Companies use corporate credit cards so that employees can charge authorized business expenses such as hotel stays and flights without relying on their own credit cards or cash. A corporate card usually carries a company’s name as well as the name of the employee designated as the cardholder.
Broadly speaking, a corporate credit card is intended for a company with millions to billions of dollars in annual revenue, while a business credit card is designed for a company of any size, including a small business or a solo entrepreneur. Both corporate and business credit cards offer different benefits and might be used for different purposes.
How Corporate Credit Cards Differ From Other Business Credit Cards
One major difference between a corporate card and a business card is who’s responsible for the debt. Companies can choose from several liability options.
— Corporate liability: The company is solely responsible for the debt. In this case, the card issuer sends the bill directly to the company.
— Individual liability: An employee holding a corporate card is responsible for the debt. In this instance, the card issuer sends the bill to the employee’s home, and the employee is expected to pay the bill. Generally, the employee then will ask the company for reimbursement.
— Joint liability: The company and the employee together are responsible for the debt. In this scenario, an employee might be held liable for debt on the card he or she uses. An American Express corporate card, for example, is a joint liability card. An employee’s personal credit won’t take a hit if the bill is paid in full within 180 days. But once that period ends, American Express will report the delinquency to the credit bureaus, and that can damage the employee’s credit.
Business credit cards typically require a personal guarantee, which means both the business and the cardholder are liable for unpaid debt. Some card issuers routinely report business credit card activity on your personal credit report; others do not, or only when your account becomes delinquent.
Another major difference between a corporate card and a business card is who’s eligible to get one. Typically, a corporate credit card is meant for a company that generates at least $4 million in revenue per year. Additionally, a large nonprofit organization or government agency might qualify for a corporate card. Business credit cards generally have looser revenue requirements or rely on the personal credit standing of the cardholder.
[Read: Best Business Credit Cards.]
Corporate cards may be available from large credit card issuers, including American Express, Capital One, Citibank, Chase and Wells Fargo. Although these issuers may also offer personal and small business credit cards, corporate cards are a different product line.
How Do You Qualify for a Corporate Credit Card?
Aside from minimum annual revenue in the millions, qualifications for a corporate card typically include:
— At least 15 users of the corporate account within the company.
— Projected credit card charges of $250,000 or more a year.
— Registration as an S corporation or a C corporation.
A company seeking an American Express corporate card must be in business for at least 12 months; must have a business address that’s not a home address; and must not be a sole proprietorship.
Other requirements may come into play as well. For instance, corporate credit card issuers could ask for:
— Your company’s recent audited financial statements.
— Details about your company’s structure and organization.
— Tax information, including a federal tax ID.
— Contact information for an officer at your company who’s authorized to do business on the company’s behalf. This could be the company’s owner, president, treasurer or general manager, for example.
Furthermore, a company applying for a corporate card may need to have its own business credit report and business credit score. Your company may have a credit score once you start opening accounts in the name of your business rather than in your own name. You can check your business credit with resources including Nav.com and Credit.net.
Corporate Credit Card Benefits
One of the key advantages of a corporate credit card is the ability to more easily manage expenses. For instance, a company can impose limits on how much a cardholder can spend overall or per transaction. It can even control where a card is used, limiting purchases to certain types of merchants or certain countries.
For employees, a corporate card can deliver financial relief. It can eliminate the need for an employee to cover expenses such as hotel stays and flights out of his or her own pocket and then wait to be reimbursed. In addition, a corporate card can enable an employee to skip the tedious tasks of keeping receipts and submitting reimbursement forms.
[Read: Best Travel Rewards Credit Cards.]
Corporate credit cards also come with an array of perks. American Express’ Corporate Platinum Card, for example, provides access to more than 1,100 airport lounges in 120 countries, while its Corporate Gold Card reimburses fees for membership in Global Entry and TSA Precheck programs, which can help you get through airport security and customs faster.
The One Card from Capital One earns 1.5 points per dollar on purchases if you choose a 14-day billing cycle, or 1.25 points per dollar on a 30-day billing cycle.
Visa-branded corporate cards provide benefits such as emergency cash advances; help finding lost luggage; replacement of your lost, stolen or damaged card within one business day; insurance coverage for rental car losses caused by collision or theft if you used your card to reserve and pay for the car; and emergency assistance services, including emergency medical transportation.
Corporate Credit Card Drawbacks
Although corporate credit cards can be useful for companies and organizations, they aren’t without the risks and drawbacks inherent to all types of business credit cards.
One of the biggest problems with corporate credit cards is fraud — specifically, an employee putting personal expenses on a corporate card. Organizations lose an estimated 5 percent of their annual revenue to fraud, including corporate card schemes.
Another problem: A corporate card might encourage an employee to spend more freely, such as booking a stay at a luxury resort or forking over $400 for an extravagant dinner with a client.
On top of that, putting corporate cards in the hands of employees boosts the chances that a credit card or data associated with it could be stolen.
Under the Credit CARD Act of 2009, corporate credit cards don’t have the same legal protections as consumer credit cards. A card issuer could change the grace periods or raise the APR of a corporate card with little or no warning. Also, the CARD Act doesn’t cap over-the-limit and late fees for corporate cards.
However, some issuers have extended some or all CARD Act protections to holders of business credit cards and corporate cards.
Rewards earnings may not be available with corporate credit cards, and of the corporate cards that offer rewards, earnings rates may not be as robust as with small business or personal credit cards. Corporate credit cards may offer a rewards rate of 1 percent cash back, while numerous consumer rewards credit cards are available with cash back rates of 2 percent or higher. And employees may not be able to keep rewards earned on their credit cards and redeem them, as companies may hang onto hotel points or airline miles.
[Read: Best Rewards Credit Cards.]
What Companies Need to Know About Using Corporate Credit Cards
Companies must keep an eye on corporate credit card spending. One suggestion: Require receipts for all charges greater than $75.
Other steps a company can take to ensure that corporate cards are being used properly include:
— Institute a policy covering use of corporate cards. This could involve banning card use for personal expenses; setting rules about spending limits; and mandating that only the employee authorized to have the card can use it.
— Require each employee who has a corporate card to sign an agreement that details the company’s expectations for card use. This document should spell out how an employee will be penalized for violating the rules.
— Review each cardholder’s credit card charges monthly.
What Users Need to Know About Corporate Credit Cards
As noted by Harvard University in the guidelines for its corporate card, employees should treat a corporate card the same way they’d treat a personal card — with great care.
Perhaps most importantly, a corporate credit card user should be aware of spending limits and other rules a company establishes, such as how expense reports are handled and what kinds of expenses are allowed. For example, in late 2018, athletic apparel company Under Armour Inc. banned the use of its corporate cards to pay for visits to strip clubs.
Secondly, be aware that your personal credit history might be tied to a corporate credit card, depending on the liability option. For instance, a card issuer might pull your credit report before issuing a corporate card with your name on it, and your credit score might decline temporarily. However, the card won’t appear on your credit report. As a result, your credit score normally won’t be dinged if the company fails to make a card payment on time.
But if the bill has gone unpaid for 180 days and your corporate card has joint liability, the late payment will be reported to the credit bureaus, and your personal credit score could drop.
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How Do Corporate Credit Cards Work? originally appeared on usnews.com
