Commercial credit card programs can help companies segregate business transactions from personal transactions as well as limit the financial risk for the business owner. They can also help a company build a credit history, in addition to providing other benefits.
“Commercial credit cards are commonly used for travel and entertainment expenses, but using them to pay vendors can also be very efficient and is actually the only method of payment where the vendor pays the transaction cost,” says Ashley Brunner, vice president and treasury management consultant at Bridge Bank.
Problems can arise when commercial credit cards are not used responsibly, so it’s critical that you have a plan for how the cards will be used in your company and who will be able to use them.
“You can have an administrator who has the authority to adjust card holder limits,” Brunner says. “That’s one way to ensure there isn’t any unauthorized spending within your organization.”
Smart Business spoke with Brunner about creating and maintaining an effective commercial credit card program.
What benefits does a commercial credit card program provide?
One of the most compelling reasons for a commercial credit card program is the ability for the finance department to turn a cost center into a profit center by earning rewards for your credit card purchases.
Commercial card issuers have become very creative in the types of rewards they now offer, and most offer travel, merchandise or cash back rewards. Some companies pool their reward points into a central account and then issue gifts such as iPads to employees at company events.
By using your credit card to pay vendors, you are also able to extend your working capital cycles. The expense is paid to the vendor right away, but the company’s payment to the card issuer is not due until up to 25 days later.
There is also a security component to using credit cards.
Studies show more fraud occurs when the company sends out its account information to vendors through check payments. With credit card payments, the company is keeping that information secure. Typically, the card issuer is diligent about monitoring card activity to try to prevent fraud.
Another added benefit is the integration of financial systems rather than having to manually key in each individual expense when employees use personal cards.
What features should a company consider when evaluating credit card programs?
You want to consider what fees (annual fee and APR) are associated with the cards, what credit limit you can obtain, whether you can manage all your cards centrally and how the card program integrates with other software platforms that your company is using.
If your company pays on time, APR will not be much of a concern. In fact, many card issuers provide the option to auto-pay, so the company will not even have to worry about paying on time. Some cards will allow the cardholders to make cash advances and to have central billing accounts.
If tracking spend by various organizations is important, you will want to select a card issuer who can set up an organizational hierarchy so your marketing expenses can be easily segregated from spending in other departments.
You may even be able to restrict certain types of expenses using merchant category codes.
In terms of systems integration, you will want to make sure your card issuer can send information directly to your expense management platform and also integrate with your accounting platform.
What else do you need to consider when evaluating credit card programs?
When starting a program, the company should ensure a corporate commercial credit card policy is drafted which outlines who should receive cards, what business purposes the cards should be used for and when cardholders will need to submit expenses.
If the credit card issuer has a central platform to manage all cards, the company will want to determine who should be the administrator to manage the issuance of cards and modify limits, as needed.
Internal controls are very important in this process. ●
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