“Oops! I accidentally purchased my family’s new goldendoodle on the company credit card. Her name is Luna…she was $5,000. I’m sorry!”
As a business owner, have you ever heard a statement like this before?
If you issue business credit cards to your employees, chances are a mistaken personal expense might show up on your credit card statement every now and again. Some business cards look very similar to personal credit cards, so it can be an innocent mistake.
Even so, it’s a mistake that can cause problems for your business. You now have to spend time and resources to get reimbursed from Luna’s new owner… who also just quit. If you have a cash flow problem and can’t pay off the extra charge at the end of the month, you are now paying interest on an expensive designer dog without the joy of shed-free snuggles.
Will you get your money back? The harsh reality is that you might not.
If you are struggling with tracking credit card expenses or are concerned about inappropriate use, you need a company policy to keep your monthly statements free from accidental goldendoodles and extra lunches here and there. Below, you’ll find a starter list for a company credit card policy.
If you need more specific advice, I’m happy to be your credit card policy police. I’ll take a look at your current policy and procedures to determine where new or adjusted guidelines need to be put into place to keep your credit cards – and credit score – safe from inappropriate activity.
Is your personal financial credit score tied to your business credit?
Yes, the business owner’s personal credit can be pulled in order to establish a business line of credit. This is because your business does not yet have a credit score. That also means that if your accounting department makes a late payment, it can affect your personal credit score. Book a meeting with me to learn how you can begin to build your business’s credit score to detach it from you personally.
Pro tip: Always pay off the full balance of your credit card bill every month. Interest rates are high and you don’t want to get stuck with bad debt.
What should be included in a company credit card policy?
A company credit card policy outlines the rules and guidelines for using corporate credit cards issued to employees. When creating a policy, there are several foundational questions to ask:
Question 1: How many people in the company should have a credit card? It’s common for business owners to give credit cards to every employee, but my expert financial advice is don’t do it. If an employee isn’t regularly spending money, they don’t need a card. If it is less than 5 times a year, they can pay with their personal credit card and then request reimbursement for the one-off times they need something. Be sure to have them submit itemized, original receipts within 45 days of the purchase to avoid inappropriate use and duplicate reimbursement requests.
Employees who should have credit cards are those who travel regularly or are responsible for ordering/purchasing on behalf of your company.
Pro Tip: Anything that is software related (AKA a recurring charge) should be associated with the owner’s business credit card. Employees come and go and it’s a hassle to move account information to another person when someone leaves.
Question 2: What size credit limit do you need? You can (and should!) create separate credit card limits for each employee who holds a card. To calculate what that limit should be, calculate the maximum spending they should have per quarter, then round up slightly so they have some wiggle room. For example, if they travel, add together the average amount they spend per quarter on hotels, food, rental cars, flights, etc. Then round up – that number should be their credit limit.
Pro tip: Beware of fees from vendors if the card is declined due to the limit being reached. Make sure your credit limit is reasonable for what your employees realistically need.
Question 3: What controls should be in place to ensure employees are buying only necessary expenses? Every expense charged to the credit card needs an original, itemized receipt turned in. This proves proper business use because they won’t be able to sneak unauthorized purchases under the radar. For example, did they buy a hoagie and coke when they filled up the company car with gas?
If a personal expense does get charged (awww, what a cute Goldendoodle you (don’t) have!), what is the company policy to handle it? Perhaps you institute a “three strikes” rule: if an employee charges an inappropriate expense three times, their credit card is revoked. To get the money back, you may have the option to deduct the expense from the employee’s paycheck, but this is regulated at the state level. Check your state’s law for specifics.
Pro tip: Your credit card policy needs to be crystal clear regarding what is an appropriate use of the card and what isn’t. No to goldendoodles; yes to filling the company car with gas (but not personal cars!!).
How can I ensure my company’s credit card policy is protecting my business?
You probably already have a business credit card. Are you employing best practices for business use? There are risks with issuing credit cards to employees. Personal use causes accounting messiness and you may have difficulty getting paid back if an employee quits before reimbursing you. Contact me to review your current policy, procedures, and credit card usage for deeper insight into how you can protect your business from credit card misuse.
