It’s no secret: with good management, credit can be your best friend when it comes to building a business. Where it gets tricky for most of us is passing the responsibility on to employees. On the one hand, it’s convenient: just charge everything and pay one bill at the end of the month. On the other, you risk paying for your employees’ every whim, from luxury office chairs down to the last after-dinner mint. This may be part of the reason corporate credit in Australia isn’t as widespread as it should be: managing cash flow from so many different channels is too much for a small business.
Trust is earned
Business credit cards should never be construed as rewards. Although they are, in a way—they do require a certain spot up the corporate ladder—you must make clear to the cardholder that it’s not a blank cheque. The reward, if any, is convenience: they don’t have to shell out from their own pockets and wait to be reimbursed. Are they capable of making key financial decisions?
Hold back the card until you can answer ‘yes’ without question, says Charles Tran, a credit card researcher.
Watch the big guns
Bosses tend to trust employees in higher positions. That’s normal—they’ve been with the company long enough to earn their way up. But two things: that’s not fair to lower-level employees, as they are in effect labelled unreliable and subjected to more checks, and it gives the higher-ups a heightened sense of security. In other words, senior employees can (and do) get away with more corporate credit card abuse than their subordinates.
Case in point: A former CEO at Sydney Ferries is under investigation for charging over $200,000 in personal expenses — including his children’s school fees, mortgage payments, and theatre tickets—to company credit cards. Similar cases handled by WISE, a workplace investigation firm, involved a senior member in a New South Wales government office and a senior manager who had charged everything from meals and groceries to his family’s toiletries to his corporate account.
MasterCard and Visa use Merchant Category Codes (MCCs) to classify businesses according to the type of services or products they offer. In the US, its main purpose is to help identify which business expenses are tax-deductible, but it’s also a good way to look at employees’ spending patterns: how much are they spending on office supplies and work-related services in proportion to food, travel, and other ‘perks’?
Gary Holdsworth of the National Australia Bank’s Transaction Services suggests using MCCs to limit the types of establishments where a corporate credit card can be used. A business analyst may reasonably shop at a bookstore or subscribe to academic journals, but has no business swiping the card at a toy store. However, if you’re a supplier for a school or daycare center, that option may be open to you. Nightclubs and casinos are easily out of the question.
When you start issuing employee credit cards, make the policies known to the whole staff, even those who aren’t getting one (yet). Make it clear that you value transparency, and set your own example. If possible, set up a open reporting system where all employees’ expense reports are available for everyone, including your own. This will encourage your team to spend responsibly and keep those in higher positions from abusing their seniority.
Lay down guidelines for what constitutes ‘reasonable spending.’ Each company is free to set its own rules, but it may help to check out similar policies in other organisations. Most Australian universities and government offices publish the rules online so employees can check it out anytime—this can be a good idea, in addition to giving each cardholder a hard copy.
WISE offers a quick guide to knowing whether an expense is reasonable:
- Did the expense help you perform a task that’s in your job description?
- Was the expense incurred while you were on official business?
- Was it incurred in conjunction with your job?
- What is your position in the company? (Often, the higher up you are, the more important it is to show good judgment.)
Sometimes exceptional circumstances may require an employee to break some of these rules, so a bit of flexibility won’t hurt. According to WISE, an overarching question should precede over the rest: Given the circumstances, was the use of the card fair? If you trust both your employee’s judgment and your own, you should be able to gauge every situation with a fair eye.