Credit cards are in common use by individuals but the concept of business credit cards is relatively new. Nevertheless, their use is growing as companies realise the benefits they can bring.
Small Business Credit Cards
Business credit cards can be extremely useful when they're issued to employees who make purchases and spend money on the company's behalf. Typical examples are sales representatives who are buying business lunches, spending nights in hotels and refuelling their cars as they travel the motorways.
The previous system used to be that employees spent their own money and then claimed it back through an expense form. Regular spenders were often given a float that had to be frequently topped up as they spent it. Business credit cards do away with the need for this system since employees who have them are simply putting all their spending on the company's account.
By issuing business credit cards to employees who need them, companies simplify the administration of expenses. Instead of receiving several expense claim forms each week or month, they get a single credit card statement that is itemised and anlysed. There's only one payment to make, saving the cost of administering a petty cash system, and there's an interest free period before payment is due.
Business credit cards can make things easier, help cash flow and are relatively secure. When cash is tight, there's always the option of spreading repayments. This can act as a short-term business loan without the formality, although interest rates are relatively high.
Issuing business credit cards to employees can be seen as sign of trust, improving staff loyalty. However, as with any credit card spending, it needs to be controlled to prevent it getting out of hand. Statements need to be rigorously checked to ensure all spending is proper and authorised. Inappropriate spending has to be stopped quickly, with cards withdrawn when necessary.
If widespread misuse of business credit cards occurs, alternatives may be sought. You may have to go back to the old expenses system or use prepaid cards that have set limits for corporate purchases. Business credit cards may have other advantages, such as travel insurance benefits, protection against identity theft and discounts on purchases. Many will have an annual fee, which offsets benefits to some degree.
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