BY DOUG AND POLLY WHITE Special correspondents
QUESTION: I’m thinking about getting company credit cards for my employees who routinely spend money on reimbursable items. Do you think this is a good idea?
ANSWER: Some companies issue company credit cards for employees to use for business expenses. The company expects that the employee will use the card only for legitimate expenses. The credit card bill comes to the company and is paid by the company, often without the employee ever seeing it.
In general, we find that company credit cards are more trouble than they’re worth, but there are pros and cons. Depending on the circumstances, issuing company credit cards may be justified. Consider two scenarios:
- Charges need to be assigned to specific accounts: If charges need to be assigned to specific accounts, company credit cards can be problematic. Consider a situation where the company can frequently pass through charges on the company credit card to clients. The employee will need to indicate which charge to allocate to which client.
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There are a number of ways to accomplish this but, in our experience, getting employees to provide this information in a timely manner can be challenging. Employees have other priorities and getting expense reports turned in on time is often not at the top of the list. Accounting cares about expense reports, but the employee’s boss may not.
This leaves accounting in the awkward position of having to chase employees to get the information it needs, costing the company time and money. Of course, you can resort to draconian measures. But firing an otherwise good employee for not turning in expense reports on time does not go a long way toward building a positive culture in the workplace.
A much more effective way to deal with the issue is to require employees to use their own credit cards for company expenses. Employees then turn into expense reports to receive reimbursement. This provides the incentive to submit expense reports in a timely manner. When this happens and the company reimburses quickly, the employee will receive his / her money before the credit card bill is due.
- Charges do not need to be assigned to specific accounts: In some cases, all charges from a particular employee may be assigned to the same account. There is no need for the employee to communicate which charges go where. In such situations, company credit cards are less problematic.
But in our experience, there can still be problems with employees charging things inappropriately. When confronted, employees will invariably say the charge was a mistake and perhaps it was. Fewer “mistakes” happen when employees are required to use their own cards and submit expense reports for reimbursement.
Ultimately, the risk of “mistakes” has to be balanced against the cost of dealing with expense reports. A company may well decide that its employees are trustworthy and that the cost of expense reports (ie, completing and processing them) greatly exceeds the risk of “mistakes.” In such circumstances, company credit cards may be warranted, particularly if the business generates a large volume of small charges.
But if you are going to issue company credit cards, spot-check the charges to make sure they are appropriate. Further, make sure that your employees know you’re doing that. If they believe their charges are never reviewed, at some point, they will be tempted to charge something inappropriately. Don’t put your employees in this situation. Remove temptation by letting them know that charges are monitored.
Doug and Polly White have a large ownership stake in Gather, a company that designs, builds and operates collaborative workspaces. Polly’s focus is on human resources, people management and human systems. Doug’s areas of expertise are business strategy, operations and finance.