Popular finance personalities like to instill fear around credit cards with sayings like:

  • “Cut up the card!”
  • “Credit cards saddle you with high-interest debt!”
  • “You spend more when you use a card.”

While credit cards do carry some amounts of risk, finding ways to mitigate that risk and utilize credit cards can provide many benefits for your business. These benefits range from improving efficiencies of processes with employee credit cards to providing additional float for cash flow or rewards for expenses you already incur. Mitigating risks with proper controls, oversight, and financial planning will be critical to fully utilizing credit cards as a tool for your business rather than a crutch.

Tool, not Crutch

The best tool in a toolbox is one that can be used for many different purposes. Credit cards can be your multipurpose tool by:

  • Helping extend payables’ terms for cash flow
  • Providing a purchase discount through rewards for expenses you normally and necessarily incur
  • Reducing the number of steps in your processes

While credit cards can be a tool, it’s essential not to let it become a crutch. Credit cards can become a crutch when they are used for problems they aren’t meant to resolve. For example, if your collections process is the issue in your cash flow, using a credit card to extend terms won’t provide a long-term solution. This can put you and your business in a risky financial position, so it is imperative that proper controls and oversight are in place to prevent these risks.

Employee Cards

Empowering employees by giving them company credit cards can sometimes provide more benefits than the associated drawbacks. Credit card companies and other software providers continuously develop solutions to ease pain businesses experience from having employee credit cards to provide benefits of these cards.

Some of these solutions include:

  • Streamlining operations by allowing point of sale capabilities
  • Eliminating employee reimbursements, which
    • Keeps the rewards in the business
    • Prevents employees from having to front expenses on their own dime
  • Communicating trust in employees and promoting engagement

If your business would benefit from employees having company credit cards, it requires having adequate planning and oversight to reap the rewards.

Implement Controls and Oversight

Proper controls and oversight will act as the framework to prevent overspending, fraudulent use, and paying high interest rates. These will look different for each business based on its industry, workforce, and specific needs.

Examples of good controls include:

  • Utilize a receipt capture software with review and approval documentation
  • Have spending limits for employee cards and review spending habits periodically
  • Reconcile and monitor credit card activity at least monthly

Most finance personalities conclude that it’s best to avoid credit cards altogether. However, this conclusion removes the tool from your toolbox and forfeits substantial benefits available from using credit cards with proper controls and oversight. Consider how you could harness these substantial benefits by utilizing credit cards while maintaining control within your business.

Paul Fienup, CPA and Manager at TDT, discusses how to keep control when using credit cards. With many years of experience, Paul specializes in helping business owners produce and understand accurate financials, identify process improvements, and make decisions from relevant data. Paul is a member of the American Institute of Certified Public Accountants and the Iowa Society of CPAs and serves both small and mid-sized businesses for TDT.