Employee credit cards make life easier for you and your accounting department as long as you take certain precautions.
As your business grows and your employees take on greater responsibility, it's more convenient to make them authorized users on your business credit than to reimburse their expenses. They can use their employee credit cards for business expenses, and you just pay the bill every month.
Wondering if giving your employees access to your credit line is worth it? There are several reasons you should consider it.
Benefits of making employees authorized users
Part of running a successful business is simplifying and streamlining as many tasks as possible. When your employees need to pay for business travel, supplies and other expenses, it's inefficient to reimburse them later. With employee credit cards, there's no unnecessary paperwork, and you avoid spending valuable time going over receipts.
By adding authorized users to your credit card account, you'll ensure that all their business expenses result in rewards or cash back for you. Those purchases will also qualify for any protections your credit card offers, such as rental car insurance and extended product warranties.
It will be much easier to analyze business spending if all your expenses are going on a business credit card, instead of having some expenses there and some on receipts your employees brought back. Business credit cards provide detailed expense reports that you can use to monitor where your money's going.
Controlling employee spending
There are risks involved in adding employees as authorized users on your credit card. Since it's your card, you will be 100 percent liable for any purchases they make, even if you didn't approve the purchases. If they run up a balance that pushes your credit utilization too high, it could have a negative effect on your business's credit score.
To limit your risk, you can put two safeguards in place: spending limits and account alerts.
Authorized user spending limits are uncommon with personal credit cards, but fortunately, they're a standard feature with business credit cards. These are hard limits that the cardholder can't exceed, so make sure you set each limit high enough that it doesn't inconvenience the cardholder.
Every card issuer allows you to customize your alert settings, including when they will send you alerts and your preferred method of communication (email or text message). You could set up alerts for every transaction, or only transactions exceeding a certain dollar amount. Text message alerts are the better option because it's less likely you'd miss one, but if you're receiving them too often, you may want to set them only for high-dollar transactions.
With a combination of spending limits and account alerts, authorized users pose a much smaller risk. You'll know about transactions right away, and in a worst-case scenario where an employee went on an unauthorized spending spree, the spending limit would prevent them from using all your available credit.
Avoiding additional annual fees
Although you're benefiting from employee credit cards, you probably don't want to spend much money on them. Here's the good news – many of the best small business credit cards let you add authorized users without paying anything extra.
Chase's business credit cards allow authorized users at no additional cost. This includes the Chase Ink Cash and the Chase Ink Preferred, two of its most popular business cards. Capital One is the same way with its business cards, including the Spark Cash and the Spark Miles. Citi doesn't charge for employee cards with its AAdvantage Platinum Select card.
The exception is American Express, which charges for authorized users on some of its business credit cards. You can get around this by selecting Amex cards that don't have annual fees for your employees, even if your Amex card does have an annual fee.
For example, if you have the Business Platinum Card, every employee Platinum Card costs $300. But Amex also lets you get your employees the Business Gold Card for $45 or the Business Green Card for free. They will have their standard benefits instead of your Platinum Card's benefits, but you'll still earn rewards on their spending.
Employee credit cards are useful, but every credit card tied to your account presents the additional risk of being lost, stolen or misused. Protect yourself by only issuing cards to employees who have track records of responsible behavior. Make sure you monitor their spending to watch for any issues and to verify that your business is staying under budget.