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Company Credit Cards: Pros and Cons

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Many large corporations provide credit cards for their employees. But company credit cards have potential benefits for small businesses as well. Knowing the pros and cons associated with company credit cards can help you make the right decisions about whether to issue credit cards for your company – as well as which staff members should receive them.

Business Card Benefits

Business credit cards provide several benefits to entrepreneurs and small business owners that are shared with consumer credit cards, such as rewards programs. However, business credit cards also offer additional benefits. For instance, business credit cards typically have higher spending limits than consumer credit cards. Business credit cards also provide detailed monthly statements that aid recordkeeping throughout the year – and especially at tax time. Finally, business credit cards can reduce the need for cash on hand to cover work-related expenses for yourself or your employees.

Corporate versus Small Business Credit Cards

With small business credit cards, financial responsibility falls to business owners. In many cases, the card holder must pass a personal credit check along with submitting business information to qualify for small business cards. By contrast, financial responsibility for corporate business cards falls to the corporation – which after all is a separate legal entity.

There are two types of corporate credit cards: individual payment cards and company payment cards. Staff members who are issued individual payment cards must make direct payments to the credit card issuers and submitting expense reports for business related expenses. With company payment cards, the company picks up the tab for business-related expenses, while the employee pays the card issuer directly for personal charges made with the card.

Qualifying for a Business Credit Card

As stated above, many entrepreneurs and small business owners will be required to provide personal credit information along with submitting financial data about their companies to qualify for a business credit card. Such cards also frequently carry a personal guarantee requirement. In plain English: your personal assets may be vulnerable to seizure if your business defaults on the credit card.

Established corporations are usually able to obtain business credit cards without providing personal credit information about the owner or agreeing to a personal guarantee. The operative word in the previous sentence is “established.” Credit card issuers routinely subject corporations to scrupulous business credit checks before issuing corporate credit cards.

If you are a small business owner with marginal personal credit, you may face challenges obtaining a business credit card. One option is to obtain a secured business credit card. Much like a secured consumer credit card, the credit limit for a secured business credit card is at least partially secured by a deposit by the card holder. However, if used responsibly, a secured business credit card can help card holders build good business credit and ultimately qualify for an unsecured business credit card – with no personal guarantee required.

Choosing a Business Credit Card

The process of choosing a business credit card is much like the process of choosing a personal credit card. Much of the selection process will be driven by your company’s specific needs. For instance, if your company does a lot of business across the country or even abroad, you’ll probably want to choose a card with generous travel-related benefits. If your business is strictly local, perhaps a card that offers additional benefits for gas purchases is probably desirable. A card with generous cash-back rewards can be invaluable if your company makes frequent equipment or inventory purchases.

Issuing Credit Cards to Your Employees

Given that either business owners or the company bears the ultimate financial responsibility for charges made with a business credit card, it makes sense that business owners would exercise diligence in issuing business credit cards to their employees. Many corporations limit business credit cards to their top level executives. However, in a small business, this strategy may not make sense. Instead, business credit cards may be issued to employees who travel frequently on behalf of the company or to the person responsible for maintaining the company’s inventory – or to the office manager who orders company supplies.

Of course, this assumes that the people who receive credit cards are trustworthy and handle company credit cards responsibly. If you’ve practiced due diligence in hiring, chances are good that they are. Nonetheless, it makes sense to seek company credit cards that provide alerts for employee purchases. It’s also a good idea to obtain cards with flexibility in establishing appropriate credit limits .according to the reasonable needs of your company’s individual employees.

However, the possibility exists that incidents may occur – with either mismanagement or outright theft. Depending on the nature of the infraction, appropriate actions range from revoking the credit card (and demanding reimbursement) to dismissal. In such cases, financial and legal professionals should be consulted before taking definitive action.

Audrey Henderson

Posted In: Uncategorized

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