As a startup founder, you may have a lot of expenses to manage and track. You may also need to provide your employees with a convenient way to pay for business-related purchases. That’s why many startups opt for using corporate credit cards, which are cards issued by a bank or a financial institution to a business entity.
The article discusses the dos and don’ts of corporate credit card usage for startups. It highlights the benefits of using corporate credit cards or credit cards for startups, such as improving cash flow, building business credit history, and simplifying expense reporting. However, it also emphasizes the importance of setting clear policies and guidelines for card usage, avoiding the mixing of personal and business expenses, monitoring card activity regularly, and understanding the terms and conditions of the card agreement. The article provides valuable insights for startup founders to effectively manage and maximize the benefits of corporate credit cards while avoiding potential risks and pitfalls.
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Corporate credit cards can offer many benefits for startups, such as:
- Improving cash flow and working capital
- Building business credit history and reputation
- Earning rewards and discounts on eligible purchases
- Simplifying expense reporting and accounting
- Enhancing security and fraud protection
However, corporate credit cards also come with some risks and responsibilities. If not used wisely, they can lead to overspending, debt accumulation, interest charges, fees, penalties, and even legal troubles. Therefore, it’s important to follow some best practices when using corporate credit cards for your startup. Here are some dos and don’ts to keep in mind.
Do: Set clear policies and guidelines for card usage
Before you issue corporate credit cards to your employees, you should establish a written policy that outlines the rules and expectations for card usage. The policy should cover topics such as:
- Who is eligible to receive a card and what are the spending limits
- What types of purchases are allowed and what are prohibited
- How to submit receipts and expense reports
- How to handle disputes, errors, or fraud cases
- What are the consequences of violating the policy or misusing the card
You should also provide regular training and reminders to your employees on how to use the card properly and responsibly. Make sure they understand the benefits and risks of using the card, as well as their roles and obligations.
Don’t: Mix personal and business expenses
One of the biggest mistakes you can make with corporate credit cards is to use them for personal expenses. This can create confusion, errors, and tax issues for your startup. It can also damage your business credit score and reputation, as well as expose you to legal liabilities.
To avoid this problem, you should keep your personal and business expenses separate. Use your personal credit card or cash for personal purchases, and use your corporate credit card only for business-related expenses. If you accidentally use the wrong card, make sure to reimburse the appropriate account as soon as possible.
Do: Monitor and review card activity regularly
To ensure that your corporate credit cards are used appropriately and efficiently, you should monitor and review the card activity regularly. You can use online tools or apps provided by your card issuer to track the transactions, balances, payments, fees, and rewards of each card. You can also set up alerts or notifications to inform you of any unusual or suspicious activity.
You should also review the expense reports submitted by your employees and compare them with the receipts and statements. Look for any errors, discrepancies, or violations of the policy. If you find any issues, address them promptly and take corrective actions if needed.
Don’t: Ignore the terms and conditions of the card agreement
When you apply for a corporate credit card, you will receive a card agreement that specifies the terms and conditions of using the card. This includes information such as:
- The interest rate and how it is calculated
- The grace period and the minimum payment due date
- The fees and penalties for late payments, missed payments, over-the-limit charges, cash advances, foreign transactions, etc.
- The rewards program and how to redeem the points or cash back
- The liability protection and dispute resolution procedures
You should read and understand the card agreement carefully before you sign it. You should also keep a copy of it for future reference. If you have any questions or concerns about the agreement, contact your card issuer for clarification.
Take Home Message!
- Corporate credit cards benefit startups by improving cash flow, building credit history, and offering rewards.
- Clear policies should be established, outlining eligibility, spending limits, allowed purchases, and consequences for misuse.
- Keep personal and business expenses separate to avoid confusion, errors, and tax issues.
- Regularly monitor and review card activity to ensure proper usage.
- Understand and adhere to the terms and conditions of the card agreement, including interest rates, fees, and penalties.
- Provide employee training on responsible card usage.
