How to Use Credit Cards to Streamline Your Accounts Payable Process

With payment methods constantly updated and changed, staying updated with the latest practices is important. As such, using corporate credit cards has seen a recent uproar in today's day and age. With more and more companies discarding traditional modes of payment like checks and ACH for credit cards, it's essential to know the benefits these cards can provide and choose the right card for your company. 

Drawbacks of ACH and check

ACH and checks are the most common methods of paying your accounts payable debts. Despite this, they have a large number of disadvantages. Here are some disadvantages of using ACH and checks for paying your vendors:

ACH fraud

An ACH transfer requires you to enter the recipient's bank account number and routing number to process payments. This lack of security can attract multiple phishing emails and data breaches, giving rise to ACH fraud. 

Payment delays

Both check and ACH payments can be subject to delays in payments. ACH transactions can easily take a few business days to process. Issues with NACHA compliance can also delay these payments further. Mailing and delivery times also make check transfers complicated. Even after delivery, checks might take days to get credited into the recipient's account. 

Check fraud

Check payments are also susceptible to both internal and external fraud. Checks can be stolen from inventory, get lost in transit or be forged, causing them to be a less secure mode of payment. 

Inaccessible payments

Many companies require a business leader to sign off on checks in person. Printing checks are also often done in designated company offices. This limits employees' ability to work remotely and access payment options from anywhere in the world. 

What is a corporate credit card?

A credit card is a card made out of plastic or metal used to make payments on credit. Unlike debit cards, where the money is debited from your bank account immediately, credit cards allow you the freedom to pay the money to the card company monthly. 

A corporate card is issued to companies to make payments for running their business operations. The companies can distribute these cards to employees for making purchases, which are approved and paid by the company on a recurring basis. 

Taking a corporate card requires you to be approved by the bank as a creditworthy client, after which you are eligible to purchase a card from said bank. 

Benefits of credit card in accounts payable

Credit cards often prove to be a better alternative to traditional payment methods for companies. Here are some benefits of clearing accounts payable via credit cards: 

Keeps track of spends

Credit card transactions create an instant paper trail, which might often be missing in ACH and check transactions. Moreover, setting individual limits to credit cards can help your company stay within designated budgets and financial goals. This gives you the ability to control and manage company spending in real-time without having to gather data and prepare reports. 

Reduce maverick spending

Maverick spend occurs when someone within the company makes a purchase outside of the pre-existing company policy. This usually occurs in the tail spend category. Corporate credit cards can reduce maverick spending by requiring appropriate sign-offs for each purchase via an authorized vendor. 

Avoid ACH and check fraud

Credit card bills are paid after the purchase has been made. This gives enough time to verify all purchases and reconcile with the bank in case fraud is suspected. This helps avoid losing money in ACH and check fraud. Moreover, credit card payments are also faster and don't take many days to process. 

Reward points and cashback

One of the most attractive features of credit cards is rewards or cashback points. These help you save money while you pay bills, often allowing you to make vendor payments with the cashback points generated. Some also offer discounted rates on necessary company purchases. 

Accessible payment options

Credit card payments can also be made remotely without physically signing or processing payments. Credit cards are also easy to carry and store, avoiding the hassle of storing, printing or mailing them to the vendor.

Challenges with using credit cards

Despite providing a myriad of benefits, credit cards also have their drawbacks. Here are a few challenges that using credit cards for your business can cause:

Annual fees

Many corporate cards ask you to pay an annual or monthly fee for using their services. This can add up to your business expenses and make you lose money over time.

Creating and canceling cards

Creating new cards for your employees or canceling older credit cards can also be a hassle due to extra charges, complicated procedures and long delivery times. This can pose a problem for your business, especially if you’re scaling. 

Card getting lost or stolen

Like debit cards, credit cards can get stolen and be misused. Employees might also be able to bypass company policies and use the corporate cards for their personal use. This can end up losing you thousands of dollars over time. 

Payment failures

Corporate credit cards can also often lead to payment failures due to technical issues or insufficient limits. This can pose a problem to both the company and the employee making the payment. 

Selecting the right card for your business

Now that you know the challenges with using credit cards for accounts payable, it is important to select the right card for your company to make payments a breeze. 

Select a card which provides you with rewards and benefits useful in your business operations. If your company requires frequent business travels, it would be wise to select a card for your employees which provides air miles or discounts on hotel bookings. Cashbacks which can be used to pay vendors are another useful reward of using a credit card for accounts payable. 

Virtual corporate cards can also help you avoid the hassle of creating or canceling cards for your employees, making scaling easy. With virtual cards, your employees can pay remotely and avoid getting their cards lost or stolen. 

ClearTech’s virtual corporate cards can help you set limits per employee, department, transaction or vendor, allowing you to gain full visibility and control over your spend. With ClearTech AP automation software’s interactive dashboard, you can also view your spend in real-time. 

Conclusion

With payment methods in accounts payable shifting, credit cards have become a huge consideration for businesses. These cards surpass traditional payment methods like ACH or checks by providing accessible payment options for your employees, creating automatic payment trails, allowing you to set strict limits and offering attractive rewards and cashback. Adopting virtual corporate cards can also prevent credit card drawbacks such as card getting lost or stolen, hassle and time required to create or cancel credit cards and make your life easier. 

FAQs

• How can businesses minimize the drawbacks of using credit cards in accounts payable?

Businesses can minimize the drawbacks of using credit cards in accounts payable by utilizing secure payment gateways, requiring payment approvals and adopting virtual credit cards to improve accessibility and reduce frauds. 

• What are some alternatives to using credit cards in accounts payable?

ACH, wire transfers, check payments and virtual credit cards are alternative methods of payment in accounts payable

• What are the benefits of using credit cards in accounts payable?

Credit cards are a more accessible mode of payment, create payment trails, are less susceptible to frauds and payment delays, give additional rewards and cashback and are easier to carry. 

• What are the drawbacks of using credit cards in accounts payable?

Credit cards can be stolen, get lost or can sometimes cause payment failure resulting in losses for the company and strained vendor relationships.