Corporate credit cards can increase internal controls, reduce finance and administration time, and provide extended credit terms and cash flow benefits. Tony Markwell reports.
Without corporate credit cards, growing businesses can face numerous problems, from growth in staff numbers including extra human resources requirements and working capital needs. An area often overlooked is the extra demand placed on cash flow for purposes such as paying creditors and other suppliers.
Overlooking this can lead to a breakdown in internal controls, excessive expenditure and, of course, unauthorised expenditure. In addition, the high volume of small expenses can drive up the cost of doing business with more demands being placed on the finance department to cope with the extra volume.
Any business that has a high volume of expenses with many different suppliers, which is normally the case with travel and entertainment expenses, should investigate different ways to manage their expenditure. Processing numerous expense payments through a traditional accounts-payable process can be very labour intensive and time consuming. It can also be difficult to apply firm policy regarding expenses. A credit card program can help to automate this process significantly and also provide additional controls for expense approval. Reducing processing should also lead to cost savings for the business.
Use your credit card program to enforce company guidelines around credit card use. These programs are most effective when cards are issued to all employees authorised to incur expenses on behalf of the business. This will ensure compliance with the policies for spending in general, provided the appropriate controls and polices (which need to be enforced) are in place.
The main risks of a corporate credit card system are unauthorised spending and credit card fraud. To reduce these risks the credit card program must be a robust software solution, which not only manages the cards but also enforces strong company policies around use.
Some credit card providers allow a joint and severable card program under which a breach by an employee allows the card provider to hold the employee liable for the expense, not the company.
Check the card program’s policy around fraudulent transaction. Companies considering implementing a card program are advised to do due diligence on the card provider’s policy regarding fraudulent transactions. Questions such as ‘will they credit the amount immediately on a dispute until the matter is resolved?’ need to be addressed at the start. Failure to resolve these issues could bring the entire program to a halt.
Specific Card Limits
Consider card limits and categories of spend. Some card providers allow the company to specify both, and some operate on a closed loop with the merchant and can therefore allow companies to determine specific card parameters, such as restricting a card to be used with a specific supplier only.
Traditional card products are limited in this area because they operate on an open loop system with other banks, and don’t provide sufficient data to restrict card usage at such a granular level. They can only restrict use at a supplier category level.
Automated software solutions and online systems offer many advantages. Accounting for the transactions is best done through an automatic interface with the businesses’ general ledger program. Good software solutions incorporate policy and rules to determine the correct coding, and remove user discretion for coding. This eliminates the potential for miscoding, or even worse, discretionary coding.
Online systems (where web technology automatically provides near live transactions to the business) are ideal as users can code transactions from anywhere in the world over the internet. Systems such as these also allow travelling employees’ expenditure to be monitored daily. A good system should have robust approval steps and should provide integration with accounts payable, ERP (Enterprise Resource Planning), and payroll systems.
The software system should also adhere to strict accounting rules for GST and FBT, which will provide additional time/cost savings and ensure a higher level of accuracy and compliance with tax law.
Some card providers’ statements are valid tax invoices for GST purposes, even if a receipt is not available (other than for mixed supply items). Companies should do due diligence in this area and ask the card provider for a copy of their tax office ruling. A business with many employees should enjoy cost savings with reduced accounting and processing if the correct system is implemented, plus cash flow benefits, with up to 50 days payment terms with certain card providers.
Not all card providers are the same and care needs to be taken to choose the provider with the trading terms that suit your business. Some card providers require collateral such as director guarantees and charge over assets from the company or directors. Others don’t, and this should also be taken into account in choosing the right provider.
* Tony Markwell works in business advisory services at Grant Thornton Brisbane (http://www.grantthornton.com.au).
