Corporate Credit Cards: Is the Cheque Dead?

How corporate credit cards have transformed businesses

By Aidan O’Keeffe

What can kill paperwork, give better controls, speed up purchasing and, best of all, save money? Corporate credit cards. The little piece of plastic has exploded across the business world in the last decade. So much so, that some wonder how long it will be until the humble printed cheque is extinct.

“Corporate credit card use has grown significantly over the last 10 years,” says Steve D’Alessandro, a certified general accountant, and vice-president, finance, CGA Ontario.

“More and more businesses have identified corporate credit cards as an opportunity to tap into efficiencies in payment administration, as well as affinity points which can take the form of discounts and which can be earned on a broader array of expenditures beyond what had previously been contained primarily to retail point-of-sale purchases.”

The numbers say it all. AlliedSignal, a US company, eliminated processing of more than 211,000 paper transactions in one year when it switched to a corporate credit card system in the 1990s. American Express helped a provincial government realize savings of between 6%-14% on travel costs by benchmarking their employee credit card expenses on hotels, air fare, car rentals and other costs.

Corporate credit cards are smarter, faster and more in tune with today’s wired business world than the humble printed cheque.
“A single payment in settlement of a corporate credit card account balance can replace several individual payments to several other vendors, by consolidating purchasing activity onto corporate credit cards,” says D’Alessandro.

“Cheque use is in long-term, terminal decline,” the Council said in its decision. The Board says business in the UK will save nearly a ₤1 billion by eliminating cheques by 2018.

“This, coupled with the transfer of routine payments for expenditures such as utilities, for example, means businesses can lower their cost base and administrative costs by transitioning as much volume as possible from cheque to corporate credit cards,” he adds.

Proving that the cheque is so much yesterday’s form of payment was the announcement that a date has been set for their demise in Britain. Last year, the 350th anniversary of the cheque, the UK Payments Council Board, which oversees how British consumers and businesses pay for what they need, set 2018 to close the UK’s central cheque clearing facility. The Netherlands and Sweden have already done the same.

“Cheque use is in long-term, terminal decline,” the Council said in its decision. The Board says business in the UK will save nearly a ₤1 billion by eliminating cheques by 2018.

Control challenges and meet them

Most experts agree the Internet will stimulate the use of corporate credit cards because it is the best payment method for e-procurement. Just as consumers can easily shop online with credit cards, the corporate credit card is the ideal choice for settling transactions on the Internet, the new highway for business.

Credit cards have more controls than cheques, but that doesn’t mean they can’t be the subject of fraud or misuse. The Canada Revenue Agency had egg on its face in 2008 when an audit showed that corporate credit cards issued to federal employees had been used to buy retirement gifts, flowers, greeting cards and even to make charitable donations. The 1,700 MasterCards in the audit were used to purchase more than $55 million of goods and services. But 10 per cent of the cards audited were held by ex-employees, and at least three of the rogue cards had been used to buy goods and services together worth just over $500. Another sampling of 128 credit-card purchases found “critical” problems with more than a quarter of them, including missing invoices and lack of approvals.

Another sampling of 128 credit-card purchases found “critical” problems with more than a quarter of them, including missing invoices and lack of approvals.

The US Federal Government was an early pioneer in the use of corporate credit cards, launching its first card for purchases under $25,000 in 1989. In 2000, the US Government spent $13 billion with the cards. More than 670,000 federal employees now carry them. That included at one time a contract specialist in the Office of the Secretary of Commerce, who used her government purchase card to buy approximately $50,000 worth of clothing, jewellery, electronic equipment, furniture, airline tickets, sporting event tickets, concert tickets, household supplies, and hotel accommodations. She was later convicted of fraud and sent to jail.

The way around most problems, experts say, is to have the right policies and training programs.

“A corporate credit card policy should clearly indicate the authority for issuance of cards, including identification of individuals who are entitled to use a card and what account limits are to be imposed for each, consistent with the financial governance structure within the organization, and the scope of approved expenditures eligible for payment via corporate credit card,” says D’Alessandro.

A study by the University of Tennessee found that successful programs have a significantly higher number and percentage of employees with cards. Card holders in these companies also use the card 40 per cent more frequently than those in unsuccessful programs. And successful programs provide solid training for their employees. Smart controls rather than draconian ones are what is required. The study found one major challenge was the need by some businesses to over-control the card and limit the number of card users. Essentially, concerns over the small-dollar purchases blinded some businesses to the opportunities that corporate credit cards represented.

The policy also states the obvious – card users must take appropriate security measures. That includes keeping the card in a secured location when not in use and only dealing with suppliers they can trust.

Experts say training for card users is essential. According to the Federal Government’s Treasury Board policies on credit card use training should cover areas such as responsibilities and obligations, protection of the card, procurement activities with an acquisition card, the payment process, reconciliation and accounting requirements.

The policy also states the obvious – card users must take appropriate security measures. That includes keeping the card in a secured location when not in use and only dealing with suppliers they can trust.

There are other challenges with the new plastic world of business purchasing. First, there is still some reluctance to use cards over cheques, a mindset leftover from the pre-Internet era. A survey done for Purchasing Magazine in 2001 found twenty-eight percent of the purchasing managers surveyed doubted that they will be using the card more then they were now. Some still preferred to use purchase orders. Only half of those said their companies adopted purchasing card programs to cut costs, and most of those who did adopt purchasing card programs did not believe it helped them save money.

The second challenge is that not all suppliers are ready for the new order of things. Enabling businesses, especially small businesses, to be more corporate credit card friendly can’t be done overnight.

Likely cheques will be around for a long time. “While the trend away from cheques and paper continues, I suspect that we will always have some degree of use given that consumer confidence in electronic commerce and electronic information management, despite being more secure than paper-based systems, still has room for improvement.”

But not to fear, says D’Alessandro of those who really like their chequebook. Likely cheques will be around for a long time. “While the trend away from cheques and paper continues, I suspect that we will always have some degree of use given that consumer confidence in electronic commerce and electronic information management, despite being more secure than paper-based systems, still has room for improvement.”

Originally published in issue 12-3 of Your Workplace magazine. 

Page updated on September 1, 2010