The ins and outs of company credit card agreements – key things to know
Company credit card agreements – introductory information
A company credit card agreement is a written contract governing the use of credit cards by employees on behalf of the business. In many ways, it serves as the Terms & Conditions you agree to every time you activate a new personal card. Your company card plan should be in place before applying for or accepting a credit card. Although you can have both personal and company credit cards, there are advantages to using company credit cards for business purchases and travel .
A typical company credit card agreement might include some or all of the following parts: An introductory section explaining the purpose of the card plan, a list of who qualifies to receive cards, the process for receiving a card, examples of what is considered an acceptable purchase, examples of what is not allowed, the authority to make or approve purchases, where to request payment from the company, what steps to follow to file disputes with the card issuer, and what happens if the agreement is broken. Additional parts could include details on limits and how to get cash advances, who pays the bill, and the process to close a card account.
Key terms and conditions
Essential Terms and Conditions for Company Credit Card Agreements
Interest Rate. Interest is typically calculated on a "per billing cycle basis," meaning that there is a single APR that applies to the unpaid portion of your balance each month. A company may incur a higher interest rate for cash advances (as opposed to purchases for goods or services), and debit balances may accrue interest at a higher annual percentage rate. Companies should beware of introductory rates, because these lower rates usually apply only for an initial time period before the regular — and usually larger — margin rates kick in.
Fees for Use. Fees for using company cards are common. These fees might include finance charges, annual fees, and possibly one-time charges upon opening the credit card account. Companies should look closely at these charges in determining which card is best for the organization.
Payment Procedures. The cardholder’s obligations to the bank will vary depending on the terms of the agreement. It is standard practice to limit liability for unauthorized use of a company credit card if notice is timely provided to the bank. The responsible individual for each card should be aware of notice requirements under the program. These individuals should also be familiar with procedures for obtaining a replacement card: for a lost card, to dispute a charge, or to increase a credit limit.
Obligations of cardholders
Under the agreement, cardholders assume certain obligations. Among other things, cardholders agree to use the card for business purposes only and not for personal purchases. Cardholders are also responsible for paying the balance due on the statements generated each month, as long as the charges are not for prohibited personal expenses. There are document retention requirements that ask cardholders to retain all relevant receipts and invoices for proper accounting of each purchase made using the card. Cardholders must maintain their records in such a way that the amount and detail of each expense can be cross referenced with credit card statements. The agreement contains a number of additional requirements for cardholders in terms of usage of the credit card, restrictions on cardholders’ reporting and reimbursement of expenses and identification of approved users.
Company credit cards are provided to employees based on their work responsibilities and the types of expenses incurred in order to perform their jobs. Occasionally, the company will suspend credit cards when it appears that there is an issue with a cardholder’s payment history or the user has exceeded reasonable thresholds for legitimate expenses.
Company benefits and drawbacks
There are various reasons that a business would wish to obtain credit through a company credit card agreement. In evaluating the value of a company credit card agreement, a business must consider: whether it has sufficient credit currently, its ability to repay, the needs of its employees, whether it has too many credit cards currently, frequency with which it pays its bills and the amount it charges on credit cards. It should also look at its cash flow needs and other credit needs. Some of the advantages for businesses include: the simplicity of obtaining company credit, obtaining new or additional credit, the ease of use, the marketing aspect of credit, potential liability protection, the availability of cash in a crunch, the ability to charge for employees as well, the ability to set credit limits and individual employee cards, and the reporting features of some company cards. Some potential disadvantages are: the potential of incurring additional costs such as annual fees and late fees, interest charges, payment penalties, and overcharging employees, the effect of high interest rates on the company’s bottom line, concerns about budgetary restrictions, responsibility of potential theft and fraud, charges from uninterested third parties, and interest charged by the credit card issuer for employees who do not repay.
Legal risks and compliance
Compliance and other related issues arise for companies when entering into or exercising rights provided under company credit card agreements. Depending on the terms of these agreements and applicable law, all a company will need to do to exercise its rights in the event of an employee’s misconduct may be to provide the issuer with notice of the misconduct, along with the necessary paperwork evidencing the company’s right to act on the employee’s behalf. However, the company must also ensure that it has evidence that it had a continuing right to access the documents, which will allow it to maintain a better position before the issuers of its credit cards.
In most cases, company cardholders will be a single individual or department. In these situations, there is not a substantive analysis regarding whether a card issuer’s disclosure of a violation to company cardholders is a permissible disclosure of non-public personal information. Because of the specific circumstances of these targeted violations , it is usually understood that there is a real possibility of criminal activity behind these instances of misconduct. Many issuers permit disclosure of such violations under authorized department use agreements, but the credit card act does not mention this exception and issuers may not be permitted to disclose company cardholder violations under department use agreements even if the company has already consented to the disclosures.
With respect to cardholder employees, issuers’ records of cardholder’s misuse of company cards are called "investigatory records." The parties’ contract (along with the cardholder’s signature) and specific sworn testimony is usually sufficient evidence of misconduct to allow the card issuer to invoke the fraud exception as justification for sharing the company’s records of its employees’ misuse of the cards. Companies are required to keep confidential the names of the employees who have misused their company cards and their other identifying information under the fraud exception.
Negotiation techniques and best practices
When it comes to negotiating the best terms and conditions with a credit card company, here are some practical points for companies to consider:
Know what you want: Just like the bargain shopper goes through his or her closet to see what items could benefit a bit of sprucing up, a company should review its credit card use and see if it wants to prioritize the benefits it would like to get from a credit card as part of its company’s finances. This is not rocket science, but it is often forgotten in the negotiating mix.
Understand the real cost: Businesses don’t want to overspend in the current environment where cash flow and credit is still not in abundance. But, at the same time, companies that are spending money are being careful about the money they are borrowing. So a company should not only look at the amount it is going to spend on an annualized basis under the new credit card deal, but also calculate the potential cost and savings of upfront fees, interest rate chargebacks, non-usage fees, and other administrative fees. While other factors matter, sometimes this assessment is all it may take to make a decision.
Look at the bottom line: When the company and the vendor identify the best fit, it is time to find out if the best fit is ultimately going to be good for the bottom line. Are the reward programs going to allow the company to save more money than it otherwise would with a less expensive company credit card? What about the interest rates, deposits and other contact terms? Which elements may be negotiable and which ones are not? Being able to implement a cost-benefit analysis to determine which credit card company is the best sustainable fit for the organization’s business model is critical to making the right choice.
These are just a few of the ways that organizations can begin to assess their current company credit card usage to determine if their credit card spending is benefiting or increasing the bottom line. And, what many businesses may not know, there are some situations where companies can simply ask for certain credit card terms to be adjusted, and the card issuer will fit them into the mix without harming the cardholder or card owner for doing so. But, remember, this does not mean that all efforts will be successful, but what is there to lose?
Comparison with other card companies
In comparing offers, it is always best to look at your business spending and a rough estimate of what total spending will be, because a flat fee can result in larger savings for certain types of spend. If your business spends $15,000 a year, the difference between your choices could range from $750 to $1,500, which is substantial for certain business arrangements.
While it can be easy to be swayed by the items offered when signing the credit card agreement, these are often not the most important. The processing fee should be your primary concern because this is where you will find the most financial benefit. Some other key points are:
Like with many things in life, it comes down to volume of business. Newer businesses may not have sufficiently strong data to support one card over another. For newer businesses or businesses that do not expect significant drops in charges, a percentage discount may be the best option, but as your business continues to grow it becomes even more important to reassess your credit card agreements and determine if you must re-negotiate for a better deal.
There are many factors to keep in mind when comparing different credit card offers and agreements. You will want to consider factors such as fees, contractual terms and limits, rewards, penalties and maintenance fees. Take the time to honestly evaluate your business spending before finding the perfect Credit Card Agreement.
Periodic review of agreements
Most companies that issue company credit cards find they need to periodically review their credit card agreements to determine whether they should continue to use the same credit card issuer. Companies should also ensure they are still taking advantage of any arrangements with the credit card issuer that provide special incentives, such as a higher credit limit , lower fees or rebates based on level of spend. Annual business reviews with the credit card issuer can also provide a great opportunity for corporate travelers to meet with company representatives to discuss issues and trends in travelers’ experience with the card issuer. If problems with the credit card issuer are raised, timely intervention can help to improve or resolve the situation. Some card issuers may even review their policies with the company so that the card issuer can offer alternative solutions to resolve any problems that arise.