Business & Corporate Credit Cards: Usage Tips, Pitfalls & FAQ
Credit cards are essential to modern commerce. Most people only understand the consumer side of things – using plastic to make purchases and carry debt, but credit cards are important on the other side of the proverbial register as well.
A number of high-profile companies, including Google and Harmonix Music Systems, were funded entirely with credit cards in the early going. In fact, about 42% of small businesses use credit cards as their primary funding vehicle. But credit cards obviously play a major role with larger and more established companies as well. From business owners using rewards cards to effectively reduce the cost of office supplies and telecom services to large corporations giving corporate cards to employees for streamlined expense tracking, plastic is ubiquitous.
Learning how to wield it properly – whether you’re a business owner, manager, or employee – is therefore essential.
Business Credit Cards vs. Corporate Credit Cards
People often use the terms business credit card and corporate credit card interchangeably. It’s understandable too, since both terms can be used to describe the same piece of plastic – just from different perspectives.
In general, the term “business credit card” is used to describe the plastic used by small businesses (companies with up to 500 employees or around $15 million in annual revenue). Small business credit cards are also known for offering unique expense tracking tools that can help with budgeting and business analysis.
Small business credit card users can also add employees to their accounts as authorized users. This enables employees to make company-related purchases, while giving employers the ability to set custom spending limits for different people and monitor each person’s exact usage habits.
The term “corporate credit card”, on the other hand, is typically used to describe the credit cards that large companies provide to their employees for work-related spending. For example, folks in sales and consulting are often given corporate credit cards to pay for travel. Much like with authorized users on small business accounts, the company pays the issuer directly for your spending.
Under some corporate credit card programs, however, employees are free to use their personal credit cards and submit expense reports that document company-related spending, for which they are subsequently reimbursed. This enables employees to earn rewards on work-related expenses.
How to Get a Business Credit Card
Getting a business credit card is pretty much the same as getting plastic for personal use. You’ll need to first compare relevant offers in order to find the best card for your needs and then submit an application. The only additional information that you’ll need to provide is your company’s Tax ID Number (TIN) / Employer ID Number (EIN), along with your own Social Security Number (SSN). The issuer will then base its approval decision largely on what’s in your personal credit reports, your company’s revenue, and how much disposable income you have as an individual.
As you can see, business credit cards are inherently connected to your personal finances. In addition to pulling personal credit reports when making approval decisions, major card issuers hold their small business customers personally liable for unpaid balances and relay monthly usage information to the owner’s personal credit files.
That is an extremely important point to note because the Credit CARD Act of 2009 does not apply to business credit cards. That means issuers can, among other things, increase the interest rates on your revolving business card debt whenever they feel like it.
Small business credit cards are nevertheless extremely valuable, especially when it comes to accounting and business-specific rewards. Most business credit cards provide online account management features that enable users to set budgets, categorize expenses, establish custom spending limits for employee authorized users, and track performance over time via detailed periodic expense reports. Business credit cards are also known for offering attractive rewards earning rates in expense categories like office supplies and telecommunications services, which are not emphasized on the general-consumer market.
Small business owners are, as a result, best off using a two-card system that is comprised of: 1) a personal 0% credit card for company funding in order to garner debt stability by avoiding random interest rate increases; and 2) a business rewards credit card for everyday spending that can be paid off in full each month. This will enable you to benefit collectively from the various features and protections that make personal credit cards and business credit cards individually unique.
To take your business credit card accounting to the next level, try what’s known as the Island Approach. This basically entails using different cards in specifically designated situations, allowing you to focus on maximizing one term on each card that you get and thereby earning the most rewards or paying the lowest rate on every single transaction that you make. For example, if your two biggest business expenses are gas and office supplies, you may not find one card that offers market-best rewards in both categories, but you can certainly find a pair of cards that each excel in one regard.
Credit Cards for Employees
Most issuers allow small business owners to add anyone they want as an authorized user without the need for a credit check. All they need is your consent as well as the employee’s name, date of birth, and SSN.
Just because you can add an authorized user doesn’t mean you should, however. While the dynamics are roughly the same whether you’re thinking about adding a child to your personal account or an employee to your business account, the stakes are much higher in a business setting. Business credit cards tend to have higher credit lines than personal cards, and you probably don’t know your employees quite as well as your family. If an employee goes rogue, racks up a bunch of charges, and then quits, you’ll be liable for their spending nonetheless.
|Issuer||Issuer Approval Required?||Liability for Authorized User Spending|
|American Express||YES||Business Owner|
|Capital One||NO||Business Owner|
|Wells Fargo||NO||Business Owner|
It’s therefore important to think long and hard about conferring spending power upon your employees. Keep in mind, however, that deciding whether or not to give an employee a credit card is only the first step. You’ll also need to set a custom spending limit for each employee that has access to company plastic.
Needless to say, it’s best to make an employee’s credit limit directly proportional to how much they need to spend for business purposes over the course of a normal month. You should also consider decreasing employee credit limits to a figure as low as $100 during slow periods when employees aren’t supposed to be spending much, if at all.
Finally, you’ll need to establish an expense approval and documentation system. This will help you keep track of minor expenses as well as avoid any costly confusion when it comes to larger transactions.
“Establish clear policies for expenses requiring prior approval and those permissibly left to the employee's judgment,” suggests Matthew D. Bailey, the Howard I. Scott Research Professor of Management at Bucknell University. “Utilize an employee company credit card for all expenses without prior approval and establish a consistent system of reporting expenses. For very small businesses this could be a verbal approval (especially for time-sensitive decisions), however, the expense approval (amount and timing) should still be documented.”
Regularly reviewing employee spending habits with your employees themselves can thereafter provide both necessary oversight and an opportunity to promote financial literacy – which can, of course, pay major dividends for a small business owner.
“If the employee feels accountable for their decisions when using a company credit card, we would assume they will begin to examine such expenses more closely,” Bailey says. “Clearly the first step toward personal financial literacy is understanding your expenses and, hopefully, having to do so with a company credit card would promote such behavior in their personal life.”
Tips for Using a Corporate Credit Card
An employee’s access to credit depends on company policy and whether or not they’re given the authority to make purchases on the firm’s behalf. Authorized employees typically are either given a company card or allowed to use a personal card and get reimbursed at a later date.
- Choose Reimbursement, Unless Your Employer is Struggling: Using a personal credit card for work-related spending can be lucrative, since you’re able to keep the rewards that you earn as well as build credit in your own name. The only time you don’t want to opt for such an arrangement, if offered, is when your employer is having financial problems. You don’t want to wind up with an unreimbursed bill if the company goes under, after all.
- Choose Wisely, If Given the Chance: If you’ve decided to use your own card for company-related transactions, get one that offers lucrative rewards in your biggest work-related spending categories. For example, someone who goes on a lot of business trips should gravitate to one of the best travel rewards cards.
- Keep Your Receipts: It’s important that your expense reports are accurate – you don’t want to get shorted or caught trying to game the system, after all – and trying to rely on memory isn’t wise. Asking for and keeping track of the receipt whenever you make a business-related purchase is undoubtedly the way to go.
- Don’t Abuse the Privilege: Not only is it dishonest and wrong, but trying to get your employer to pay for non-work-related purchases is also dangerous. For starters, you’ll probably be caught. And that means you’ll either be fired or your boss will lose both confidence and esteem in you. What’s more, you’re inevitably going to have to pay for the purchases, and that can cause a domino effect if you weren’t planning on footing the bill.
- Make Rewards Personal: Generally, there are ways to earn rewards that you can use personally – even when you’re paying with a card provided by your employer. For example, if you fly with the same airline or stay at the same hotel chain a lot, register for their loyalty rewards program in your own name.
- Use It or Lose It: If you are able to spend a designated amount every day, week, or month and you have a lot of spending power left at the end of the month, eat at a nice restaurant rather than fast food when you’re on the road or think of mobile applications, office supplies, etc., that might make you more efficient.
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