Small Business Tips
When Do Your Employees Need Business Credit Cards?
How much do you trust your employees? Assuming you’re in the position to ask that question, you have probably come to a point where you are growing too much to manage everything on your own. It is now time to hand off some of your decision-making to those you’ve hired to help you. Not just any decision making, though. We’re talking about spending power.
But it could also be a good thing and necessary to entrust your employees with such a responsibility. It all comes down to assessing the status of your company and situational details. Follow me down the rabbit hole and let’s see what there is to know about this complex issue of employees and business credit cards.
When to Give Employees Credit Cards?
If we want to go back to basics, there are three things that must come together before you give your employees access to the company credit line.
Your company needs to have grown to a point that you can cover significant risks if any employee abuses a card. That is, you should have consistent cash flow, which also requires accurate bookkeeping.
You need to have loyal employees that have proven themselves to be dedicated to your brand and that consistently do great work for you. They must have proven themselves to be great employees that push your business farther without you constantly leading them by the hand.
You must be in a position where departments or employees need such a spending power in order to improve business efficiencies. This need could come in multiple ways, which we’ll talk about in a moment.
For now, keep this formula in the back of your mind: growth + trust + need = reasonable grounds for an employee credit card.
What Constitutes a Need?
The definition of a need in this instance has many variables. The idea that you ever need to go into debt is commonly debated anyway, but when you’re running a business, there are several instances in which doing so seems to be justifiable. That said they still must be approached cautiously. In short, you may divide “need” in this instance into three categories:
- Project Spending
A “project” in this instance can be broadly defined. From marketing campaigns to specific research and sales collaboration to new resource purchases, all may be valid reasons to use a company credit card. However it should be affirmed that in the long run the profit increase made from each project will cover the cost of the project itself.
- Incentive Programs
Sometimes departments will create incentive programs to persuade their employees to work harder or accomplish certain things outside of their normal job descriptions. The incentive could also be considered a loyalty building tool. Incentive programs involve giving employees money to spend on things for themselves and other employees. In a way, they exist to make working more “fun” and so workers may get a little more out of their job than just a paycheck.
- Business Trips
When employees go on business trips – that is, they’re traveling for work – giving them a budget to cover their own expenses is reasonable grounds for entrusting them with a company credit card. This could cover rental cars, hotels, food, and similar expenses. But nothing must be taken for granted and the employees must be completely dependable. If they overspend, they need to be held accountable.
But wait, why wouldn’t you just pay for such things with your cash flow income, one may ask. The fact is, some businesses, particularly ones that provide services to other businesses (marketing firms, for instance) are often not paid on time by their clients. So credit cards come into play when it becomes necessary to pay for things with money a company is still waiting on, but is guaranteed to them. Also, building up credit is always good, not just on a personal level but a business level as well.
So What Are The Rules?
There are important stipulations you need to set involving the company credit card. For instance, what employees should be given such a responsibility? Tenure, productivity, and position should all be considered.
But also, there should be strict stipulations on what company credit cards may be used for. You may not want your managers taking the entire team out to a bar on the company dime, for instance. You need to consider this with how fast your company is growing and how much you can risk based on the other considerations given above.
So Should I Give Them The Credit Card Or Not?
Again, is your company growing enough to cover some debt you may accrue? Are your employees trustworthy? If you can handle the risk and you see it as a worthwhile investment, go for it. If you’re not sure still and think there’s a big possibility of a risk you can’t recover from, then don’t do it. Company credit, again, is a little bit of a risk. So don’t risk what you can’t afford to lose.
I’d love to hear your thoughts on this subject. Let me know in the comments below. Thanks!