Sylvie Willis
Fuel cards are a cost-effective way for companies to manage their fuel expenses and are a good option for companies with a fleet of vehicles. They are similar to credit cards, but they are assigned to specific vehicles, making it easy to view a vehicle's fuel consumption. The cost of a fuel card depends on the provider and the type of card selected. Some fuel cards have various hidden fees, such as annual charges, network service fees, and replacement card fees, which can add up to extra costs for your business. Fuel card programs can offer discounts on fuel based on the amount purchased, and if carriers stay within a merchant network to purchase fuel, they are eligible for additional cost savings, rebates, and discounts.
| Characteristics | Values |
|---|---|
| Cost of a fuel card | Depends on the fuel card company and the type of card selected |
| Cost-based pricing | Based on wholesale fuel market prices |
| Retail fuel card pricing | Based on the listed price at the gas pump |
| Rebates | Provided by some fuel card companies |
| Mileage log | Required for IRS-compliant mileage tracking |
| Self-reporting | Can result in loss of control over costs |
| Company fuel policy | Required to govern fuel use and prevent overpayment |
| Monthly car allowance | Can result in tax waste eating up 30-40% of the allowance |
| Mileage reimbursement | Can result in over-reimbursement for high-mileage drivers |
| Minimum spend | Some cards require a minimum monthly spend or litres purchased |
| Hidden costs | May include credit check fees and other charges |
| Annual fees | Typically included for sole traders |
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What You'll Learn
Fuel card pricing models: retail vs. cost-based
The cost of a fuel card depends on the fuel card company and the type of card selected. Retail and cost-based pricing are the two most common fuel card pricing models.
Retail Fuel Card Pricing
Retail fuel card pricing is based on the price listed at the pump in a retail gas station. With this model, you pay the retail price and receive a rebate later based on the number of gallons purchased. The rebate is negotiated with the fuel card provider. The benefit of retail pricing is that you can choose the best price in the area. However, if drivers are not trained to choose the cheapest places, you could be losing money. Retail fuel cards are best suited for companies that operate nationwide, as they generate more savings with this model.
Cost-Based Fuel Card Pricing
With cost-based fuel card pricing, you do not pay the retail price. Instead, you pay a rack price based on the Oil Price Information Service (OPIS) nationwide index, plus state and federal taxes. A fixed fee is added, set independently of the station's pump price. Cost-based pricing is more advantageous in places like California or Hawaii, where the cost of transporting fuel to retailers is high. This model is also beneficial if you want to avoid drivers choosing locations, as two cardlock locations within the same area will have very similar pricing. However, cost-based pricing is less transparent, as it is unclear how OPIS index prices are set or why they change.
In addition to the pricing model, there are other factors to consider when choosing a fuel card. These include the fees and interest charged by the fuel card company, such as invoice fees, membership fees, account maintenance fees, card replacement fees, and transaction fees. It is also important to consider the purchasing limits offered by the card, as well as the ability to manage and track costs across drivers and vehicles.
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Cost-saving benefits
The cost of a fuel card depends on the fuel card company and the type of card selected. Retail fuel card pricing is based on the listed pump price, with a rebate issued later based on fuel volume. Cost-based pricing, on the other hand, is determined by OPIS.
Fuel cards offer several cost-saving benefits to businesses and drivers. Firstly, they provide valuable metrics, controls, and rewards that help improve profit margins. Businesses can set purchasing limits, manage and track costs across drivers and vehicles, and choose when and where drivers can buy fuel. This increased visibility into spending makes it easier to identify saving opportunities.
Fuel cards also offer fuel discounts, reward programs, and rebates, which can lead to significant savings, especially for large fleets. Some cards offer cashback, reward points, or benefits at gas stations and repair shops. Additionally, fuel cards streamline billing and expense tracking by consolidating fuel usage, transaction fees, and station locations into a single monthly invoice. This simplifies the reimbursement process and reduces administrative costs.
For businesses with extensive transportation needs and high fuel consumption, fuel cards can be a cost-effective solution. They provide access to fuel at participating stations, enhance security by eliminating the need for cash, and offer insights into driver behaviour and fleet management. Furthermore, fuel cards can be particularly advantageous in areas with high fuel prices, helping businesses and employees manage fuel costs more efficiently.
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Hidden fees
Fuel cards are an essential tool for businesses that manage vehicle fleets, efficiently handling fuel expenses and streamlining operations. However, the benefits of fuel cards often come with various fees, which can impact their overall cost-effectiveness.
- Inactivity fees: Charged when a fuel card is not used for a certain period, typically ranging from one to three months. This fee incentivizes regular card use but can be problematic for businesses with seasonal operations or fluctuating fuel needs.
- Minimum usage fees: Charged when a fuel card does not meet a specified minimum spending threshold within a billing cycle. This fee ensures the provider recoups some revenue even if the card is underused.
- Non-network fees: Charged when a fuel card is used at stations outside the provider's preferred network. These fees compensate for the higher costs of processing transactions at non-partner locations.
- Over-limit fees: Charged when transactions surpass the card's preset spending cap.
- Issuance fees: Charged for each new card issued, including when adding new cards to an existing account.
- Paper statement fees: While electronic statements are often free, some providers charge a fee for providing paper statements.
- Account setup fees: Charged when establishing a fuel card account, covering the administrative costs of setting up the account.
- Network service fees: Charged per transaction simply for using the card.
- Convenience charges: Charged at a rate per litre, excluding VAT.
- Annual card fees: Some providers charge an annual fee for plastic cards.
- Replacement card fees: Charged for issuing replacement cards.
- Customisation fees: Extra charges to have your company name printed on the card.
- Copy invoice fees: Charged for copy invoices requested by phone or email.
- Late payment fees: Charged when payments are not made on time.
- Account closure fees: Charged for closing your account.
- Administration fees: Charged as a percentage of the invoice value or a fixed fee per card per month.
To avoid paying hefty hidden fees, consider the following strategies:
- Read the fine print: Carefully review the terms and conditions of the fuel card agreement to identify potential hidden fees.
- Monitor usage: Regularly monitor fuel card usage to avoid inactivity, over-limit, and minimum usage fees.
- Timely payments: Ensure payments are made on time to avoid late fees.
- Opt for electronic statements: Choose electronic statements to avoid statement fees.
- Choose the right provider: Select a fuel card provider with a transparent fee structure and minimal hidden charges.
- Educate your team: Educating drivers and fleet managers on the proper use of fuel cards can reduce the frequency of fees related to card misuse or loss.
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Employee fraud and misuse
Fuel cards can be a convenient tool for fleet owners to save on gas and control company expenses. However, they can also be subject to employee fraud and misuse, which can result in significant financial losses and disrupt fleet management data. Here are some ways employees may misuse fuel cards:
Purchasing fuel that exceeds their vehicle's capacity
Employees may fill up their tanks during off-hours or buy more fuel than their vehicle's tank capacity, indicating possible fuel card fraud. This type of fraud can lead to significant financial losses for businesses and disrupt their fleet management data.
Using fuel cards for personal vehicles
Employees may misuse their access to business fuel cards by fuelling their personal vehicles. While the deception might seem minimal per transaction, it can substantially increase the company's fuel costs over time.
Buying non-fuel items
Employees may take advantage of the fact that fuel cards are often valid in fuel station convenience stores and use them to purchase personal items like snacks, automotive supplies, or even cigarettes. This form of fraud raises the company's expenses and broadens the scope of fraud beyond just fuel.
Siphoning fuel for personal use or resale
In bolder cases of fraud, employees may fill up the company vehicle and then siphon some of the fuel into personal containers for their own use or to sell for a profit.
Sharing cards or PINs
Card or PIN sharing can make it challenging to track who made which purchases, potentially hiding signs of misuse or fraud.
To prevent employee fraud and misuse, it is essential to have strong internal controls, regular transaction monitoring, robust training programs for employees, and telematics tracking technology. Additionally, reviewing fuel purchases regularly, collecting and cross-referencing fuel receipts with card statements, and staying up-to-date with security tools can help detect and prevent fraudulent activities.
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Company car allowance vs. fuel card
A company car allowance is a monthly stipend given to employees who use their personal vehicles for work. It is simple to implement and easy to keep track of, as all driving employees receive the same amount. However, it does not account for the fluctuating price of gas, geographical location, or the mileage travelled by each employee. This can result in companies overpaying or underpaying their employees, leading to wasted spend and compliance issues. Car allowance programs are also costly from a tax standpoint, as the IRS considers these lump-sum payments additional income, subject to both FICA tax and income tax.
A fuel card, on the other hand, is a gas card provided by the company to employees who drive for work. It allows employees to pay for gas without using personal funds. Fuel cards are typically used for company cars, where the organization provides the car and covers all costs. They can also be used for employees driving their personal vehicles for work, especially in areas with high gas prices or broad territories. Fuel cards enable companies to set their own purchasing limits, manage and track costs across drivers and vehicles, and choose when and where their drivers can purchase fuel.
The cost of a fuel card depends on the provider and the type of card selected. Retail fuel card pricing is based on the price listed at the gas pump, with a rebate provided later based on the amount of gas purchased. Cost-based pricing, on the other hand, is based on the price determined by OPIS rather than the full retail price.
Combining a car allowance with a fuel card can lead to greater issues. Fuel cards make it difficult for employers to track specific usage, leading to potential overspending and tax considerations that are not favourable. However, some sources argue that a fuel card can be a good addition to a car allowance program when employees feel that the allowance does not fully cover their vehicle expenses.
Overall, both company car allowances and fuel cards have their advantages and disadvantages. Company car allowances are simple and easy to manage, but they may not adequately cover the cost of driving for work and can result in tax burdens for both employers and employees. Fuel cards provide employees with a convenient way to pay for gas, but they can be difficult to manage and may lead to overspending. The best option for a company will depend on their unique needs and circumstances.
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Frequently asked questions
The cost of a company fuel card depends on the provider and the type of card selected. Some providers charge annual membership fees, which can be up to £40 per card, per employee. There may also be additional network service fees of around £3 per transaction. Other providers, like fuelGenie, do not charge any fees for normal business use.
Company fuel cards can help businesses save money on fuel. They can also simplify paperwork and expense management, as well as provide more convenience for employees. Additionally, fuel cards can be used to track fuel purchases in real time and set spending limits.
Company fuel cards may not be cost-effective for fleets that purchase less than a thousand gallons of fuel per month. They may also not be suitable for employees who use their personal vehicles for work, as the company has no control over the fuel efficiency of these vehicles.
