Navigating through the financial intricacies in today’s business environment is undoubtedly a challenging task for entrepreneurs. Since agility and precision are paramount to maintaining an upward trajectory of success, organizations want to find ways to gain greater control over their finances while fortifying their financial infrastructure.
One strategy that remains at the forefront for achieving financial milestones within the companies is implementing a well-structured corporate card policy. In this blog post, we will get acquainted with some nitty and gritty details about the reasons why these policies matter so much and what factors we should consider while formulating one for any organization.
Why do we need a corporate card policy in the first place?
A set of protocols is always necessary for any professional activity to take place within the boundaries of guidelines and regulations, and the same goes for the usage of corporate cards as well. A set of predefined rules governing the productive and lawful use of credit cards issued by business organizations to their respective employees is known as corporate card policy, and it should be well conveyed to avoid future conflict and anomalies. The card is issued specifically for business-related activities only, and the employee-card holders should adhere to this policy, which states clear outlines of responsibilities and expectations concerning both the parties (issuer and cardholders).
What are the key components that should be included while documenting this policy?
- Define the application process: Employees should be well-versed in terms of furnishing the appropriate information while applying for a corporate card, be it documentation required or a series of steps involved for gaining approval for the same.
- State the eligibility criteria: It should illustrate the pointers that specify who is eligible for a corporate card, which basically depends on the designation of employees, their frequent need to travel, and their day-to-day assigned activities.
- Set the boundaries & categories: Setting the spending limits on different categories helps to curb unauthorized transactions to a large extent. Cards are issued generally for any or all of these categories, such as travel, lodging, meals, transportation, entertainment, etc. A well-defined policy will set the maximum limit for these transactions so that employees use it with accountability in mind. This part of the policy should also delineate the categories of expenses that are eligible for reimbursements, and it should clearly state the card expenses that are not allowed under any category.
- Cardholder responsibilities should be explained in detail: Employees need to have a crystal clear understanding of their responsibilities and limitations concerning card usage. The guidelines should be followed for tracking expenses, adhering to spending limits, and submitting the expense reports promptly.
- Security & non-compliance clause: Robust security is paramount for a safe and secure transaction. Employees must be informed about the steps they need to take in case of theft, misplacement, or any fraudulent activity conducted through their cards. Organizations under which the cards are issued must also be aware of the ways to settle outstanding balances in case of a sudden departure of employees. Repercussions should be stated under the non-compliance clause for any violation of guidelines like exceeding the spending limits or using the cards for personal needs.
What are the risks organizations are vulnerable to if they don’t implement a stringent card usage policy? There are many, but let’s have a rundown of a few of them:
- The complexity of corporate card accounting: Managing card transactions for corporate cards is a tough cookie to crack with a seamless approach to expense tracking, reporting, and reconciliation. If the card policy is well-defined and paired with a synchronized system for tracking, reporting, and reconciling transactions, the employees are also trained enough to use the cards responsibly. Therefore, the complexity of financial management and accounting is reduced to a large extent.
- Vigilance against interest rates and fees: Interest rates are a necessary evil associated with the use of credit cards. For the corporate industry, it is crucial to keep a check on it before it affects the overall financial health. There are two types of fees, particularly, which businesses need to be aware of annual fees and transaction fees, before deciding on any corporate card for their organizations.
- Mitigating security risks: Data security concern is something that most organizations prioritize to excel in; therefore, clear guidelines and straightforward policies are a must to ensure that privacy is maintained and data breach is avoided completely. Implementing strong controls, monitoring systems, and educating employees are other measures to be adapted to mitigate risks, along with stating the laws governing the usage of corporate cards.
It requires due diligence and an in-depth understanding of a particular business model and the work segregation among employees to document a credit card policy. There are multiple options when it comes to corporate cards, such as smart cards and virtual cards, which can be used by businesses to ace financial management.