Credit cards have a reputation for helping businesses establish and build credit, but they’ve recently evolved into a much more powerful tool because of the benefits that can be derived from their role in money management.
Purchasing has been made more convenient with credit cards, especially with the increase in online spending, something that is difficult or impossible to do with cash or check. They’re also being used more as a way for businesses to better control accounts payable, synthesizing payments through one statement instead of having multiple bills with different due dates from many vendors.
Rewards programs that offer perks for purchases that companies will make regardless of the method of payment has added another dimension to the usefulness of credit cards.
Smart Business spoke with Deborah Julian, senior vice president and regional manager at U.S. Bank, to learn more about the evolution of credit cards as a purchasing medium for businesses.
Why use a credit card to manage cash?
Credit cards are a preferred, secure method of payment for many vendors, and they represent a much more timely form of payment than a check or cash.
From a money management perspective, credit card statements offer great detail — categorizing purchases and tracking more closely where money was spent and by whom. This can go a long way to managing where funds are going within a company and to helping a company get a focused perspective on its spending habits.
What does a company credit card allow a company to do that it otherwise can’t?
Company credit cards allow a business to implement greater efficiencies and help improve time management. Companies using cards get very detailed purchase statements that can flow directly into accounting software applications, such as QuickBooks, and then translate easily, and often automatically, into quarterly or annual statements. Purchases made through other methods require more manual reporting methods to track spending.
Reward programs that offer cash or credits that help offset travel expenses can be earned from making purchases with credit cards. These programs are becoming a much more desirable feature of company credit cards.
How does a company qualify for a card?
It depends on size of the company, its ownership and the spending limit requested. Other factors considered are sales, time in business, and depending on type of business and how the ownership is structured, a credit card may be attached to someone’s personal credit in addition to the business’s credit.
What controls should be in place to head off any potential misuse?
Companies can specify how cards are used and by whom, and can also set card-specific purchasing limits.
It’s important that only authorized users are given access to a card. In years past, a company would get a card and make it available to anyone in the company who needed to make a purchase. A better way is to authorize individual spending by assigning cards to specific employees, then it can be known who made the purchases. It keeps things very tight. Typically, a company’s decision-maker sets that access as well as the spending limit.
Controls can be further implemented on spending habits by designating the type of merchant and locations at which money can be spent. For example, an organization that has drivers who needed credit cards for gas purchases can install controls that limit the type of merchant at which drivers can make purchases.
As a safeguard, there is daily, weekly and monthly reporting available that allows a business to manage its spending further. It’s a good idea to have two people looking at who is authorizing spending and reviewing card statements to stay on top of card usage.
Many businesses are unaware of all the benefits, safeguards and perks that can be made available to them through a company credit card. Spend time with your business banker to discuss your options. These conversations can help your banker understand your needs and find a solution that fits your situation.
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