Credit cards are popular for business transactions for their convenience and benefits. If your company relies on credit cards for business transactions, it is important to follow best practices to ensure the business uses credit responsibly.
Types of Cards
There are many options for the type of cards available for business transactions. The simplest is a Debit card that processes transactions directly in your bank account, much like a check, ACH or bill pay transaction. “Credit” cards can be either Charge cards, which often have no pre-set limit, but must be paid in full at the end of each billing cycle, or true “Credit” cards, which allow payment of less than the full balance each billing cycle, and charge interest or fees for the privilege.
In general, Debit cards allow for the flexibility of paying for goods and services at the point of purchase, but only if the money exists in the bank account. Charge cards are useful if a company’s cash flow is stable enough to ensure repayment in full, and credit cards can be helpful when cash flow is variable, as there are repayment options.
Benefits of Using Credit Cards
Many card programs allow rewards points or miles based on purchasing volume. It is a convenient and efficient way to pay for expenses and there are often purchase protection features and the ability to dispute a charge. There are also valuable summary reports that categorize spending for easy review.
Common Problems Companies May Have
- Sometimes purchases on credit cards are not timely entered in the financials – or at all!
- Furnishing a credit card number is very different than generating, signing and presenting a check or cash. Checkbooks are kept in a secure location, credit cards travel the world with employees and purchasing departments.
- The monthly statements show a mere summary of the charge, often cryptic numbers and letters. There is often a rush to input the data, so that a payment can be generated or the “books closed.” This can hide important vendor or expense details, as often charges are summarized to minimize data entry.
- Sometimes only the payment made to the credit card is entered, which is usually different than the charge activity.
- Finally, there can be unauthorized charges buried in the detail that is not entered.
Practices Signature Analytics Recommends to Clients
- Issue cards to individuals, rather than “sharing” the card numbers, this helps manage approvals and reduces unauthorized charges. If all of the cards can be managed on one bill that makes for easier management since there is just one payment to process,.
- Download transactions weekly from the card websites, and review/approve these, rather than wait for the statement to be generated. This also allows GL coding details to be added, as well as any potential client related data or pass through charges.
- Book expense details directly in the accounting system, this will help provide details for future financial analysis.
- Implement auto feeds of credit card transactions into the accounting system. This is a feature of many accounting programs, which downloads transaction details on regular basis, and allows the assignment of a vendor and GL account number without having to key in the data. Alternatively, some programs allow the importing of data that has been downloaded from the card issuer sites.
- Use cards issued in the name of the business, or if a personal card, use it only for business purchases. Mixing personal transactions on cards can be very difficult to account for.
- For purchases on employee’s personal cards, use expense management software that gets credit card data directly, and create approvals for the reimbursement of these expenses.
- Get cards from more than one issuer, as not all vendors take all brands of cards.
- Inquire of vendors if they have “purchasing” cards that work for only their locations, such as fuel cards. There are often additional reporting features available, such as the vehicle mileage that gets entered when purchased, so that miles per gallon can be monitored, discouraging unauthorized charge.
These are examples of best practices for managing company credit cards. It is an example of the approach we take with our clients to all accounting policies and procedures.
We Can Help
Contact us if your business needs assistance in creating and implementing procedures to best manage your company credit cards and expenses. Signature Analytics is an outsourced accounting firm providing ongoing accounting support and financial analysis to small and mid-size businesses. Our team of highly experienced accountants will act as your entire accounting department (CFO to staff accountant), or complement your internal staff, to provide the ongoing accounting and finance support necessary to effectively run your company, analyze operations, and guide business decisions.