Pros and cons of corporate credit cards

At some point in a company’s financial journey, it may become helpful or necessary to issue corporate credit cards to employees. When used as a strategic expense management tool, corporate cards can offer unique advantages for both companies and employees. However, there may also be drawbacks.

In this article, we’ll explore a breadth of considerations when deciding whether to offer corporate credit cards at your company. This includes helpful information such as defining what corporate cards are, the pros and cons of a company using them, the potential impact on an employee’s personal credit and how corporate credit cards differ from small-business credit cards.

Let’s dive in.

What are corporate credit cards?

Corporate credit cards allow individual employees to make purchases using the company's credit line. The only purchases an employee should be making with the corporate card are business expenses that are clearly defined in the company's credit card policy. Typically, these include things like business travel, client meetings and office supplies.

Many companies like using corporate cards because they streamline expense management by consolidating transactions and providing a centralized system for tracking and reporting.

Pros of corporate credit cards

Using corporate credit cards can have several key benefits, including:

• Expense tracking and reporting: Corporate cards usually simplify the task of tracking the transactions made, therefore streamlining the accounting processes. Some corporate credit cards may even offer reporting tools with insights into spending patterns or financial analysis.
• Spending controls: Some corporate cards allow the issuing company to set spending limits and control where and how the cards are used. This may reduce the risk of unauthorized or unwanted expenses.
• Convenient for employees: Many employees prefer the convenience of having a dedicated card for business expenses because it eliminates the need to use their personal credit cards and reimbursement requests.
• Credit card rewards: Sometimes rewards earned on employee credit cards are awarded to the primary cardholder (the company). This means that all the employees' eligible purchases could earn rewards. However, this isn't the case for all cards. Some allow individual employees to keep the rewards as part of their compensation or an incentive program. You'll want to understand the terms and conditions of the card and rewards program you're considering. Either way, credit card rewards can usually be redeemed for travel or cash back and may offer a valuable advantage over other financing options.

Cons of corporate credit cards

Companies should carefully weigh several drawbacks of using corporate cards as well. You’ll want to consider putting a robust written policy in place to mitigate potential risks. Clear communication and consistent monitoring are usually required to maintain a successful corporate credit card program. Here are a few cons of using corporate cards:

• Potential for misuse: Without proper controls, there is a risk that an employee may exceed their spending limit or use their corporate card for a non-business-related expense.
• Personal liability: In cases where employees are personally liable for charges, an unpaid balance may negatively affect their personal credit score.
• Vendor preferences: Some vendors or services may not accept credit cards as payment and the employee would be required to have an alternative payment method available to them.

How corporate credit cards differ from small business credit cards

While both corporate credit cards and small business credit cards serve the same purpose of facilitating business purchases, there are a few distinctions.

Corporate credit cards are typically issued to larger organizations with a significant number of employees and substantial financial resources. Authorized users may be chosen based on job function, title or those who meet specific criteria set by the company. Only companies with a certain annual revenue may apply and this includes S-corporations, C-corporations or LLCs.

Small business credit cards are tailored for small- and medium-sized businesses who have fewer employees and less monthly spending than larger corporations. Some small business cards require a personal guarantee from the owner of the company before being approved.

Does an employee credit card affect your credit?

When speaking about corporate cards specifically, they are backed by the corporation, meaning employees usually don't have personal responsibility for paying the credit card bill. Some issuers may run a personal credit inquiry if a corporate card is being issued to you specifically, which could lead to a small and temporary hit to your personal credit score. However, the company's corporate card activity will likely not impact your personal credit score. Still, it’s crucial for employees to understand the terms and conditions associated with using their corporate card.

Why do companies give employees credit cards?

Companies may consider employee credit cards for a number of reasons. This could include the need to streamline expense management or reduce the administrative burdens associated with a reimbursement process. Another reason may be a desire to better manage and track employee spending, and ensure budgets are maintained. A policy is usually in place to define these conditions, and corporate cards may help with this kind of oversight. Lastly, companies may find that the convenience it offers employees and the potential for earning rewards are compelling reasons to offer the cards.

Ultimately, the decision to utilize corporate credit cards should align with the company’s financial goals and eliminate complexity for both the company and the employees.