A Start-up’s Guide to Setting Up a Corporate Credit Card Program
In business, credit cards can be a great convenient and, in some ways, essential to operations. They allow employees to make purchases quickly and easily without having to transport large quantities of cash; they also give companies access to statement information that can help them track expenses and keep better financial records. The right corporate credit card program can even serve as a reward or incentive for top performers.
However, when not managed appropriately, credit card programs can also become major liabilities for small business owners. This is especially true when it comes to managing the pursuit of individual rewards. For example, if you offer your employees rewards such as gift certificates for hitting sales targets or free trips based on merit, this could result in poor purchasing decisions and even embezzlement.
If you are considering establishing a business credit card program, here are five steps to take in order to set up your company’s system for success.
1) Decide on what kind of credit card program best suits your needs
First, decide whether the purchases made by employees will be for business or personal use. If you are not sure which is better suited for your small business, it is generally advisable that you err on the side of caution and limit travel reward credit cards to business-related expenses only. That way if there are any problems down the road it won’t matter as much–you’ll still have documentation of legitimate work-related expenditures.
2) Establish purchasing procedures
Your corporate credit card policy should clearly outline all aspects of the business credit card program. This includes such things as who is authorized to sign up for a card, what limits exist on purchases and cash advances, and how all transactions will be monitored and reconciled. Signing individuals should also know exactly what they can and cannot purchase with their cards; otherwise, you could face accusations of discrimination or harassment if an employee ever feels that his or her card has been restricted inappropriately.
3) Implement proper controls
For any company–small or large–managing debts and liabilities is one of the biggest challenges associated with issuing corporate credit cards to employees. If not managed well, these accounts can spiral out of control quickly resulting in late fees, interest charges, debt collection costs, decreased productivity from employees trying to pay down their balances, and, in some cases, bankruptcy.
One way of mitigating the potential risks associated with allowing employees to charge purchases is by implementing a credit card approval process that includes both subjective and objective elements. Subjective elements such as an individual’s track record (credit history) should be balanced against more objective information such as accounts payable data or consistent patterns of behavior on previous employee cards. This way you can get a sense for whether the applicant has handled credit responsibly in the past; it also gives you a better idea of how likely they are to run up debts on future cards–even if they have exceptional payment histories.
4) Establish fee structures for employee usage
Decide what arrangements will work best for your company when it comes to employees paying annual fees, interest charges, cash advance fees, and other finance-related expenses. If your employees are expected to pay all fees associated with their cards you may be able to set up arrangements that will allow them to retain a higher percentage of the rewards they accrue on card usage than if you were to charge them for part or all of these expenses.
5) Establish procedures for reporting lost or stolen cards
Making sure that every employee knows what procedures need to be followed when dealing with lost or stolen credit cards is just as important as making sure that each cardholder knows how he or she should use the card responsibly. Most importantly, employees should know how they’re supposed to report theft–and which steps need to be taken in order to ensure that the card can be canceled immediately.
If you follow these steps, your business should have a smooth-running corporate credit card program in place before you know it. And if any problems should ever arise, being prepared with documentation will help you to quickly resolve them without compromising the financial integrity of your company.
In business, credit cards can be a great convenient and, in some ways, essential to operations. They allow employees to make purchases quickly and easily without having to transport large quantities of cash; they also give companies access to statement information that can help them track expenses and keep better financial records. The right corporate…