Every growing company has business expenses like hotel bookings and airfare that are not borne directly by the company but through its employees. The employees incur these expenses for the company and are liable to be reimbursed. Hence, managing these expenses becomes very crucial as a company grows.
When employees use cash or their personal credit/debit card, reporting, verifying, and matching these expenses becomes a hassle. A simple way to track and control these expenses is by issuing corporate credit cards to employees for their business expenses. This prevents employees from using their own money and lets the company pay directly, thereby making things easier for both of them.
If used efficiently and smartly, corporate credit cards can prove to be a catalyst for the company’s growth. Since companies can control them directly, their usage can be monitored and limited effortlessly.
What does a corporate credit card mean?
A corporate credit card is a credit card that is issued to specific employees by their employer for business-related expenses. Companies issue corporate credit cards to employees so that they can pay during business trips without using their personal cash or credit cards.
Corporate credit card accounts are usually opened by businesses through:
- A banking relationship
- By negotiating directly with a card issuing company
Although they are normally issued in the employer’s name, they also bear the name of the cardholding employee. However, unlike a personal credit card, in case of non-payment, the employer can be held liable as well.
Some of the most popular corporate credit card issuing companies include American Express, J.P. Morgan Chase, Citibank, and Wells Fargo.
How does a corporate credit card work?
Using a corporate credit card is very similar to using a personal credit card. During business travel, the costs an employee incurs are basic necessities like accommodation and flight bookings. Without a corporate credit card, employees need to use their personal cards or cash for business expenses. Although reimbursable, employees need to forgo personal funds temporarily. This is where corporate credit cards work their magic.
Like personal cards, corporate credit cards are usable at the counter or for online payments during business travel. They are a convenient medium for the company to pay for employees’ business expenses. The payments made through them are registered on the company’s card statements. This lets the employees’ personal funds remain untouched while the company can personally access and track card usage.
How is a corporate credit card different from a business credit card?
If you are a small business owner, you should first check whether a corporate credit card is right for your business or not. Corporate credit cards and business credit cards generally differ in two major aspects - eligibility and liability.
- Different eligibility:
The basic difference between a business credit card user and a corporate credit card user is that of company size. Corporate credit cards are for companies that have annual revenue of over $4 million. Business credit cards are for smaller companies with less frequent credit card transactions.
- Different liability:
Business credit cards necessitate a personal guarantee i.e., both the employer and the cardholding employee are accountable for non-payments.
Some corporate credit cards, like American Express cards, offer joint liability as an option. Depending on the card type, either the employer or the employee is liable for payment charges and non-payments. The employer can choose which kind of card to offer an employee as per the business needs.
Types of corporate credit cards:
Corporate credit cards are categorized as individual liability cards or corporate liability cards, depending on who would be responsible for payments and debts.
- Individual liability cards:
The cardholding employee is responsible for the payment of charges. He is also responsible for reporting those charges as business expenses to the employer for reimbursement. The credit card issuer checks the employees' personal credit score before issuing them this card. However, their personal credit score is unaffected by their corporate card usage.
- Corporate liability cards:
The employer is responsible for payment charges in this case. Nevertheless, the employee is still responsible for reporting those charges. The employer can then reconcile the card statements. The credit card issuer checks the company's credit history before issuing the employee this card.
Does your company qualify for a corporate credit card?
As mentioned earlier, $4 million annual revenue is the basic eligibility criteria for issuing a corporate credit card. Some other criteria that card issuers consider are as follows:
- Expected annual credit transactions should be at least $250,000
- At least 15 card users in the company
- Must have been in business for 12 months or more
- Must not be a sole proprietorship
- Should be registered as a C corporation or an S corporation
A company may apply for corporate credit cards if it satisfies the above criteria. To process their application, the card issuer may request for:
- Federal tax ID
- Information about the organizational structure
- Audited financial statements
- Company’s credit history and credit score
- Contact details of the company’s representative, e.g., the company’s president or treasurer
As per the above criteria and information, credit card issuers decide if the company qualifies for a corporate credit card or not.
Benefits and Drawbacks of a corporate credit card
If used in the right manner, corporate credit cards can effectively support a company in meeting its business objectives. At the same time, using them exposes the company to certain risks. Let’s have a look at the advantages and risks of using corporate credit cards.
Employer benefits of using a corporate credit card:
- The most common benefit of a corporate credit card is expediting travel and expense management. It allows the employer to pay for business travel expenses rather than having the employee as an intermediary. In this way, money is deducted from the company funds instead of waiting for the traveling employee to return and report the expenses.
- Controlling credit card expenses becomes simpler. Employers have direct control over corporate credit card accounts and transactions. As a result, they can set suitable limitations for business expenses. For example, they can cap the spending limit for a card or only allow card usage in certain countries or with certain vendors. This can keep the business expenses in check.
- The reconciliation of card statements gets quicker and more legit. Corporate card expenses are recorded on the company's card statements instead of the employee's statements. Hence, the employer doesn't have to rely on the employees to submit their statements for credit card reconciliation. They receive bank statements directly from the banks as they are the account-holders. This eases the accounting and auditing processes and reduces credit card fraud.
Employee benefits of using a corporate credit card:
- Due to corporate liability, employees need not worry about payment charges and debt. Instead of using their own money for business expenses and then waiting for reimbursements, employees can simply pay using the company’s money directly. This makes the experience of business travel financially convenient.
- The expense reporting process becomes less stressful. Using a corporate credit card eliminates the need to collect and save expense receipts. Some card issuers even offer electronic expense reporting facilities to accelerate the process of submitting reports.
- Most corporate cards offer miscellaneous perks like airport lounge access, travel emergency services and quick replacements of lost cards. If the employer allows, employees may even keep and redeem the rewards or points they earn while using the card.
Employer drawbacks of using a corporate credit card:
- As with any credit card, the most obvious possible risk is fraud. Since the company directly pays for corporate credit card expenses, employees could use the card for personal expenses too. Manually identifying such misuse is very difficult.
- Corporate liability might disincentivize employees from spending rationally. They are likely to spend more than what they would have paid with their own card, as they are not liable for the debt.
Employee drawbacks of using a corporate credit card:
- Corporate credit cards may not provide as many rewards and offers as a personal credit card. In many cases, the cashbacks offered on a corporate credit card is lower than that of a personal credit card.
- Employees would miss out on many benefits that they could have availed using a personal credit card. This can nudge the employees to use their personal cards to avail of those benefits in the absence of a corporate card policy.
How to manage corporate credit card expenses?
Using a corporate credit card makes life easier for businesses, as long as they stay compliant. Here are some of the best practices around managing corporate card spends that you can employ within your company:
- Employees should be aware of all the policies concerning corporate credit card use. They should be educated about their duties and responsibilities while spending on a business trip.
- Companies can impose limitations and restrictions to contain business card expenses. They can establish strict rules against using cards for personal expenses and unauthorized card usage.
- Before being issued a corporate credit card, every employee should sign an agreement stating the rules of card usage and the consequences of any policy violations. This binds them in a contract with set guidelines to follow after they obtain the corporate credit card.
- Ensure your employees undergo training sessions around how to use a corporate credit card. Employers and finance teams must address queries around corporate credit card usage to ensure compliance.
- There should be a predetermined review and auditing process in place to ensure the expenses are verified thoroughly. This ensures the validity of reported card expenses.
Why should your business opt for a corporate credit card?
Although some companies offer electronic expense reporting to quicken report creation, the report submission and verification process is still manual. An expense management software automates and streamlines card expense reporting, verification, and reconciliation.
Here are some reasons why businesses are adopting corporate credit card usage:
- An employer can simultaneously integrate multiple corporate credit programs with an expense management software.
- Employers receive direct bank feeds of the transactions incurred by the employees. The software then instantly matches every reported expense with the card statements.
- Employers can configure and set automated reminders to remind employees to reconcile their card expenses and submit reports on time.
- Employers can customize corporate credit card policies as required. They can also control card usage by capping the spending limit.
- On the creation of an expense, the automated expense management software conducts real-time policy checks and notifies the users in case of a policy violation.
- Any duplicate expenses or mismatches are detected and indicated to the employees for rectification. This helps build internal compliance within the company.
- Employees can report their card expenses in real-time and split those expenses appropriately from any location or device.
- In case of a card payment reversal, the employees are prompted by the software to point to the reversal transaction entry and report it along with the receipt. This reduces card fraud significantly.
- By using an expense management software, employees and employers can access and track corporate card expenses on a single platform at the click of a button.
The role a corporate credit card plays in your business
Due to the ease of use and availability, most of our transactions today have become cashless. The same applies to businesses as well. A growing practice is to encourage traveling employees to use corporate credit cards to incur business expenses. This allows them the leisure of not spending their own money on business trips.
Corporate credit cards are an effective way for employers to trail their employees’ card expenses. It is also an effective way to negate risks attached to personal card usage and business expense reimbursements.
Fyle does much more than just streamlining your expense reimbursements. Try Fyle today and hop on to the bandwagon of digital change.