The Drawbacks of Using Company Credit Cards for Corporate Purchases

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 a company credit card 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. 
  •             Financial Awareness: 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, at the moment, certain employees can (and will) throw caution to the wind, with unfettered access to company resources. 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. An employee tasked with transporting clients, or who has to travel, may decide to splurge on luxury vehicles rather than more practical options—without a system of controls installed. 
  •             Personal/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 TrackingThe last issue is a subtle one that is often overlooked. Although you might be able to control limits within a company credit card, it is hard to ensure that the purchases occurred on the card are within compliance. A popular way to mitigate this risk is by limiting the purchases within preferred and trusted suppliers, but even so, what if a sneaky employee decides to purchase an Amazon gift card for themselves when Amazon itself is a trusted vendor?

Streamlining The Process

Balancing the pros and the cons of a company credit card will help keep your business on the path of financial awareness and corporate efficiency. 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 financial responsibility training to educate employees on company expectations with regards to credit cards and its overall Spend Culture. Outline the limits and cutoffs that are imposed on certain expenses, and advocate for an overall conscientious effort at spending wisely and only in the best interest of the company.

  •             Approval Thresholds and Spend  Limits

You also have a duty as an employer, in conjunction with your card issuer, to install controls and spending limits on the cards, 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 can also reduce fraud and ensure that the goods purchased are trustworthy.

However, even with pre-approved cards, without a system of record to match the purchase to the amount, it is hard to track which purchases are compliant. It might be useful to think about implementing a spend tracking system for an extra level of spend visibility that tells the ‘story’ behind each purchase. 

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