BlogArticleWhat is a corporate credit card and how do they work?

What is a corporate credit card and how do they work?

Published on October 4, 2024

5min

Corporate credit cards are the type of credit cards that business owners use and issue to employees. While they operate in much the same ways as personal credit cards, corporate cards have different aims.

Company credit cards give employees (cardholders) the freedom to charge authorized expenses such as business dinners, plane tickets, and hotel rooms without needing to pay for the item themselves and then seek reimbursement.

A good corporate credit card also makes it easier for the business to track and manage expenses and accrue perks.

How do corporate credit cards work?

Corporate credit cards functionally work the same as personal credit cards but obtaining them is a bit more challenging.

In order to be eligible for a company card, several requirements must be met.

An established business

The corporation must usually be registered as either an S corporation or a C Corporation. Providers will want to know who the beneficial owners (including shareholders) are, and they'll need to see proof of registration.

For example, Spendesk needs to see a list of company owners and proof of registration before issuing smart company cards. (This is a legal requirement.)

More card users; higher projected charges

Corporations are often expected to have more card users and higher projected charges. This means corporate card programs are often more expensive than personal credit cards.

On a positive note, many credit card issuers offer better incentives for corporate credit cards. Of course, this is usually offset by the higher charges incurred.

A longer application process

To ensure the standards are met, the application process may consider the financial health of the company. Evidence of adequate cash flow and liquidity as well as a strong financial record showing annual revenue are to be expected.

Credit card companies may require information about the organization and structure of the business, federal tax ID and other tax information, audited financial statements, and more.

This isn't always necessary, and the rules will largely depend on your country and state. So it's worth talking to a member of the sales team to see what's required by your chosen provider.

Company card implementation

Before providing an employee with a corporate credit card, install an orientation process to ensure they know the limits and responsibilities associated with using the card.

Some of the topics to include are the types of expenses that are covered, the penalty for adding non-covered expenses, reporting responsibilities, how to file reimbursement requests, spending limits, and what to do if the card is lost or stolen.

Create and share a well-designed company expense policy. It lists all of the above briefly and succinctly, with examples to help employees make smart decisions.

What types of corporate credit cards are there?

The two main types of corporate credit cards are individual liability and corporate liability. The types apply across the various card brands: Visa, Mastercard, American Express, and so on. They're available through various card providers that have a corporate card program such as Citi, Capital One, and TD.

Spendesk offers both Visa and Mastercard purchasing cards, which let employees move quickly and spend in a controlled environment.

Individual liability cards

An individual liability card makes the cardholder responsible for paying any charges or fees associated with the use of the card. The employee can then file an expense report to be reimbursed by their company for these costs.

With this type of corporate credit card, the issuer will need to review the employee’s credit before issuing them a card. However, the credit report they run for this type of card does not affect the employee's credit score.

Corporate liability cards

A corporate liability credit card puts the responsibility of paying the credit card issuer for any approved charges on the company. But if the employee incurs fees for misuse of the card or unauthorised expenditures, they may have to pay the credit card issuer directly for those or reimburse the company.

Since the individual has minimal liability for the repayment of the debt, their credit history is not typically run as part of the process of issuing an individual card.

What are the benefits of using a corporate credit card?

One of the most significant benefits of using a corporate credit card is how much easier it makes it to manage expenses for both the employer and the employee.

Benefits for the employer

Good corporate credit cards let you place hard limits on how much the employee can spend. Depending on the card, this could be based on the spending category, individual transactions, or the total amount.

The employer can also limit where the card can be used. Purchases could be limited to a select number of merchants, by location, or by type of merchant, such as airlines, hotels, car rental agencies, and restaurants, and related expenses.

Benefits for the employee

Employee spending becomes far simpler when they have clear credit card policies and access to employee cards when they need them. For starters, they're not paying for work costs out of pocket - an unfair system in general.

But company cards offer a few clear advantages:

1. Easier expense management

Corporate cards remove the burden of paying for all expenses upfront and then having to navigate the reimbursement process. Employees simply shouldn't have to use their personal card for business expenses, and cards ensure they don't have to.

2. Travel benefits

Many corporate credit cards provide travel benefits that can make travelling far more enjoyable with no added expense. Corporate credit cards may give the holder access to private airport lounges, provide emergency and travel assistance, and more.

Most importantly, if an employee has an unexpected delay or emergency cost, they have access to funds. Many staff can't simply fork out hundreds of dollars for a change in flight or unforeseen hotel room.

3. Rewards programs

Another employee benefit that depends on corporate policy is the ability to accrue rewards or cash back while using their corporate card. While not all companies allow individual card holders to do this, it can be very popular.

4. Easy expense reporting

Finally, for those that still have to file expenses, the best company cards make it easy to save receipts and file quick reports. Spendesk, for example, lets you do this directly from a mobile app. Budget managers see what's spent in real time, and finance teams always have the receipts they need for month-end closing.

How to choose the best corporate credit card for your business

When choosing a company card, it's important to weigh several factors. Think about these points as you make your decision:

Cost: How much are the yearly fees? What about interest if you carry a balance?
Spending room: Can the card flex with your business's cash flow and expenses?
Perks: Does it offer cash back, travel rewards, or savings on common business costs?
Safety measures: Look for cards with strong safeguards against fraud.
Use abroad: If you travel for work, pick a card that's widely accepted internationally.

After you've figured out what matters most to your business, gather up your paperwork and start the application. Each card issuer has its own process, so be ready with financial statements and other company info they might need.

Remember, the best card for you depends on your specific business needs and spending patterns. Take your time to compare options, and don't hesitate to ask issuers questions before you apply.