If you are like many small business owners, as your business grows, you may consider whether or not it is a good idea to issue employee credit cards. They certainly have advantages, like simplifying your accounting and earning rewards for your company, however there are disadvantages, too.
If an employee goes rogue with a credit card, often times the business owner has limited recourse. There are so-called “Misuse Protection” insurance policies which can be purchased to reduce that risk, but those can be expensive. Many times it just makes more sense for the employee to use their personal card and submit the statement with receipts for reimbursement.
Pros and Cons of Employee Credit Cards
Managing Employee Expenses
When it comes to purchases, credit cards are convenient, especially for those who travel for business. Using a card means you no longer have to make cash advances or issue checks and reimbursement credits.
Itemized credit card statements can be a valuable tool to help with tracking employee purchases. Most major issuers such as Chase, American Express, Citi, and Capital One will allow you to track and organize spending by employee and expense category, which helps to simplify bookkeeping.
Credit Card Rewards
Rewards can be beneficial both to your business and to your employees.
For example, the Delta American Express offers in-flight benefits and rewards for businesses. Cardholders are entitled to a fee waiver on their first checked bag, which will save the company $50 per roundtrip. If you issue cards to employees, then all of their purchases will be earning Delta SkyMiles for the company.
On the other hand, some employees prefer using their own cards because they want the miles for themselves. A few people I know have the personal version of the Venture card and use it for their work expenses. At the end of the month they submit the receipts and get reimbursed 100%. However, the double miles they earned from Capital One are theirs to keep.
Foster Employee Loyalty
Let’s be honest. Money is one of the most effective tools for demonstrating to an employee that they are trusted. Because of its importance, making employees authorized users on the company card can foster loyalty to the company, which in turn can increase productivity and profit.
How To Handle The Disadvantages?
Issuing employee credit cards is not without risk. Abuse is common. If you decide you are going to use them, it’s best to establish guidelines and limits to protect your interests. These guidelines should be in writing.
Not everyone at your business needs a company credit card, so determine which employees you will consider first. That may include a credit check on each employee under consideration. Because if they’re not handling their personal credit responsibly, chances are they’re treat your business credit the same way.
Access to Credit Cards
One easy way to protect your business is to limit access to the credit cards for specific purposes.
For example, if an employee needs a credit card to travel two days out of the month, collect the credit card after the trip to reduce the chance of fraudulent purchases. Issue the credit card as needed and keep the card in your possession until it’s needed again.
Just like with personal cards, on an employee card the user can only spend up to whatever the credit limit is. You can establish the spending habits and needs of your employees and set the limits accordingly, which mitigates your exposure and risk and eliminates unauthorized shopping sprees.
Establish a set of rules that each cardholder will have to follow. A policy that outright prohibits using the account for personal purchases is a better fit for your business.
You also may want to establish a “preapproval process” for purchases, at least in the beginning. For example, during the first 3 months you could require all purchases to be preapproved by a manager. Alternately, if you want the employee to have more freedom, you can impose the rule on higher dollar purchases only.
Even after an employee has been using the card responsibly, make sure you continue to track their spending activity closely. If you don’t keep oversight in place, they might be more inclined to start bending the rules. Always keep an eye out for these 5 signs of fraud.
For most businesses, the advantages of issuing employee cards will outweigh the disadvantages, but that doesn’t mean you should run out and give platinum cards to everyone in the company. Start out small by only giving them to a couple employees. If all goes well and after you fine tune the rules, then you can begin using them more widely within the business.