Credit cards can facilitate purchases and control utilization
The practice expense account is a highly regarded benefit of partnership. A physician’s expense account can have a substantial impact on operating expenses if not carefully managed, because this corporate ‘perk’ can be overutilized. Practice executives must constantly scrutinize purchases and debit partners accordingly to keep cash and operations flowing.
With this in mind, corporate credit cards can be a way to enable expenses while controlling utilization. Corporate credit cards are still readily available and are being actively promoted, in response to the recent decline in credit card applications nationwide. The Federal Reserve’s January 2011 G. 19 credit report noted an annual rate decrease of 6.5 percent in revolving credit (a measure of credit card balances) to the lowest level in 6 years. Unfortunately, the decrease in revolving credit has not translated into lower credit card interest rates. The higher rates reflect the fact that credit card debt is unsecured and does not require collateral.
Advantages to corporate credit cards
Corporate credit cards have several advantages, primarily in enabling access to capital for purchases. Most businesses still have difficulty accessing to credit for operational expenses and major capital expenditures due to the strict criteria for lending established by financial institutions.
Depending on the type of credit, a practice may qualify for large credit lines that would enable major capital expenditures. Most practices would not initially consider this route given the high Annual Percentage Rate (APR) for purchases. However, during an introductory period, the practice may be able to take advange of a low promotional rate (0 percent for up to 12 months). If the practice can pay off the credit line during this period, it will save substantially in interest payments.
Corporate credit cards also organize expenditures and generate custom reports to facilitate a practice’s accounting records. They enable the practice to see where money is spent and keep track of who is spending it. In a large practice setting, this encourages tighter control of expenditures.
Most credit cards also have purchase reward programs. Purchases or transfers generate points that can be used for other expenses such as travel or cash. Many cards offer service discounts from regular vendors such as shipping (Fedex) and supplies (OfficeMax).
Types of corporate credit cards
The main categories of corporate credit cards include universal business cards, specialty cards (gas, hotel, travel), prepaid cards, and customizeable cards.
Universal business cards offer a variety of services with your purchases. The three major financial institutions that offer business cards are Chase, American Express, and Capital One. All offer similar services and rewards, including additional cards, e-mail alerts, and regular reports.
Specialty cards are good options for frequent travelers. The cards can be set up with limited expense accounts for employees to cover gas, rental cars, hotels, and travel. Most major financial institutions offer these cards. Some proprietary gas cards may be restricted to use with participating stations, while others allow unrestricted use. Most offer rewards with purchases depending on the amount of fuel used per month. Fleet gas cards offer additional discounts on fuel per gallon. Although specialty cards may not be the best alternative for small practices, they may be advantages forlarger groups, where tighter control of expenses is necessary.
Prepaid cards are becoming more common due to ease of use and the ability to control the amount spent per card. These cards are now offered by many different vendors and are excellent options for employees who purchase supplies or travel for the practice. Due to the abundance of the cards offered, I recommend utilizing a national lender with a VISA or MasterCard logo.
Customizable cards are becoming less common. Even if a customizable logo is available, the terms of the cards are usually fixed. Practices will most likely be able to find a card that suits their needs within the other categories.
What to know before applying
When evaluating credit cards, each practice should do its own research. Many consumer websites—such as www.creditcardguide.com and www.creditcards.com—compare different types of credit cards and provide a wealth of information as well as links to other sites that go into more detail on specific cards.
Basic issues to consider before applying include the annual fee, the credit limit, balance transfer and interest rates, online access and custom reporting, and the types of rewards.
When evaluating rewards points, a practice should ask the following questions:
- What percentage of purchases will count towards rewards points?
- Is there a maximum rebate offered per year?
- Do rewards points earnings expire or can they be carried year to year?
Corporate credit cards may be a good solution to controlling expenses in orthopaedic practices. Limiting the amounts on prepaid cards and accumulating rewards points will facilitate employee expenditures without breaking the bank and essentially eliminate the blank check approach to expenses.
Custom reporting will enable practice executives and accountants to track expenses and promote corporate guidelines for expenses while curtailing overzealous utilization.
With a wide range of corporate credit cards to choose from, each practice should do its own research and chose the card that best suits the needs of the practice. Shift the perception of the corporate credit card from another source of debt to a way to track and control expenses. With successful implementation, a practice will recognize a long-term reduction in expenses.
Adam D. Soyer, DO, is a member of the AAOS Practice Management Committee. He can be reached at firstname.lastname@example.org