If your employees fly a lot and need a card to book plane tickets, or they’re shopping for lumber or company office supplies from a store, getting a corporate credit card is often a great way to keep track of expenses and make things easier for them. to buy what you need.
For many entrepreneurs, a small business credit card is the best solution. Many of them are designed to encourage the types of purchases typically made by employees in a small firm. However, for larger small businesses, it often makes sense to get a corporate credit card that large corporations issue to their employees.
What are corporate credit cards?
Corporate cards are usually available only to large small businesses, that is, those with at least several million dollars in annual income. A company may have to submit a federal tax ID and have its financial statements audited in order to comply.
Once the company opens an account, it is responsible for paying the balance in full in each billing cycle and managing each cardholder’s spending. However, it is also the company that receives any rewards the card may include, including statement credits or travel benefits.
How are corporate cards different from small business credit cards?
Both corporate and small business cards offer conveniences such as the ability to set employee spending limits and limit spending to certain categories. Most of them also offer features that make it easy to keep track of expenses.
However, corporate cards have certain benefits that small business cards don’t, and vice versa.
Unlike corporate credit cards, business cards are available to businesses of all sizes – even start-up entrepreneurs. The application process is much less intensive and usually does not require a company’s financial audit.
Responsibility for debt
Business cards are issued to both the individual and the company (unless it is a sole trader), and even if additional cards are added for employees, the business owner is responsible for managing payments.
Generally, a small business owner must personally guarantee a small business card, although some are jointly and severally liable, meaning the owner shares responsibility with the business. So if your card is jointly and severally liable, the creditor can sue either the business or the owner for the debt.
For most corporate cards, the company is usually liable for employee card debt, which in the eyes of many cardholders is a big advantage. When a company guarantees a debt, the owner is not liable if, for example, the company fails by not paying its bills.
Some corporate cards also offer so-called individual liability. This means that the employee must be aware of the bill payment in the short term and claim reimbursement by filing an expense report. This is less common than before. This is not necessarily ideal for employees who may not have the cash or credit to pay for large expenses until their expense report is processed.
Pros and cons of a corporate credit card
The biggest advantage of corporate cards is the ease of tracking employee spending. Instead of forcing employees to pay personal expenses and submit expense reports or receipts for reimbursement, a company can easily manage spending limits, track budget needs, and manage fraud risks. Most corporate cards offer detailed analytics in one system on where and how the company’s money is being spent.
Because they are sometimes more complex, corporate cards often come with their own designated support representative who can help resolve any issues quickly. These representatives are typically on call 24/7 and are well versed in the individual needs of each company.
- You’ll get simplified tracking and analysis of work-related purchases.
- Benefits and rewards directly benefit your business.
- You get a dedicated or duty customer service representative.
- They prevent employees from attempting to make personal payments with a company card with clearer visibility and better spend control than most business cards.
- Additional cardholder fees can add up quickly.
- This is not an option for small companies.
- The application process can be complicated.
- Employees cannot earn their own rewards by using a personal card and receiving a refund.
How corporate cards affect credit
While corporate cards are typically used for work-related travel and lodging, business cards can be used to make all types of work-related purchases, including supplies or merchandise. This allows even small businesses to build an excellent credit profile. By using a business card to make larger payments, business owners can avoid additional charges on their personal credit cards by steadily building up their business credit.
With small business cards, employees are considered authorized users. As a result, their card activity may be reported to credit bureaus.
For some employees, this is a disadvantage. For example, if they write down the cost of a costly business trip on their card, they may find that their credit usage is high enough to affect their personal credit. This can be a problem if, for example, they are applying for a mortgage.
On the contrary, the use of a corporate card does not affect employees’ personal credit, which is a big plus from an employee’s point of view.
Corporate card cost
Small business credit cards tend to have lower fees, including no additional fees for employee cards with cards such as Capital One Spark Cash Plus and Chase’s Ink Business Unlimited® Credit Card.
Corporate cards usually charge for this – up to $ 100 per year or more. This is because they often offer more robust features, such as access to a specific sales representative or access to corporate expense reporting software.
Of course, if you’re running a larger, smaller business, the added benefits may be worth it. It all depends on the needs of your business.
While corporate cards offer a wide range of great benefits, such as simple expense tracking, dedicated customer service representatives, and no accountability for individual employees, they are typically only available to large corporations with millions of dollars in annual revenue.
If you own a small business, a business credit card can help you build a stable credit history for your company, as well as help you make big purchases to pay off over time.