It's hard to relinquish control especially when it comes to cash flow and expenses. Instead of dealing with paperwork and doing all the purchases, employees having credit cards may mean more time for you to focus on growing your business.
Here are some points to consider when deciding to give credit cards to employees.
Create a policy. Before handing out credit cards, document the do's and don'ts for credit card use. Make sure you include no using it for personal purchases. If you don't want them buying alcohol at a dinner for a client, state it. Otherwise, they assume expensed meals include food and all drinks.
You can create an agreement for employees to sign stating they read and understand the rules. This is documented proof the employee knows the rules and can't use "I didn't know that" as an excuse. What happens when an employee abuses the credit card? Add your answer to this question.
You may need to create specific ones for individuals. For example, one employee pays for the inventory. For that employee, you'd say the credit card would be used on inventory only and has a limit of $X. Furthermore, all other expenses would require approval from a designated manager who can approve and deny requests.
Document procedures. Since purchasing and reimbursement can become unwieldy, it helps to create and document a process. Include a deadline for employees to turn in receipts. Better yet, have your accountant or an outside auditing firm review it to find any potential holes. After using the process for a while, keep checking it to ensure the enforcement of the rules and process.
Review past expenses. This helps you determine who might need a credit card, what spending limits to put in place and see how often they might use it. Most credit card companies allow you to impose spending limits on a per card basis and provide reports sorted by cardholder. They also can alert you when any unusual spending occurs.
Look at purchase frequency. Look at how often employees make purchases. The employee that travels occasionally with no other expenses may not need a company credit card. With many business cards having an annual or other fees, it'd be wasteful to give one to an employee who won't use it much. Besides, credit card companies could close credit cards that go unused for a long time and this could hurt the credit score.
Train employees. Some people feel overwhelmed when completing the reimbursement paperwork or expense report. Stave off potential problems and errors by training employees on reimbursement and expense reporting procedures. Document the procedures and post it online for easy access. Let them know someone will review all statements and receipts.
Also, use this opportunity to review their responsibilities for carrying a credit card. Remind them it's a privilege, not a right. After all, they can finally make business purchases without using their personal credit card -- something some dislike doing.
It's also smart to train, or at least meet with the designated approvers, to ensure they know the rules. You don't want them just signing off on anything that sounds business-related. Remember, they probably have a lot of paperwork and documents to review. Sometimes they may not pay attention to what they sign.
Decide name issuance. You can issue business credit cards in the name of the company, the owner's name or the employee's name. The advantage of going with the employee's name is that if the employee abuses the credit card, it reflects on the employee's credit not the company's or the owner's. This sounds like the way to go, but the downside is that it requires keeping detailed records.
Review all statements and receipts. First, trust no one. Search the Internet for horror stories involving trusted, long-time employees who abuse company credit cards. Everyone's purchases must undergo review and reconciliation period.
What advice do you have for small business owners considering employee credit cards? What other points should they think about?