A dedicated business credit card offers you financial perks and flexibility in spending. If you have a few key employees who make regular purchases, it may make sense to issue them cards as well.
Handled correctly, employee credit cards can simplify the reimbursement process and reduce administrative hassles. However, if you don’t take a few basic precautions, employee credit cards can encourage bad spending habits, theft, or fraud.
Pro: Less Stress for Employees
It can be a burden for employees, especially those with modest salaries, to make big-ticket purchases for work on their own cards and wait for reimbursement. By assigning these folks a corporate credit card, you avoid putting them in a difficult financial situation. It can also be time-consuming for employees to save receipts and fill out reimbursement forms. They’ll be grateful to let the credit card company handle the paperwork.
Pro: Shorter Processing Time
In addition to eating up the employee’s time, expense reports take time for the accounting staff to process. Reviewing credit card statements and paying all credit card bills online at once can be much faster and more efficient than cutting individual checks. If your bank account is linked to with your accounting software, you can also save data entry time by downloading and importing the credit card transactions.
Pro: Additional Card Benefits
Just like consumer credit cards, business credit cards offer perks and rewards. Some of the best small business credit cards offer 1 to 5 percent cash back along with cash bonuses. Others allow cardholders to add employees to the account for no extra fee. More employee cardholders mean more perks for your company. “Businesses can rack up numerous rewards that apply to the main account holder, saving the business hundreds of dollars each year, depending on purchasing needs,” explains Chris Mettler, CEO and founder of CompareCards.com.
Pro: Track and Control Spending
Compared to traditional expense reports, employee credit cards offer business owners real-time information. Mettler notes, “Employee-issued credit cards give business owners incredible control over their employees’ expenditures,” says Mettler. “Most — if not all — business credit cards come with tools to monitor, track, and set limitations on spending.” These tools give you the ability to check expense levels mid-month and prevent inappropriate charges before they are made.
Con: Personal Expenses on the Company Card
If you give a credit card to a key employee, you must trust them. Unfortunately, fraud can and does happen. According to the Association of Certified Fraud Examiners’ latest study [PDF], illegitimate expenses make up around 14 percent of asset misappropriation fraud and cause a median loss of $30,000. “Employees may be inclined to put personal purchases on [a company] card. If you aren’t monitoring those purchases closely, they may go unnoticed,” warns Mettler.
To mitigate this risk, corporate credit card providers like MasterCard allow you to set purchase maximums and limit spending to certain approved categories. Still, smart employees can game the system, and even small personal purchases can add up over time.
Con: Bad Spending Habits
Even if employees don’t use company cards for personal purchases, your bill may be bigger with a corporate credit card. Credit cards are designed to make it easy for the users to spend money. Simply having the card could make an employee more apt to book a five-star hotel or splurge on a pricier client lunch. Avoid unnecessary expenses by including a detailed list of appropriate expenses — including airfare class, hotel ratings, limits on restaurant gratuities, and other meal guidelines — in your expense account policy.
Con: Credit Card Theft
Handing out credit cards increases the risk that a card could be physically stolen or information could be compromised. The Fair Credit Billing Act limits your liability for fraudulent purchases made on your card, but it can still be a hassle to get charges removed.
If you’re not quite ready to hand out employee credit cards, banks have other solutions that could work for you. If you have an office manager or administrative worker who makes routine online purchases for the business, MasterCard offers a virtual employee credit card that only works for certain for retailers and categories. The PEX Card also allows business owners to disburse and monitor prepaid business cards that don’t require a line of credit.