Controlling costs with credit cards - credit companies offer cost-cutting services for small business cardholders

Nation's Business, May, 1991 by Joan C. Sazbo

Controlling Costs With Credit Cards

Many small-business owners are finding that a business credit card is invaluable in their firms' day-to-day operations. The cards are useful for expenses such as airline tickets, rental cars, business entertainment, office supplies, and even equipment such as computers, and they also are practical management tools for entrepreneurs wishing to track and control business costs. In addition, credit cards can help improve cash flow by providing companies with short-term financing.

"A business credit card really helps us differentiate between personal expenses and business expenses: that is an important benefit," says small-business owner Judy Whatley. She and her husband, Alvin ow Interstate Roofing and Sheet Metal, in Coeur d'Alene, Idaho. Judy Whatley says she also likes the flexibility that credit cards provide when she purchases various goods and equipment for her business. "We find a business credit card essential for our out-of-town roofing jobs when we need to run to the local hardware store to buy small tools and materials we may have left behind."

To help small firms manage more efficiently, the country's major card companies have come up with a host of services and programs designed with business owners in mind. For example, the MasterCard BusinessCard lets a company set limits for each employee who has access to a card and to adjust each limit quickly as the employee's business-spending needs change.

Visa U.S.A. Inc. too lets its business-card holders set their employees' spending limits, says Margaret M. Purcell, director of Visa Business Card. Many business owners are concerned about potential card misuse, says Purcell, and they want to set limits. "Misuse is minuscule," she says, "but presetting spending limits helps allay any worries."

American Express recently announced the introduction of its Executive Corporate Card, which is an expansion of its corporate card program and includes many new services. One such feature is a 24-hour executive service desk to help card holders find temporary office space while on the road, obtain business machines, and locate temporary secretaries.

The major card companies also provide small-business owners with indepth management information reports based on expenses charged with the cards. Depending on the card company's practices, these reports may be quarterly or monthly and may be broken down by type of expense (such as lodging or air travel) or by the person or department incurring the expense. These reports help firms manage, monitor, and better control costs. They are useful in pinpointing excessive spending, checking the volume of cash advances, alerting owners to opportunities that may allow them to negotiate discounts with vendors and suppliers, and identifying disputed charges.

In addition, the reports provide small-business owners with records for tax purposes, says Paul j. Novak Jr., vice president of MasterCard BusinessCard. With these reports, small-business owners are less likely to miss tax deductions because of lost receipts.

The major card companies also offer a number of special enhancements. American Express, for example, has a hotel plan that allows small-business owners to book hotels at rates that usually only larger corporations would be able to negotiate, says James A. Firestone, executive vice president of the company's small-business and corporate services.

Another advantage of the business credit card is the convenience it offers. One piece of plastic gives a business person access to millions of merchants around the world, says MasterCard's Novak.

Credit cards are particularly handy when cash is in short supply, says Kurt Peters, editor of Credit Card News, a twice-monthly newsletter that covers the credit card industry. "Using a credit card is a painless way to get a loan," he says. "That is why the cards are so popular. They have as much applicability to a small firm as they do to an individual."

While the American Express Corporate Card requires that the entire card balance be paid off each month, it does provide an extended payment period without finance charges for certain business purchases, such as personal computers, fax machines, and cellular phones.

Peters urges small-business owners to shop carefully for the lowest interest rate on bank cards that carry a revolving credit line, where finance charges accrue if the balance is not paid in full each month. He says: "There is no reason to finance your business at 19 percent interest. Try to find a card that carries an interest rate of 12 percent." Of course, monthly charges can be paid in full, interest-free.

Bankcard Holders of America (BHA) issues information on the lowest-rate cards available throughout the United States. Its low-interest rate list is available for $1.50 by writing to BHA, 560 Herndon Parkway, Suite 120, Herndon, Va. 22070. It names 35 banks offering cards at 16.5 percent or below; some of those banks may also offer credit cards for business use.