Corporate Credit Cards: What are they and How Do They Work?

When your company first starts off it may not have the capital to buy all the goods it needs to survive, especially when it comes to office supplies. The solution to this problem is getting a corporate credit card. With this card, you can buy whatever you need to start your business off and pay for it with a fraction of the cost. 

But how does it work?

What exactly is a corporate credit card?

Corporate cards are typically only available to larger small enterprises, defined as those with a minimum annual sales of several million dollars. To qualify, a business may be required to produce a federal tax ID and pass a financial audit.

There may be advantageous perks associated with corporate credit cards, such as cash rebates and frequent flier points. The greatest advantage of a corporate credit card, however, is that individual employees can be granted their own cards to cover work-related company expenses. Whether it’s paying for plane tickets or renting office space, a corporate credit card may make the management of a major corporation’s business expenses much more effective.

How do corporate cards work?

In many respects, corporate credit cards are comparable to personal and small-business credit cards. You can use your corporate credit card to make purchases for your business, and many corporate cards allow your firm to receive rewards on transactions made with the card. Your firm will be required to make monthly payments on its corporate credit card account, and the card’s usage and payment history will impact its credit score.

However, corporate credit cards include a number of benefits that small-business credit cards do not. These include the ability to provide credit cards to employees without assuming personal accountability for their use. In addition, corporate credit cards typically provide access to accounting software and services designed to assist your firm in managing its corporate line of credit, as well as savings on popular business expenses and shops.

Advantages of business credit cards

– Access to a corporate credit line

– Earn rewards on purchases – Company cards provided to employees 

– Access to premium accounting services to assist your business with budgeting and spending tracking

Cons of business credit cards

– Only available to established businesses with substantial annual income 

– Protracted application process that may involve a financial examination

– Eligible businesses must have excellent credit

Differences between corporate and small business credit cards

Both corporate and small business credit cards give the opportunity to set spending restrictions for employees and restrict spending to specific areas. Most also include tools that make spending tracking straightforward.

Nevertheless, corporate cards offer perks that small business cards do not, and vice versa.

Availability

In contrast to corporate credit cards, business cards are open to enterprises of all sizes, including sole proprietors. The application process is significantly less rigorous and typically does not involve a financial audit.

Accountability for the obligation

Business cards are provided to an individual and the company (unless the business is a sole proprietorship), and the business owner is responsible for monitoring payments even if additional cards are issued to staff.

Typically, a small-business owner must personally guarantee a small-business credit card; however, certain small-business credit cards feature joint and several liability, where the owner and the business share liability. A creditor may pursue either the business or the owner for a debt in the case of joint and several liability.

With the majority of corporate credit cards, the firm is often accountable for the debt on employees’ cards, which is a major benefit in the eyes of many business owners. If the firm guarantees the debt, the owner is not liable if, for example, the company fails to pay its bills.

Some corporate credit cards also provide individual responsibility. Therefore, the employee must pay the amount immediately and request reimbursement upon submitting the expenditure report. This is less prevalent than it once was. It may not be optimal for employees, who may be unable to pay for substantial expenses until their expense report has been processed.

How does one get eligible for a corporate credit card?

To determine whether your company qualifies for a corporate credit card, contact an issuer of corporate credit cards directly. In contrast to consumer credit cards, corporate credit cards typically have extensive application processes, and you may be needed to submit evidence that your company’s income and expenses are sufficient to warrant a corporate line of credit. Prepare yourself for a possible financial audit as part of the application process.

Can a person with poor credit obtain a business credit card? Since business credit cards do not require a personal guarantee, a credit issuer will likely not perform a rigorous investigation on your personal credit. This means that your firm could qualify for a corporate credit card even if you have a low personal credit score. If, on the other hand, your firm has poor credit or a short credit history, it may be more difficult to obtain a corporate line of credit.

Conclusion

One of the most important pieces of information a business owner can know is how to manage a business credit card. With the market cycle that we are currently in, the number of potential clients who require a credit card is increasing. 

Corporate credit cards are a great tool for business owners to use, and it is important to understand them before making a decision on whether or not to use one.