While debit cards can offer advantages to small businesses, they need to be protected carefully because business debit cards lack most of the legal safeguards limiting the liability from unauthorized purchases that consumer credit cards enjoy.

In fact, the debit card’s connection with your business checking account – often cited as one of the primary benefits debit cards offer – can place your funds at risk if your debit card or account are compromised.

Unlike a consumer debit card, a debit card linked to a business checking account is not protected under federal banking laws. And the fact that funds are withdrawn from the account immediately means your bank must restore any funds that are removed fraudulently – a time-consuming process that can compromise your company’s cash flow if the withdrawal is large enough.

Business Debit Benefits

Managed properly, a business debit card can provide benefits to your company, including:

• Streamlining purchases. It’s easier for employees to make small purchases with a debit card than managing petty cash or reimbursing personal expenses.
• Managing travel expenses. You can set dollar or location limits for travel-related purchases and reduce the need for post-travel reporting and record-keeping.
• Online account monitoring and alerts. You can see what’s going on with your company’s spending in near real-time via apps or the web.

Protection Is Critical

Despite the benefits and convenience, you also need to monitor and protect your account carefully because once funds are withdrawn from your account, it’s a lot harder to get them back than simply reversing a credit-card charge.

Federal banking regulations including the Electronic Funds Act have established a $50 limit on the fraudulent use of consumer debit cards, but the act doesn’t offer similar protections for business debit cards.

The payment card companies have developed voluntary zero-liability programs, but those require businesses to protect their cards from loss or theft, and to report any loss or theft to your bank promptly.

While these protections should help in most instances, money can be removed from your account before you discover the loss or theft of your card – and those funds won’t be restored until your bank investigates the fraudulent use.

To reduce the risk of your business debit card being compromised, company owners should take the following steps:

• Establish transaction limits for spending categories, amounts, or locations you’re unlikely to patronize.
• Turn off debit cards on weekends or other periods employees won’t need to use a company debit card.
• Create account alerts for large purchases.
• Avoid withdrawing funds at off-brand ATMs or ATMs not in banks because those are more likely to have been compromised by card readers known as skimmers.

By taking reasonable steps, you can enjoy the convenience of business debit cards while reducing the associated financial risks.

Ray Wills is the security officer at F&M Trust.