrip feature to automate expense tracking based on the user's location, including mileage and receipt capture
Request the sales team for a custom quote.
- Several categories and filters in the analytics section to streamline data
- Chat option enables approver and claimant to discuss issues with receipts
- Enables setting up of customized approval chains and including additional new approvers
- Lots of unnecessary notifications, making it difficult to select the ones that need action or comment
- Low receipt searchability, making retrieval time-consuming
- Inconsistent syncing of remit-to address from NetSuite
- Complex to implement and not intuitive, forcing admins to spend more time resolving employees' queries
- Slow customer service
- Very expensive
BILL simplifies expense tracking by providing real-time visibility and customization to manage expenses. It is a spend management solution for SMBs to control payables, receivables expenses, and all corporate expenses. It allows businesses to combine a scattered spend management process into a single platform with seamless syncing.
- Provides credit limits ranging from $500 to $5 million to control spending within constraints
- Makes it easier to monitor spending with real-time visibility into the business finances
- Custom approval workflows to speed up the approval process with minimal friction
- Multiple payment options, including ACH, credit card, check, international wire transfers
- Automates purchase order workflows with the ability to sync and automate two-way matching and three-way matching
- Ability to do quick coding and sync with accounting systems to streamline expense reconciliation
- Enables automated receipt matching, categorization, and expense reporting, reducing administrative workload
- Offers security features, including the ability to freeze and create corporate cards instantly
- Notifies administrators of each employee's transactions, ensuring timely oversight
Bill provides a free trial and essentials pack starting at $45 for six standard user roles. Its team and corporate pack are for $55 and $79, respectively. Enterprises need to request a custom quote.
- One-click swift payments
- Minimum training required
- Easy-to-use mobile app
- Customer support is difficult to initiate, slow, and unresponsive
- Frequent changes in the interface create confusion for users
How to Choose the Right Spend Management Software
To pick the right software, understand your organization's unique needs.
- What are your goals—cutting costs, enhancing compliance, or making expense processing more efficient?
- What issues do you face with expenses now—a time-consuming process, too many errors, or poor vendor relationships?
- How many employees will use the software, and should it be scalable to accommodate future hires?
- Do you have specific industry rules or in-house policies the software must follow?
Consider these eight factors:
Ease of Use
The software should require minimal training or support with a not-too-steep learning curve. Admins shouldn’t have to spend hours training their employees.
Choose software with features like automated approval workflows, expense categorization, and notifications. This will improve not only visibility but also accuracy and speed. You will have complete control over finances without having to do tedious manual tasks.
Pick software that complies with security and is certified. It should provide data encryption, role-based access control, and regular security updates.
The software should integrate with existing financial and accounting systems. This provides a unified view of your financial data without any disruptions. You shouldn’t have to sync data from multiple sources, which can add up to the manual tasks.
Document Capture and Retrieval
Pick a software that has simple document capture and retrieval capabilities. Attaching or retrieving receipts, invoices, and other relevant documents should not take more than a minute. OCR-based software that detects the information to auto-populate expense reports is better than that requiring manual entry.
Select software that enables specifying budgets for different projects, departments, or expense categories. It should be able to monitor the set budgets and raise alerts in case of breach. It should also allow you to modify these budgets at your discretion, ensuring funds reach the right place at the right time.
Multiple Payment Options
The software should allow you to configure custom payment options to suit your business needs. This includes credit cards, ACH, or other payment methods.
Scalability and Flexibility
Select software that can accommodate increased usage for growing businesses. It must also be flexible enough to adapt to changing needs, such as new expense categories, compliance requirements, and organizational structures.
The Spend Management Solution for Your Team
Investing in a spend management tool like Pluto is a smart decision that can improve your financial visibility. From set-up to integration and managing intricate workflows, Pluto handles all aspects of spend management.
- It seamlessly integrates with your current processes, ensuring a smooth transition.
- It offers flexibility to handle complex operations, catering to the needs of both small and large teams.
- Its automation capabilities reduce manual tasks and enhance accuracy for better expense management.
Pluto is the only independently audited PCI DSS Level 1 provider in the UAE, ensuring the highest security standards for enterprises.
Pluto offers a spend management tool that adapts to your evolving needs and provides freedom from financial chaos.
If you want to see how Pluto can transform your spend management into a simpler process, book a demo today.
Disclaimer: The comparisons and rankings of spend management software competitors in this article are based primarily on reviews found online. While we strive to provide accurate and up-to-date information, these reviews are subjective and reflect the opinions of the users who posted them. The information presented is intended for general informational purposes and should not be considered as a definitive guide for choosing a software provider. We encourage readers to conduct their own research and consider their specific needs before making a decision.
How IT & Procurement Teams Should Evaluate Spend Management Products
In today's fast-paced business world, managing expenses can be a daunting task for IT and procurement teams.
To help you out, we compiled a list of features and functionalities that you should consider when picking your spend management platform.
Spoiler alert, Pluto has them all.
PCI DSS Level 1 Provider
One of the essential features that should be given high importance is the product's PCI DSS Level 1 compliance.
The Payment Card Industry Data Security Standard (PCI DSS) is a set of guidelines and security requirements designed to safeguard payment card data.
The standard was developed by major credit card companies, including Visa, Mastercard, American Express, Discover, and JCB, to ensure that all companies that handle payment card data maintain a secure environment. PCI DSS compliance helps to prevent fraud and data breaches, protecting both the company and its customers.
PCI DSS Level 1 is the highest level of certification a company can achieve for PCI compliance.
It requires companies to undergo a rigorous independent audit to ensure compliance with all 12 of the PCI DSS requirements, including network security, access control, and vulnerability management.
Achieving PCI DSS Level 1 certification demonstrates that a company has a comprehensive and effective security program in place to protect payment card data.
When evaluating corporate spend management products, IT and procurement teams should look for products that have achieved PCI DSS Level 1 compliance to ensure that the product meets the highest security standards.
This will help to ensure that the company's payment card data is adequately protected and that the company is meeting its compliance obligations. By prioritizing PCI DSS Level 1 compliance, IT and procurement teams can help to safeguard their company's reputation and financial well-being.
Being PCI DSS Level 1 compliant is essential for any organization that handles corporate card information, as it provides a high level of security and assurance that the organization is taking all necessary measures to protect its customers’ data.
Pluto Card is proud to be PCI DSS Level 1 compliant. This means that our customers can trust that we have taken all necessary measures to secure their data and protect it from unauthorized access.
We also partner with vendors who are held to the highest security standards, such as PCI or SOC2 compliance.
Passwordless login is a secure and convenient way for users to access their accounts without the need for a password. It is an effective way to protect against unwanted access to your account, as passwords can be easily compromised or stolen. By tying your Pluto access with a company email account provided by your organization ensures that when your employees lose access to their company email address they also lose access to Pluto.
At Pluto Card, we understand the importance of passwordless login, and we offer this feature to our customers. With our passwordless login feature, our customers can access their accounts quickly and securely, without the need for a password.
Activity Log And Audit Trails
Activity logs and audit trails are crucial for ensuring strict auditing everywhere. An activity log records all user activity within an application or system, while an audit trail provides a record of all changes made to data within the system.
Pluto Card offers a 7-year audit log, which means that our customers can track critical changes made to their data over a seven-year period.
Employees that are using our platform have only as much access as they need, and we have infrastructure redundancy built into Pluto, which means that all compute and data is run in multiple geographies.
Business continuity is paramount at Pluto - to this end, we ensure data redundancy with redundant backups in multiple geographies as well.
In addition, at Pluto, your application data is always encrypted in transit, and at rest.
Continuous Security Scans
Pluto also provides a continuous security scan, which tackles multiple dimensions, including code or dependency vulnerabilities, infrastructure, and public endpoint scans.
Our customers can be assured that we take security very seriously and are always on the lookout for any potential security threats.
In the event of a security incident, we have an immediate incident response plan in place and will notify impacted customers without undue delay of any unauthorized disclosure of customer data.
24x7 Customer Support and Dedicated Account Manager
In addition to these security features, Pluto Card also provides 24x7 customer support.
We understand that our customers need support around the clock, and we are always available to help with any questions or issues that may arise.
Data Infrastructure, Redundancy and E2E Encryption
We also provide infrastructure and data redundancy, which means that our customers’ data is highly available and secure, even in the event of a system failure or outage.
Data is always encrypted in transit, which means that it is always protected during transmission between servers or devices.
Finally, another crucial feature that IT and procurement teams should consider when evaluating corporate spend management products is data residency and retention policies.
Pluto Card offers an audit trail for changes to customer data, so we can track who did what.
Additionally, we have a data residency promise of 7 years, which means that we retain customer data for that period of time.
This can be important for compliance with regulatory requirements, such as tax or financial reporting.
In conclusion, when evaluating corporate spend management products for your enterprise, it’s essential to consider the security features that the product offers.
PCI DSS Level 1 Compliance, passwordless login, activity logs and audit trails, and data residency and retention policies are all critical features that can help ensure the security and integrity of your organization’s financial data.
Pluto Card offers all of these features, along with 24x7 customer support and infrastructure and data redundancy, making it an excellent choice for organizations looking for a secure and reliable corporate spend management solution.
For more information visit plutocard.io and book a demo.
Understanding Business Expenses
All companies and businesses will incur business expenses, but how can you know what exactly is considered business expenses? And how will the introduction of UAE corporate taxes affect business expenses and income reports?
What are business expenses?
Business expenses are costs a business incurs to run the business properly. In simpler terms, they're expenses made by the business for the business.
With the UAE introducing corporate tax laws in 2023, it's crucial for businesses to be able to track and categorize their business expenses, as some of them may be tax deductible.
While the IRS may divide business expenses into ordinary and necessary business expenses, the UAE takes a different approach.
Ordinary business expenses are anything that is "common and accepted" to a business, whereas necessary expenses are anything that is "helpful and appropriate" to a business but not essential.
The federal tax authority in the UAE does not take a similar approach and only considers business expenses as tax deductible or not. We will discuss this in a later section.
Examples of business expenses
Business expenses include a wide range of expenses, from insurance to office space, to online subscriptions, such as Zoom, Figma, or Adobe.
Let's break it down; if a design agency bills a client AED 120K per year, that doesn't mean they made a profit of 120K. When a business brings in revenue, it must account for the business expenses made to provide its clients with its services. These services include digital software subscriptions, office rent, employee wage, and/or wifi fees.
Here are some examples of the most common business expenses:
- Advertising and marketing
- Business travel (fuel, airfare, taxis, etc.)
- Employee costs (payroll, salaries, insurance, perks, etc.)
- Employee equipment (such as laptops, monitors, phones, etc.)
- Legal fees
- Office space rent & utilities
- Software subscriptions
While many more expenses are considered business expenses, these are the ones most businesses will incur.
Types of business expenses
When setting up a budgeting plan, business expenses play a vital role in keeping the businesses' financials in check. When preparing a budgeting plan, finance teams typically begin by looking at the three types of business expenses incurred.
These business expenses include:
1. Fixed expenses
Fixed costs are costs that do not change; they happen at known intervals, such as month to month.
With predictable costs, budgeting is more straightforward, as these costs are always expected and never come as a surprise.
Examples of fixed expenses include:
- Employee payroll/salaries
- Utility bills
2. Variable expenses
Variable expenses are business expenses that change from month to month. These costs vary depending on a company's production or sales volume; if production or sales increase, variable expenses increase, and if production or sales decrease, variable expenses decrease as well.
Variable expenses are typically a business's largest expense, as some may be unexpected or unaccounted for.
To calculate the variable cost, multiply the quantity of the output by the variable cost per unit of output.
Total variable cost = Total quantity of output X Variable cost per unit of output
Examples of variable expenses include:
- Shipping expenses
- Sales commissions
- Raw materials (used in production)
3. Periodic expenses
Periodic expenses are business expenses that happen infrequently or, sometimes, semi-regularly.
Typically, periodic expenses happen on a quarterly or yearly basis, such as annual car insurance, but can also come as a surprise, such as a company car repair.
Budgeting can be tricky with periodic expenses, especially when expenses are infrequent.
Examples of periodic expenses include:
- Maintenance & repairs
- Merger and acquisitions costs
- Major equipment purchases
Profit and loss statement report
A profit and loss (P&L) statement, also known as an income statement, is commonly used when businesses record business expenses. Through the P&L, businesses can determine their taxable income. This is especially important for UAE businesses with an annual net income above AED 375,000.
The 3 categories of an income statement include the following:
1. Costs of goods sold (COGS)
Costs of goods sold are the costs associated with the production of goods sold by a company. This typically includes direct costs only, such as materials used and labor costs to create the goods sold. Indirect expenses are not calculated regarding COGS; these include sales and marketing.
For a business to determine gross profit, the costs of goods sold must be deducted from its revenue. They also affect how much profit a company makes on its products.
2. Operating costs
For a business to run, operating costs are unavoidable.
Generally speaking, operating costs relate to a business's daily maintenance and administration. These include costs such as COGS, payroll, rent, and overhead costs. However, non-operating costs, such as interest and investments, are excluded from an income statement.
An income statement reflects operating income after operating costs are deducted from revenue.
When accounting for depreciation, there are two types to look at:
a. Depreciation expense
A depreciation expense is a loss in value of fixed assets that companies record through depreciation. During the period you use an asset, its value decreases, and the price you originally paid for it is allocated over time.
An example would be a physical asset that loses value over time, such as a car or vehicle.
b. Accumulated depreciation
Accumulated depreciation refers to the accumulated depreciation charge a specific asset has taken as it wears down or becomes obsolete. Accumulated depreciation is shown on the balance sheet, unlike depreciation expenses reported on the income statement.
Personal and business expenses
Knowing the difference between personal and business expenses incurred is vital, especially with the UAE corporate tax law coming up. Business expenses can be used to lower a business's taxable income; however, personal expenses incurred are not considered deductible expenses.
So, what's the difference between personal and business expenses?
Personal expenses are purchases made for personal reasons and cannot be used as deductible expenses.
If you make a purchase for the business but add in an item for personal use, it is crucial to have two transactions to avoid mishaps coming your way. Having two receipts will help you record and store the receipt so the business expenses can be used as deductible expenses.
If you're making purchases that benefit the business, such as driving more revenue, they can be considered business expenses. When making business expenses, it's essential to keep a record of the purchase by storing the receipts. By doing so, you can use these business expenses to lower your tax liability by deducting the amount from your income.
Tax deductible expenses
We've reviewed personal expenses, the 3 types of business expenses, and what goes into P&L statements. But which of these are considered tax-deductible expenses? In a nutshell, all the above, other than personal expenses. Let's delve deeper into tax-deductible expenses.
Tax deductible expenses are business expenses that help businesses generate revenue. These expenses are deducted from the company's income before applying any taxes.
Examples of tax-deductible expenses:
- Administration fees
- Advertising and marketing
- Bank charges
- Legal fees
- Maintenance and repair
- Office expenses
- Office rent
- Travel and transportation
Non-deductible tax expenses
Non-deductible tax expenses cannot be deducted from a company's income.
In the UAE, there are 3 main categories for non-deductible tax expenses:
1. Related party payments from the mainland to a Free Zone Person
The related party payments made to a Free Zone Person that is taxed at 0% on receipt of the income will not be deductible for CT purposes. However, if the payment is attributed to a mainland branch of the Free Zone Person, the related party can claim a deduction.
2. Entertainment expenses
Because these types of expenses often also have a non-business or personal element, businesses can deduct up to 50% of the expense incurred to entertain customers, shareholders, suppliers, and other business partners.
3. Other expenses
No deduction will be allowed for certain specific other expenses, such as
- Administrative penalties
- Recoverable VAT
- Donations paid to an organization that is not an approved charity or public benefit organization.
How to keep track of business expenses
To maintain your business, it's important to track your business expenses. There are several ways to track business expenses; however, you will need to establish a system to account for costs and accurately manage your business.
Here are 6 steps to keep track of your business expenses:
1. Open a business bank account
A business bank account should be completely separate from your personal checking account and must only be used for business expenses/purposes. This will help you manage your business expenses easily and give you eligibility for business credit cards or, even better, Pluto corporate cards.
2. Select an accounting system
If you haven't chosen an accounting system yet, choosing one that's appropriate for your business is vital. Some businesses opt for spreadsheet software, such as Microsoft Excel; however, to simplify the accounting process, we recommend going for accounting software that will automate the process for you.
3. Choose cash or accrual accounting
Choosing cash or accrual accounting typically depends on the size of your business.
Small businesses can use cash accounting and record transactions when they happen, as volumes are small.
For bigger businesses, accrual accounting is essential, as they have high volumes of transactions. With accrual accounting, only the product sold is recorded, rather than payment received for the product. Similarly, an expense is recorded when a bill is received rather than when an invoice is paid.
4. Store receipts
Storing receipts is essential, as they are proof of business expenses made. You can store receipts by scanning them, taking photos, and keeping digital copies.
5. Regularly manage and record expenses
It's important to track spending and categorize them accordingly. Examine every transaction to compare these business expenses to your revenue.
6. Consider subscribing to an expense software
For some businesses, it is worth looking into expense management software to automate the process of tracking, managing, and recording expenses.
Tracking business expenses with Pluto
If you choose to go for an expense management software, it will help you automate the tracking, managing, and recording of expenses. But Pluto's expense management software offers more than just tracking, managing, and recording your business expenses.
Pluto will keep detailed records of all your expenses, reduce your taxable income, and help you if you are audited or need to reconcile accounts.
With Pluto, you'll be able to do the following:
- Upload your receipt through Whatsapp or the Pluto app as soon as a business expense is made
- Store all digital receipts on Pluto's software
Record business expenses
- All transactions are recorded on the software automatically when using Pluto corporate cards
- Petty cash is automated, meaning expenses are recorded on the spot
- If an expense is made using an employee's personal card, the expense is recorded automatically as soon as they file for a reimbursement
Track business expenses
- All business expenses made by employees can be tracked through Pluto's dashboard
- Daily, weekly, or monthly expense reports are available in real-time
- Pluto integrates with all major accounting platforms
- All expenses recorded are auto-categorized through Pluto's AI technology
- Pluto categories are synced to your GL codes
Create tax codes
- Create and activate tax codes that sync with your accounting platform to mark expenses as tax deductible or not
Business expense FAQs
More often than not, business expenses have many different rules. Here are the commonly asked questions about business expenses:
How do I categorize expenses?
Most accounting software already has business categories incorporated in the software, so you can use them and amend them as needed.
Pluto's expense management software allows integrations with significant accounting platforms and automatically syncs to your GL codes and chart of accounts.
Do fuel costs count as business expenses?
If the fuel cost was made for business purposes, such as travel for a client meeting, then yes, it is counted as a business expense and can be considered tax deductible.
However, driving to and from work is rarely considered a business expense.
Can business expenses be carried forward?
The UAE corporate tax law details report still hasn't come out yet. We will update this question once the Federal Tax Authority shares more details in the UAE.
Is personal expenses tax deductible?
No. Personal expenses are not tax deductible.
Is my rent deductible if I am self-employed and my home is my office?
In some cases, yes, it is possible if you are self-employed, but only a certain percentage of your rent will be considered a business expense, for example, 25% of your rent.
Modern finance teams save time & money with Pluto.
Get started today.
Join 2000+ finance professionals keeping up to date with the latest news & releases.
© Pluto Card is a Pluto Financial Services Inc. company 2023
The product and services mentioned on this webpage belong to Pluto Technologies Ltd (Pluto), a company incorporated under the laws of Dubai International Financial Centre (DIFC), Dubai holding commercial license number CL5294. Pluto is a financial technology provider and not a bank. Pluto provides certain facilities for the utilization of payment services through Nymcard Payment Services LLC under the applicable payment network and Bank Identification Number Sponsorship of Mashreq Bank PSC. This is pursuant to the license by Visa® Inc and is available for the residents of UAE subject to Terms and Conditions of use