Pros and cons of corporate credit cards
Quick insights
- Corporate credit cards may facilitate easier expense tracking and management.
- Proper controls on employee cards may help prevent misuse of company credit cards.
- Eligible purchases on employee cards can earn rewards for the primary cardmember.
At some point in a company’s financial journey, it may become helpful or necessary to issue corporate credit cards to its employees. When used as a strategic expense management tool, corporate cards can offer advantages for both companies and employees. However, there may also be drawbacks.
In this article, we’ll explore some 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 help 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 often help simplify the task of tracking transactions and the accounting process. 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 help 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 can help reduce the need to use their personal credit cards and submit reimbursement requests.
- Credit card rewards: Rewards earned on employee credit cards are often awarded to the primary cardholder (the company). This means that all of the employees' eligible purchases could earn rewards.
Cons of corporate credit cards
Companies may want to carefully weigh the drawbacks of using corporate cards and 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. Eligibility may be limited to companies with a certain annual revenue, 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 affect 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 help reduce complexity for both the company and the employees.
In summary
Corporate credit cards can be valuable financial tools offering simplified accounting, customizable spending controls and the ability to earn corporate rewards, while providing employees with a convenient alternative to out-of-pocket reimbursement processes. However, organizations must also navigate potential drawbacks, including the risk of card misuse, vendors not accepting credit payments and occasional personal liability issues for employees. Ultimately, when properly managed, corporate cards can help reduce administrative burdens and help businesses maintain budget oversight.
