What are Corporate Credit Cards & How Does It Work?

Want to know about Corporate Credit Cards? If Yes, You are at the right place.

In this article We are sharing all the information about What are Corporate Credit Cards & How Does It Work?

Corporate credit cards allow employees to charge authorized business expenses, such as hotel stays and flights, without using their credit cards or cash. Employees designated as cardholders usually have a corporate card displaying their company name and their names.

A business credit card is designed for companies of any size, including small businesses and solo entrepreneurs. In contrast, a corporate credit card is designed for companies with millions to billions of annual revenue. Business and corporate credit cards have different features and may be used differently.

What is Corporate Credit Cards?

The corporate credit card is one of the cards issued to corporations. Therefore, all charges made on the business card are legally liable to the business entity, not the business owner. Corporate credit cards are thus generally issued only to companies with established business credit histories and track records of success. A corporate credit card might be available to your company if your company has a solid business credit score and revenue in the millions.

The corporate credit card may come with certain advantages, like cash rebates and frequent flyer miles. The biggest advantage of corporate credit cards is that individual employees can receive their cards for work-related expenses. A corporate credit card can help large corporations manage business expenses more efficiently, whether paying for plane tickets or renting office space.

How do Corporate Credit Cards Work?

The corporate credit card functions much like a personal or small business credit card. Using a corporate credit card for business purchases can earn you rewards, and many corporate credit cards allow you to earn points. A corporate credit card account will require regular payments, and your business’s usage and payment history will affect your credit score.

There are some features, however, that corporate credit cards may have other than small-business credit cards do. A key feature of these cards is issuing employees credit cards without assuming personal liability for the charges. A corporate credit card may also offer your company access to accounting software and services designed to help you manage your corporate line of credit and discounts on common business expenditures and retailers.

Key Features of a Corporate Credit Cards

Corporate credit cards that qualifies as an employee card typically includes the following features:

Spending Limits

The corporate card allows a business to control employee spending by setting spending limits. Doing this ensures that your company’s policies are followed and that overspending is prevented.

Expense Tracking

The expense tracking and reporting capabilities of corporate credit cards are quite useful. An online expense management platform may also provide digital receipts and transaction records. 

Employee Benefits

A corporate credit card can offer employees various benefits such as rewards programs, travel insurance, discounts, rewards points, and travel rewards. Banks and financial institutions can offer different benefits. 

Expense Reports

Corporate credit cards are convenient for organizations to manage and monitor expenses. The reconciliation process and the generation of expense reports are simplified.

Payment Responsibility

Businesses use staff purchasing cards for their business expenses, but they are responsible for reimbursing the balance. It is generally not expected that employees will be liable for any credit card debt, although they must follow the company’s policies regarding spending. 

The use of a credit or debit card for unauthorized purchases is subject to certain conditions, for example. The employer is obligated to hold the employee responsible by repaying or terminating them.

Vendor Relationships

Using corporate cards can lead to better-negotiated terms with suppliers and vendors. An increase in transaction volume may lead to better prices, discounts, and preferential treatment. 

Data Security

Corporate credit cards can be secured using security protocols and measures, ensuring sensitive financial information is handled securely.

Travel and Entertainment

Employees often incur Travel and entertainment expenses using credit cards, including airline tickets, meals, and hotel stays.

The use of corporate credit cards is always subject to the policies and guidelines of the company. These cards are only for business expenses and are expected to be used only by employees who follow these rules.

How Do You Qualify for Corporate Credit Cards?

The company must have revenues in the millions to qualify for a corporate card, as well as the following requirements:

• A minimum of 15 users are required for the corporate account.
•  An annual credit card charge of at least $250,000 is expected.
•  Whether to register as a C corporation or an S corporation.

The company applying for an American Express corporate card must have been in business for at least twelve months, have a business address that is not a home address, and cannot be a sole proprietorship.

Other requirements may also be involved. A corporate credit card issuer might ask for:

• An audited financial statement of your company.
•  Describe your company’s organization and structure.
•  An identification number for the federal tax system.
•  Provide the contact information for a company officer authorized to do business on behalf of the company. For instance, the owner, president, treasurer, or general manager of the company could be involved in this activity.

A business applying for a corporate card may also need to obtain a business credit report and score. You may need a credit score for your business once you begin opening accounts in its name instead of your own.

What are Benefits of a Corporate Credit Cards?

The following are some of the advantages of using a corporate credit cards program:

• Personal Credit is Protected:. You can use corporate cards without affecting your credit. It’s important to note that your business credit score and sales revenue are considered as part of the approval process. And any payments you make on the card – including missed payments – will be recorded on your business credit report.
•  Personal Risk is Reduced: The owner of a corporate card is not required to sign any personal guarantees, unlike the owner of a business credit card. A misused card by an employee or the failure of your company is not going to affect your assets.
•  Better Reporting: Corporate credit cards offer businesses a robust way to track expenses. You will save time by checking expense reports when employees who hold cards can file their expenses electronically. It will also be easier to track how your employees spend company funds.
•  Spending Limits are Possible: Having rules for your spending is crucial to the success of your business. Corporate cards provide employees with credit cards and allow managers to restrict spending and the categories employees are allowed to spend. Corporate credit cards are often forbidden for personal use.

What are Drawbacks of a Corporate Credit Cards?

There are also disadvantages to corporate credit cards, including:

• A Detailed Application Process: Setting up a corporate credit line will be more involved than applying online for a business credit card. The issuer of your corporate card will evaluate your business stability to establish your creditworthiness. Therefore, be prepared to provide legal and financial information to qualify for a corporate card.
•  Minimum Cardholder Requirements May Apply: Companies eligible to take out corporate cards must sign up for a minimum number of employee cards. Consider alternative cards if your business requires fewer authorized cardholders – or wait until then to get a corporate card.

Who is Liable for Purchases on a Corporate Credit Cards?

An employer’s credit card allows employees to purchase on the company’s behalf. Depending on the card you use, you may be legally responsible for those charges; some cards default to corporate responsibility, while others let you choose individual, joint, or corporate responsibility.

Corporate Liability

Payment of the bill is the responsibility of the company. The issuer does not check the credit history of employees. A monthly expense report allows the company to reconcile charges with card statements, but employees do not have to pay the bill upfront. The most common corporate card program follows this standard.

Individual Liability

The employee is responsible for paying all fees on the card, and they get reimbursed when submitting an expense report. The issuer will check employees’ credit before giving them a credit card. However, this check will not affect their credit scores.

Joint Liability

There is a shared responsibility for the card debt between the company and the employee. Corporate cards are used for personal and unauthorized purchases, but employees are not responsible for expenses charged by company policies. Credit reporting bureaus may hurt an employee’s credit if a long overdue balance gets reported.

Risks Associated with Corporate Credit Cards Spend

Using corporate credit cards involves some risks for employers and employees. A proper strategy and control must be implemented based on an understanding of these risks. 

Corporate cards come with several risks, including:

Fraud and Misuse

A corporate card is at risk of this crime the most. It’s possible for rogue spending to occur when oversight and internal controls are lacking. Employees can misuse the card for personal expenses or unapproved activities. 

The company may have spending policies that employees violate intentionally or unintentionally, such as exceeding spending limits or making unauthorized purchases. 

Vendor Disputes

If you make payments with corporate cards but disagree with the vendor, it could lead to a dispute over payment and even cause the relationship to suffer over time. 

Data Breaches

There is a risk of data breaches when storing sensitive financial data. A credit card theft or potential identity theft can occur as a result. 

Late Fees

Defaulting on credit card payments can result in late fees and interest accrued, increasing the transaction cost.

Lack of Visibility

Businesses can only identify spending patterns and make more informed decisions when tracking and reporting are adequate. It is also possible to lack transparency in how funds are spent if documentation is not managed properly.

Tips for Managing Corporate Credit Card

Ensure That Policies cover all Cardholders

Your employees should be available to discuss your company’s new credit card policies and how to use their company cards when you open a corporate credit card. Employees need to understand that they should only use the card for business purchases, tracking receipts, and keeping track of payments.

Employees who use corporate credit cards on behalf of their employers should follow the rules set forth by their employers and submit all receipts, expense reports, and other required documentation as soon as possible. Talk to your manager or a member of your accounting or finance team if you have any questions about how to use your corporate credit card.

Manage Expenses and Monitor Them

The management of funds for large corporations is a challenging task. Most corporate credit cards come with comprehensive expense reporting tools that make your job easier, whether tracking expenses by category, monitoring employee spending, or reallocating your budget in real time. These tools can help you manage your corporate credit card effectively.

You may need an accountant (or an accounting department) if your business is large enough to have a corporate line of credit. The accountant can help you understand where your company’s money is going, whether it is staying within its budget, and how to maintain a strong corporate credit line.

FAQs

Does Having a Corporate Credit Card Help Your Credit?

A corporate credit card does not affect your credit since corporations are liable for corporate accounts, not individual business owners. However, the credit card you use for your business can affect your credit history.

How Does a Corporate Credit Card Differ From a Personal Credit Card?

Corporate credit cards are issued to company employees to cover business expenses, whereas personal credit cards are issued to individuals for personal use. Companies typically use corporate credit cards to manage expenses and centralized billing tailored to business needs.

Who is Responsible for Paying the Balance on a Corporate Credit Card?

The company must repay company credit cards at the end of every month. Employees may be responsible for paying the expenses if the company’s policies do not permit personal expenses to be charged to the card.

Are Corporate Credit Cards Suitable for Small Businesses?

Small businesses can also benefit from using corporate credit cards. These services offer features tailored to small business needs, such as simplified account management and rewards programs, and can simplify expense management, improve cash flow, and provide convenient employee payments.