Plastic is becoming the new paper. In the last year, credit cards have become the most preferred payment form in the United States. With the increased acceptance of non-cash or check payments in addition to the costs of cutting and mailing a check, companies are turning to credit cards for daily business needs. The cost of cutting a payable check can be between $3-$4 based on 2015 numbers (higher than that now in 2017). Multiple that cost by the number of checks a business cuts per month and that cost can be very surprising. Companies that are starting to understand this cost and are looking for ways to reduce it. One option is using company credit cards, which can lower payable’s costs along with providing other benefits such as maximizing cash flow, earning rebates and incentives and taking advantage of other “soft” perks like airline miles, extended warranties, and fraud protection.
There are many types of cards out there: small business cards, corporate cards and virtual cards. Each comes with its own parameters, benefits and risks. Every company has specific and unique needs and preferences that need to be considered when selecting the card type. Some businesses will use a variety of card types.
Paying invoices with a credit card allows companies to pay vendors on time without the immediate cash flow outlay as the cash doesn’t leave the business until the credit card balance is paid. It can actually allow a company to increase their working capital without straining business relationships.
There are risks that come with these programs that can be controlled with proper financial controls in place. Some examples of controls to be put in place are: limiting Merchant Category Codes (MCC’s) on certain users cards, setting balance limits by user and role, requiring expense reports submitted to manager for review and approval, have users sign a waiver detailing personal liability on unauthorized purchases and having a formal audit schedule in place to review transactions and receipts.
Every business must consider its company needs, risk tolerances and other factors when deciding to use company credit cards. However, it is becoming a more and more common practice that each company should take a look at as to how it currently handles payables and if there might be a different solution for them.