The warning comes from Godfrey Davis Contract Hire (GDCH) executives who say working out what drivers are entitled to is one of the main challenges of introducing such a scheme.
Sean Bingham, director of new business for GDCH, warned that many employers were getting their sums wrong.
He said: 'A common approach taken by employers is to fix the cash offering according to allocation bands and to use the average lease rental for that band to establish the cost of running a similar size and specification car, for example setting the cash alternative for a Ford Mondeo or Vauxhall Vectra at £400 a month – a fairly typical cost for that type of car – and offering all such drivers that amount.'
However, he adds, this formula does not take into account different mileage patterns.
'What this basic equation misses is that within this band of drivers some, the low-mileage ones, are only costing the company £300 a month to provide a car, while for others, the high-mileage ones, the true cost of running their cars could be £500. 'Offer £400 a month and low-mileage drivers will become immediate converts to the cause, middle-mileage drivers could swing in either direction and high-mileage drivers, if thinking straight, will firmly reject the idea, electing to remain with the company car.'
Bingham added: 'The result is that whereas previously the cost spread was between £300 and £500, and averaged £400, under the new game plan – with the low mileage drivers having jumped ship – the cost spread for company cars is £400 to £500, and averages £450.
'The bottom line is that the employer has overpaid one group of drivers, the cash converts, and the average cost of those remaining within the car scheme has risen – in other words the company has lost on both ends of the deal.'
Bingham also says there are a number of other factors that employers must take into account when formulating a cash scheme.
He said: 'Even once the bottom line has been successfully established there are a host of other, non-financial, influences.
'For example, is there a desire or need to exercise some form of 'remote control', to make certain drivers select only appropriate vehicles? How can it be ensured that vehicles are maintained to corporate standards and that corners are not dangerously cut?'
He also warns of drivers not having the right business insurance but stresses that offering a cash option to drivers is part and parcel of a contemporary fleet policy.