Underlings join execs in flashing company credit cards
Boston — For years, people traveling on business hit the road with a wad of company cash in their pockets to cover expenses. But now a growing number of companies are issuing employees credit cards on which they can charge travel and entertainment expenses. Rather than leave the home office with several hundred dollars in cash, traveling workers leave with $ 50 for cab fares and a piece of plastic to pay their other bills.
Of course, a few top ranking executives have long had company-paid credit cards to use in entertaining important clients.
Recently, however, card use is being extended to employees at less lofty levels in the corporation. The move is a bid to get tighter control over travel expenses and to increase the amount of cash a firm can invest at high interest rates.
''Our current approach is that if you travel at all, you should have a card, '' says Richard Miller, assistant controller at Boeing Company's commercial airplane company.
The aircraftmaker recently issued a couple thousand American Express cards to its employees, Mr. Miller says. Other big corporations are beginning to do the same thing. Since February, General Motors has been installing a credit card program for its employees who travel.
So far, GM has purchased some 13,000 American Express cards for white collar workers, says Eugene Flegm, general director of the GM contollers staff. By the time the program is complete ''we expect to have 20,000 to 25,000'' employees carrying corporate credit cards.
The move to increased use of cards is being encouraged by credit card issuers who have developed new services to make corporate credit cards more attractive to companies. ''We have seen a remarkable increase in the number of inquiries about our system,'' says John Riener, vice-president and general manager of American Express's commercial business unit.
Mr. Riener claims the reason for the increased interest is that ''more and more companies have taken a look at travel and entertainment expenses and begun to realize how important it is as a controllable expense.'' This awareness is undoubtedly heightened by the recession's effect on corporate profits.
Travel and entertainment expenses are the third-largest controllable set of costs in most companies. US companies spent an estimated $55 billion in 1980 on corporate travel and related costs.
When employees are issued corporate credit cards to control these costs, improved ''cash flow is the main advantage,'' says Miller, the Boeing official.
For example, when employees travel overseas and pay cash for expenses, Boeing must lay out travel funds before the employee leaves the office. When the traveler uses a credit card, ''forty days or better'' elapse before the company gets its credit card bill and must pay up, Miller says. On domestic trips, he estimates that the company gets to keep its cash earning interest for an extra 30 to 35 days when expenses are charged on a credit card.
Although improved cash flow is one advantage in the greater use of credit cards, it is not the only reason for companies to pass out more plastic. ''The other one that I would rate as high . . . is discipline in the (expense reporting) system,'' says Mr. Flegm at GM.
A traveling manager at GM uses a credit card to pay bills. After returning to Detroit, the manager files an expense report form and receives a check from the automaker. The credit card bill is then sent directly to the employee, who uses the check to pay for it.
When managers got company cash before a trip, they tended not to file an expense report ''unless they were nagged,'' Flegm says.
Now that white collar employees are being billed directly by a credit card company, ''you don't need to assign people'' to make sure expense reports are filed, he continues. The reason: Until a report is filed, the worker does not get the check needed to pay the credit card company.
In addition to making employees file reports faster, companies providing their workers with credit cards may also receive computer-generated analyses of employee expenses. So-called vendor analysis programs will let a company know ''that you spent X dollars with Hertz in Akron,'' says Riener, the American Express executive. The information can be used to obtain volume discounts from vendors.
Although a company like General Motors pays only a nominal sum for each card, the card companies still profit. Corporate card holders put significantly more charges on their cards than individual card holders. And the credit card companies pay vendors (hotels, restaurants, etc.) several percentage points less than the full amount of each bill, while collecting the full amount from the card holder.
There are indications that bank card issuers want to get a bigger share of the corporate card business. For example, Visa International is working on a premium card that will have features ''to make it easier to sell'' to corporations, says Richard Rossi, Visa's public relations manager.
In fact, Chase Manhattan Bank is testing a corporate Visa card program at one company, which it declines to identify.
MasterCard International Inc. also hopes the travel-related features of its new gold card will appeal to corporate users, says Alex McCallum, MasterCard's public affairs vice-president.
In January, Chemical Bank, which has just started selling the gold MasterCard to individuals, ''will go to corporate customers with the card,'' says Michael Levitt, a Chemical Bank vice-president. What business spent on travel in 1980 Airline tickets $18.1 billion Meals, entertainment 12.1 billion Lodging 11.0 billion Car rental 8.2 billion All other 5.5 billion Total $55.0 billion Source: American Express Company