For business owners and managers who have employees in remote locations who are constantly on the move or need to incur expenses to ensure smooth business operations, issuing company credit cards seems like the right choice.
They eliminate the issue of red tape, where employees need to spend valuable time seeking approval before funds are approved, and then released. A company credit card streamlines business operations, but on the other hand, can lead to quite a few administrative and financial problems—for the business and employees alike.
Why use a company credit card?
Using company credit cards for purchases brings a lot of positives to a business looking to emphasize efficiency and expediency. The benefits are not limited to;
Efficiency on the go
The most obvious advantage of a company credit card is the freedom it gives employees to conduct company business without the handicap of bureaucracy. This allows your workers to make critical business transactions without needing overt micromanagement for approval and fund disbursement.
A level of checks and balances
Another positive of issuing company credit card is that these cards form a level of check and balances for employee spending. Theoretically knowing every expense is being monitored and track should lead to a noticeable drop in frivolous expenses in the name of running company errands.
A by-product of this company oversight is that employees tend to develop a conscious awareness of their Spend Culture; becoming more wary of what they classify as important expenses, and look to trim down costs incurred on business trips.
“[It is up to the] employees to take it upon themselves to spend and use their card with integrity, I think that is the biggest thing that happens when I would see card users in our company. It’s just making sure that you are using them properly.
But that [in itself] is a big challenge and I know it’s a big challenge with fast running companies is controlling the spending, keeping their internal controls in place and have it be efficient.”
– Lindsey Head, CFO, JPublic Relations
What’s Wrong With Giving Company Credit Cards to Your Team?
There are always two sides to a coin, and with a corporate credit card, things are no different. The issuance of a company credit card can lead to abuse by employees and even upper management staff. Having unfettered access to company resources is an offer to good to resist for certain individuals, even in the course of normal business activity.
The following rank highly amongst the demerits of a company-issued credit card;
Indulgent and excessive spending
Despite knowledge of administrative reckoning, certain employees can (and will) throw caution to the wind. Unless you have instituted a company-wide policy of accountability, excessive or maverick spending is a real risk when handing out company-backed credit cards. Without controls, a team member may splurge on a luxury vehicle, for example, rather than more practical options.
Personal and business overlap
Another major issue, probably the most recurrent, is the blurring of lines between personal and business expenses. The thought train of many employees with a company credit card is, might as well charge personal expenses to the company credit card, I’ll sort it out later. Quite a few fail to sort ‘it’ out, and for those who do, the mere fact that they attempted a fix after the fact should not distract from a gross abuse of company resources.
Lack of spend tracking
The last issue is a subtle one that is often overlooked. Although you can control limits within a company credit card, it’s hard to ensure that purchases are within compliance. A popular way to mitigate this risk is by limiting purchases to trusted suppliers only. However, a sneaky employee can still purchase a gift card for themselves from a trusted vendor like Amazon.
Streamlining the process
Balancing the pros and the cons of a company credit card will keep you financially aware and efficient. However, certain controls must be in place before adopting such a wide-reaching decision.
Here are a few to consider:
Compulsory financial awareness training
It is best to hold training to educate employees on company expectations. Outline the limits and cutoffs that are imposed on certain expenses. Also, advocate for spending that is in the best interest of the company.
Approval thresholds and spend limits
You also have a duty as an employer to install controls and spending limits to proactively deter against abuse. Installing a tiered system of spend limits, where longer tenured or trustworthy employees are able to spend higher, is a great start to controlling frivolous expenses.
Pre-approved cards and suppliers
Issuing pre-approved Cards, with the attendant creditworthiness check, helps weed out financially irresponsible employees, and ensures only the most astute and trustworthy workers have access to company reserves. Having a list of preferred suppliers that your employees can choose from also reduces fraud and ensures purchases are trustworthy.
Even with pre-approved cards, however, a system of record to match the purchase to the amount is hard to track. Instead, implement a spend tracking system for an extra level of spend visibility.