DON’T GIVE YOUR EMPLOYEES COMPANY CREDIT CARDS UNTIL YOU READ THIS

Managing the books is often one of the biggest headaches for small-business owners. When employees make purchases on behalf of the company — either with their own money with the intention of being reimbursed or with company money in the form of a check or credit card — managing the expenses becomes even more complicated. That’s why some companies opt to issue company credit cards to their employees, but unless the cards are well managed, they could spell disaster for your bottom line.

Before you order company cards to your employees, keep some of these important factors in mind.

The Benefits of Company Cards

There is no denying that giving employees their own credit cards for business use can bring big benefits to your company. For example:

  • Multiple Authorized Users Equals Bigger Rewards. Most business credit cards are tied to some sort of rewards program, earning you cash back, airline miles, or other perks. The more people who are using the cards to make purchases, the more credit card rewards you can earn.
  • Easier Accounting. When employees use a company credit card, producing expense reports is significantly easier. All they need to do is submit the receipts for the purchases on the card, eliminating the paperwork that’s often a part of reimbursement requests. Also, it’s easier for the accounts payable department to pay a single credit card bill at the end of the month than to cut multiple checks.
  • Happier Employees. When employees have to use their own money for business trips, entertaining employees, or other work-related purchases, it can cause strain on their personal finances. Younger employees especially may not have the funds available to cover a lavish dinner with clients or even a few nights in hotel for a convention, so giving them a company card can take some of the stress away.
  • When you need supplies, or just want to buy lunch for your team, an employee with a company credit card can easily run out and pick it up, saving time and hassle.

The Drawbacks to Employee Credit Cards

While giving your employees cards has some benefits, there are also some significant drawbacks.

  • When an employee is using the company dime, there’s always the chance that he or she will spend more than usual. For example, an employee wouldn’t dream of upgrading a personal flight might not hesitate to purchase an upgrade to business or first class when their employer is paying for it.
  • Fraud potential. There is always a chance that your employees will use their company cards for personal purposes, believing that they will go unnoticed. Often they do, given that fraudulent charges account for about 14 percent of all corporate credit card purchases.
  • Client chargebacks. In some companies, certain charges, like travel or supplies, need to be charged back to certain clients. When all of the charges made with several cards are linked to one account, determining who owes what can be a challenge. This eliminates some of the benefits of easier expense reporting.

Making the Decision

So how do you decide whether to give your employees credit cards? If your employees rarely need to make purchases for your company, then you probably don’t need the hassles of managing multiple authorized users. If your team regularly travels, entertains clients, or has to make purchases on your company’s behalf, then company cards can be beneficial — especially when you take steps to avoid the drawbacks. These include:

  • Strict policies regarding how the cards can be used. Limits on transaction types and amounts, restrictions on travel (i.e., employees can only travel coach class and stay in hotels from approved lists) can keep expenses in check.
  • Regular monitoring. Even if you trust your employees, you still need to monitor their expenditures. As a matter of policy, check employee card accounts every few weeks to identify potential problems before they drive costs up.
  • Strictly prohibit personal purchases of any kind, and establish clear consequences for doing so.
  • Establish reporting protocols. While you may not need official “expense reports,” employees should still retain receipts and be prepared to explain all purchases made on the card.

Some companies opt to only issue cards to certain employees, such as managers, to keep the expenses and management of the cards simple. Other companies opt to issue prepaid cards for those employees who must travel, eliminating the need to use personal cards. Regardless, no matter how you decide to handle the employee credit card question, expect that you may have some bumps in the road and need to revise policies as you go.

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