Just like a personal user, a company has its own identity and legal status. Therefore, when applying for loans, banking facilities or other way of managing the cashflow it is the credit record of the business that the lender will assess.
But businesses also have to buy goods and services to survive and thrive. Whilst many of these will be on agreed terms of supply and paid for by cheque or bank transfer arrangements, more consumable items may require another form of quick payment.
Having a company credit card affords that option for staff and directors. A credit card has many advantages which can help improve the efficient running of the business and even save money.
Credit cards can be quicker, cheaper and easier to use than cheques. For example, a bank may charge you for every cheque you draw whereas a card company charges nothing for its use. They are also more widely acceptable and, depending upon the issuer, globally usable. Staff can use a company credit card without having to use their own cash and get reimbursed through an expenses system.
Most card providers also allow a generous 56 days of free credit. So provided the balance is paid by the due date the business can benefit from a significant free cashflow period.
Company credit cards can also be issued to individual users in the business thus allowing full expenditure tracking and monitoring. Each user can be assigned a different limit based on job need or function allowing the management to control expenditure. This can all help to reduce the administrative burden on a business and save time and effort.
But as will all good things there are also risks. Employees have access to company cash via their card and up to their assigned credit limit. Therefore the business is exposed up to and including the next statement date so trusted employees and a robust review process is required to reduce fraudulent spend. Potential employee fraud is the biggest single drawback associated with a company credit card but your provider should be able to provide tools and tips for how to minimise the chances of this happening.
Since the credit card also has a limit it can be tempting for the businesses itself to use this as an additional line of credit should things get tight in the main business. This is a useful facility to have and can increase financial flexibility but is not an ideal solution as a long term borrowing method.
Rates charged on debt balances left unpaid can be high compared to fixed rate business loans. Therefore whilst the flexibility and option is great to have in tough times a proper debt management plan using lower cost fixed rate financing is a better option.
Unlike buy to let mortgages, a company credit card has been around for a great many years and the benefits experienced by a large number of companies. Getting references from other users can allay fears about the downsides and highlight additional benefits that could accrue to your business.