If you are contemplating paying your business expense with a company credit card, it is important to consider the motivation for using this form of credit.
I am a strong advocate of a well-managed employee credit card program that is paid-off monthly with the issuing bank. Company credit cards avoid the problem of requiring employees to maintain a personal card for company charges, minimizes expense report processing and, when set up properly, can be blocked to avoid certain classifications of merchants. I once issued a card to our company runner that carried a high limit but was only good at the Department of Motor Vehicles.
A high level executive and I once engaged in a lively debate about the use of company cards. He was willing to deny a charge on an expense report but not willing to recover an inappropriate charge made on a company card. If that is your situation, find another solution.
Company credit cards are also useful for paying non-travel and entertainment bills. Many merchants will accept credit cards and most insist on credit card payments for online purchases. But should you use a credit card to pay your utility bill or parts supplier? Again if you are using the card for convenience and it does not impact the purchase price, then the answer is probably. Why probably? Because credit cards charge very high interest rates, and if you are not settling before interest accrues, this can be very expensive financing. In fact, paying utilities with credit cards may allow you to pay the invoice when due and avoid late fees.
My suggestion when using credit cards to pay “normal” bills is set up the credit card as an alternative bank account in your payables system. Then enter the invoice in your regular AP system and pay it against the alternative bank account. This alternative bank account should be classified as a liability and used to reconcile the credit card statement. The payment to the bank credit card offsets the liability in this alternative “bank” account. In the meantime, the expenses land in the correct period and your liabilities are properly reflected.
Many banks offer an online reconciliation process in conjunction with company credit cards. Assuming you can require on your card holders to reconcile their activity, this can be a very useful tool. Your chart of accounts is loaded into the bank system and the card holder codes their charges to the correct expense. Most systems can also require the card holder to include an explanation of the charge. Many online systems provide for online manager approval. These coded charges can be exported to a worksheet, coding reviewed, and loaded into your general ledger.
The use of company credit cards to settle with your vendors can provide a great deal of convenience but if you are substituting credit card interest for other borrowing, make sure you understand the financing costs associated with each option.