Managing Plastic: Company Credit Cards

September 2016

While most companies pay their employees electronically, when it comes to their own bills, many are still writing checks. Although personal credit cards are commonplace among American consumers, many companies strictly use credit cards for employee travel and entertainment expenses and do not take advantage of business credit cards to pay for things such as utilities and supplies and to settle accounts payable.

Corporate credit cards are a useful tool for companies both large and small and should be an important part of any cash management plan. Companies can simplify cash flow, lower costs, earn rewards and discounts from credit card companies, all the while protecting themselves through banks' strong security controls.

Both large and small can take advantage of corporate credit cards.

How do businesses pay their bills currently?

Checks are still the most common form of payment for bills. Some companies are hesitant to use company credit cards because they fear a loss of control over spending and/or they do not quite trust employees to carry company cards. A small number of small businesses actively use business credit cards as a primary form of payment while most still use checks. Today, however, companies are looking for efficient ways to spend and are expanding their use of credit cards. A recent MasterCard study reports that more than half of small businesses in the United States now use a credit card for financing but checks remain the leading payment method.

What are the benefits associated with a business credit card?

Business credit cards can drive automation and efficiency by simplifying the payment cycle and improving cash flow and forecasting. The use of business credit cards can also reduce the expenses incurred from paper.

Larger companies can integrate business credit card expense data into enterprise resource planning systems and use tools to analyze spending patterns. This information could identify key suppliers, thus creating an opportunity to negotiate better terms for high-volume purchases. Credit card companies also typically provide a year-end statement summary with transactions itemized.

Many credit card companies also offer rewards and rebates that can add up to meaningful savings and discounts on business services. Reward programs, specifically frequent flyer miles, have become a major factor in the decision of businesses to use credit cards. Other reasons included no annual fee, the ability to separate business and personal expenses, special discounts, rebates or cash back programs.

What are some other benefits?

Ease of use also wins over many companies. Credit cards are accepted worldwide and can be tied to automatic bill payments for utilities, subscriptions, and other business services. Goods can be delivered more quickly because payment is expedited, credit cards can help businesses maintain a clean divide between personal and business spending.

Business credit card use increases control, tracking and security of payments through zero liability policies, fraud protection services, extended warranties, travel assistance and 24/7 customer service, and programs can be tailored to set employee spending limits, vendor restrictions and other expense controls.

What should companies consider when choosing a credit card program?

Many credit card programs offer special benefits, including rewards tied to office business travel or rebates that help with business cash flow including special programs that make it easier to track expenses. It's important to match business needs with credit card features.

Here are the most common features and benefits to consider.

  • Expense tracking reports that are divided into categories make it easy to track spending and report expenses for taxes. This information can also be imported into your accounting and tax software.
  • Higher spending limits than a personal card can help with monthly cash flow.
  • Avoids co-mingling of personal and business transactions which otherwise can create potential tax and money management problems.
  • Multiple cards for employees with pre-set spending limits build business credibility and simplify expense tracking and travel reimbursement.
  • Having a card can build your business credit record and improve your profile when applying for loans and lines of credit.
  • Travel insurance and auto rental insurance may be available.
  • Special perks may offer airport lounge memberships, concierge services and other benefits.
  • Other benefits may include rewards programs, cash rebates, airline miles or discounts on travel.

What are some ways to effectively manage business credit cards?

Apply the same level of responsibility as the rest of your business to credit card management. For example, consider applying for business credit cards at your existing financial institution, which may aid with approval. Limit the number of types of cards, as card hopping can have a negative impact on your credit rating. Take advantage of the 21-day grace period on most business credit cards before paying. Save time by paying online. Don't use the cash advance feature that can lead to credit card fees and interest costs. Finally, pay on time to avoid late payments that result in fees and higher interest rates.

A comprehensive cash management strategy should integrate a business credit card program which can help save time, money, earn benefits and empower employees.