How Corporate Credit Cards Work for Your Business

Corporate credit cards provide businesses with a structured way to manage employee expenses and enhance financial control. These cards are specifically designed for company use, allowing employees to make business-related purchases without using personal funds. They streamline payment processes and offer greater visibility into overall company spending.

Defining Corporate Credit Cards

A corporate credit card is a payment tool issued to a business entity, distinct from a personal credit card which is tied to an individual’s credit history. Its issuance is based on the company’s financial health, rather than the personal credit score of an owner or employee. This separation helps protect the personal assets of business owners from business liabilities. Corporate cards allow designated employees to make business purchases, with all expenses flowing into a centralized corporate account.

These cards come with customizable features designed for business operations. Companies can set specific spending limits for individual cardholders, define transaction categorization capabilities, and integrate them with existing financial systems. A primary purpose of a corporate card is to streamline expense management, improve financial control, and provide clear visibility into company spending. This structured approach ensures that purchases are aligned with company policies and budgets, simplifying financial oversight.

Understanding Program Structures

Corporate card programs primarily differ based on who holds financial responsibility for the charges incurred. The choice of program structure significantly impacts a company’s financial risk, cash flow, and administrative burden.

The Corporate Liability Model places primary financial responsibility on the business itself. The company receives the bill directly from the card issuer and is accountable for all charges. While individual cardholders use the cards, their role involves adhering to company policy and submitting expense reports, with the business assuming the debt. This model often does not require individual employee credit checks, which can be a benefit for employees.

The Individual Liability Model, in contrast, makes the employee primarily responsible for paying the credit card bill directly to the issuer. The business then reimburses the employee for approved business expenses. Card issuers may review the employee’s credit history under this structure. This model can shift some administrative burden onto employees for initial payment and reimbursement tracking.

Hybrid Models exist, combining aspects of both corporate and individual liability. For example, a program might have corporate billing where the company receives the statement, but individual employees are held accountable for specific charges, especially those that are out of policy or unauthorized. Some programs may also feature joint liability, where both the business and the employee share responsibility for the debt, allowing the card issuer to seek payment from either party if charges go unpaid.

Implementing and Administering Card Programs

Implementing a corporate card program begins with selecting a suitable provider, which could be a traditional bank or a specialized financial institution. The application process for the program involves a comprehensive assessment of the company’s creditworthiness and financial stability. Providers require businesses to meet certain criteria, such as minimum annual revenue and an established operational history. This assessment establishes the overall credit limit for the entire corporate card program.

Establishing clear internal policies and guidelines for card use is a key step in the implementation phase. These policies define what constitutes a permissible expense, outline individual employee spending limits, and mandate receipt submission requirements. These guidelines are designed to ensure compliance, control costs, and reduce the risk of misuse.

Once the program is established, the administration phase involves the practical mechanics of issuing cards to employees and managing their activation. Ongoing management activities include continuously monitoring compliance with the established policies. This involves reviewing transactions for adherence to spending limits and approved expense categories. Adjustments to spending limits may be made as needed, and procedures for handling card deactivation, such as for terminated employees or lost cards, are put into practice. Employee training on card usage policies and best practices is also important to ensure proper adherence.

Expense Tracking and Reporting

After corporate card transactions occur, the process shifts to effectively managing and accounting for the spending. Corporate card transactions are captured and integrated into a business’s financial systems, often through direct data feeds from the card provider. This automation helps eliminate manual data entry and provides real-time visibility into expenses.

Many businesses utilize expense management software (EMS) to streamline the post-transaction process. This software facilitates the categorization of expenses, allowing employees to easily attach digital or physical receipts to their transactions. Employees can then submit their expense reports electronically through the EMS, which includes automated policy compliance checks. This streamlines the workflow from employee spending to financial record-keeping.

The reconciliation process involves matching the corporate card statements with the submitted employee expense reports and their corresponding receipts. This verification ensures that all charges are legitimate, properly authorized, and correctly recorded. The reconciled data is then integrated with the company’s core accounting software to update the general ledger. This systematic tracking provides visibility into company spending, aids in accurate budgeting and financial forecasting, and simplifies the preparation of financial statements and tax filings.