How The Subscription Boom Can Detail Expense Management

Employee fraud is a monumental issue, especially for small businesses (SMBs) without resources to track every penny workers spend. But that fraud is only part of the problem stemming from a lack of visibility into corporate spend. In addition to employee expenses, another key challenge for companies is the money they spend, and sometimes waste, on subscription services.

In the quest to grab greater control over and visibility into company spend, Alex Bean, co-founder and COO of expense management company Divvy, said strategies must be proactive, not reactive.

“Other solutions are spend money first, ask for forgiveness later,” he recently told PYMNTS. “The accountants are waiting for receipts to come in at the end of the month; they have to chase them down and react to expenses coming in.”

“That’s all exacerbated by people using their own personal cards [for company expenses],” he continued. “Companies have no control over the purchase, no view of what’s happening.”

This creates an environment in which employee fraud can thrive. Research from Statistic Brain released earlier this year calculated employee theft amounts to about $50 billion stolen from small businesses every year, with 75 percent of employees having reportedly stolen at least once from their employer. Separate research from Hiscox found businesses of all sizes lost an average of $1.13 million each from employee theft last year alone.

Interestingly, Bean told PYMNTS that most corporate controllers are actually more concerned about reconciling than they are about accounting for every dollar of employee spend.

“They’re just trying to close at the end of the month so they can move to the next one,” he explained. “Because of that, there is a fair amount of fraud.”

Making the problem worse is that there is a disconnect between departments, Bean added.

“Accounting doesn’t actually know how much sales should be spending on a service, just a ballpark,” he said.

The vast majority of fraud is unmalicious, the executive added, meaning that while a few instances involve employees intentionally manipulating data on an expense report, most of the time fraud involves a worker unknowingly spending more than he or she should.

That’s a scenario where the “proactive versus reactive” strategy is critical, Bean noted. Expense management solutions may provide visibility into company spend, but it’s often after the fact. Solutions that aim to be proactive often involve a prepaid card, but Bean argues that this tool can be a burden on managers to issue cash upfront without knowing exactly how much an employee will need.

Divvy, which Bean said considers itself a platform company, recently partnered with WEX to integrate commercial card products into its offering. The solutions, which include physical and virtual cards, operate on credit, not on loaded prepaid cards.

“When someone needs something, they would text their manager on something like a Venmo platform, and when it’s approved, the funds are immediately there, Bean explained, adding that credit models allow employees to make purchases in real time, instead of having to wait for money to transfer into accounts.

The SaaS Dilemma

Making sure employees have the funds they need right away is only one piece of the puzzle. According to Bean, corporate payments to subscription services have also become an increasingly difficult hurdle to overcome, and credit card services — especially virtual cards — offer a unique solution.

Subscriptions and SaaS are booming in the enterprise. IDC analysts estimate corporate spend on SaaS apps will hit $50.8 billion by next year, a 13 percent increase from 2013. That’s a lot of money businesses are spending, and not all of that is adequately tracked.

According to Bean, businesses have between 40 and 60 subscription services on average. Often, a company will use one commercial card across all of these platforms.

“You’re exposing yourself to a lot of fraud by linking these cards to all of these vendors,” he said. Virtual cards offer companies the ability to set a limit on recurring spend, while data from those transactions lands on the Divvy platform, making it easy for managers to cancel subscriptions or to catch a SaaS vendor’s overcharge.

“If they try to charge more, we’ll block the transaction,” he said.

Physical cards also lead to card-sharing, making it more difficult to understand who paid for what.

“When you do that, you’re saying, ‘Other people have my card, and we don’t know who’s making the purchase,’” Bean said. “When all of the vendors have access to the same card, you look at the transactions that come through and, if you’re lucky, you catch any overspend. Then you have to call that vendor.”

In addition to combatting fraud and waste from subscription services, Bean said virtual cards address another major pain point for companies: having to replace lost or stolen physical cards and then re-key that card data into those 40 or so subscription services.

Virtual credit cards can address many of these pain points, while the Divvy platform enables quick cancelation of subscriptions that businesses no longer want to pay for — a key feature, especially if one employee sets up a company account then leaves the firm, rendering the rest of the company unable to log in to the former employee’s account to cancel a service.

According to Bean, the feature that enables management of subscription services has been one of the most popular for Divvy.

“We have one client who had three instances of fraud in four months; they had to completely eliminate their cards and reorder a new set and go to 30 or 40 vendors and give them the new card — and then it happened all over again,” said Bean. “People are desperately trying to get this under control.”