Corporate Cards: Not Just for T&E Anymore

For years, lending money to the federal government appeared to be a lamentable but unavoidable cost of doing business for patent attorney Barry Chapin.

Chapin, managing partner of Chapin Intellectual Property Law LLC in Westborough, Massachusetts, maintained a deposit account with the U.S. Patent and Trademark Office that he pre-funded with his own money to pay fees for patent and trademark applications he filed for clients. Once an application was submitted, he billed clients and got reimbursed.

But about five years ago, Chapin hit on a better solution. He ditched the deposit account and began using a charge card to pay filing fees. That allowed him to stop fronting money to the government and freed cash from his own working capital.

Corporate finance executives have long valued the convenience, efficiency and control corporate cards offer for managing expenditures. But historically they parceled cards out to employees primarily for travel and entertainment expenses. Those limitations are becoming passé as companies use corporate cards for an ever widening range of everyday business expenses, including advertising, overnight shipping, building maintenance, utilities, legal fees and even purchasing raw materials and inventory.

It’s a natural progression for people who use their personal cards for all types of expenses to put two and two together and realize they could be using their corporate cards the same way, according to officials at American Express, which has tens of thousands of customers using cards this way.

Tom Taormina of The Taormina Group Inc., a Reno, Nevada, liability prevention, mitigation and litigation support services provider, knows a computer manufacturer who charges all his inventory to his charge card. Convenience isn’t the only benefit. “He uses the points and airline miles he earns to play golf all over the country,” Taormina says.

Replacing Cash Advances
Charging business expenses to a corporate card makes sense for employers and employees. For employees, it eliminates the hassle of asking for cash advances and the aggravation of trying to keep expenses segregated when making business purchases with a personal card.

The benefits are even greater for employers. Used in lieu of cash, cards help employers reduce the money they have tied up in working capital and improve cash flow by minimizing or eliminating cash advances. Substituted for traditional invoicing, cards reduce the time it takes to process invoices and cut checks, driving down transaction costs. A study by the Aberdeen Group, a Boston technology researcher, found that the average cost to process credit-card transactions was just under half of the $10.88 respondents spent issuing paper-based checks.

Extending Payables
A corporate card can also be used to extend a company’s payables, which reduces cash tied up in working capital. An example of that can be seen at Barjan LLC, a $150 million supplier of general merchandise to convenience stores, gas stations, truck stops and car washes across North America. Steve Trocke, Barjan’s CFO, says the Rock Island, Illinois, company uses its corporate card primarily to pay for inventory. Trocke has vendors send him a traditional invoice, typically with payment due in 30 days. When the due date arrives, Trocke pays with a corporate card. The company then has another 30 days before it must pay off the card.

Trocke likes what this setup does for the company’s cash flow. He also likes the rewards points Barjan earns using the card. “We accumulate a huge number of points every year, which we use mainly for travel expenses relating to trade shows and bringing in customers,” he says.

Controlling Expenses
Corporate cards can also help control expenses. Companies can, for example, set spending limits on individual cards or restrict purchases to preferred vendors. A company’s finance department can use reports from card issuers to track and analyze expenditures, grouping and reporting expenses by department or project. Online tools also make it easy to track and manage spending.

In some cases, using a corporate card for everyday purchases can help companies negotiate more favorable prices from vendors. Getting paid with a charge card frees vendors from worrying if or when they’ll get paid, which may give them the confidence to offer discounts on the goods or services they’re selling.

Some card issuers make it easier for U.S. companies to do business overseas by offering cards billed and payable in each country’s local currency, with local customer service and program features. For Chapin, putting business expenses on his charge card has yielded multiple benefits. In addition to not having to front money to the Patent Office, he can bill clients immediately, “and sometimes, the client will even pay me before the card bill is due,” significantly improving cash flow, he says

Chapin’s card allows him to earn rewards points with every transaction, points he often uses to buy capital equipment for his firm.

“The card,” he says, “pays for itself.”

That’s a sentiment shared by more corporate finance executives who have learned that corporate cards aren’t just for travel and entertainment expenses anymore.