What Is a Corporate Card and How Does It Work?

A corporate card serves as a financial instrument issued by a company to its employees for making business-related purchases. Its primary purpose is to streamline the management of company expenses, providing a dedicated means for employees to cover costs such as travel, office supplies, and client entertainment. This tool helps businesses maintain control over spending and simplify financial tracking.

Defining Corporate Cards and Core Functionality

A corporate card differs from a personal credit card in liability and purpose. Unlike personal credit cards tied to individual credit, corporate cards are issued to employees but linked to the company’s financial standing. The company typically holds primary responsibility for repayment.

For employees, the card functions like a personal credit card for purchases. Employees do not use personal funds, eliminating out-of-pocket spending. Transactions are recorded directly on company statements, providing a clear audit trail and simplifying accounting.

How Corporate Cards Support Business Operations

Corporate cards offer operational advantages by streamlining expense management. They reduce the administrative burden of traditional reimbursement systems, where employees use personal funds and submit expense reports. This efficiency allows finance teams to focus on strategic financial analysis.

These cards enhance financial visibility with real-time data on employee spending. Companies monitor expenditures as they occur, identifying spending patterns or policy deviations. This oversight improves budgetary control and helps businesses make informed financial decisions.

Corporate cards simplify reconciliation. All business expenses are consolidated onto single statements, minimizing manual data entry and reducing errors for accurate financial reporting.

Corporate cards help enforce company spending policies. Businesses can set spending limits, restrict purchases to certain merchant categories, or limit transactions to approved vendors. This ensures compliance with internal policies and regulatory requirements for tax deductions. The Internal Revenue Service requires records to substantiate business expenses, and corporate card statements provide much of this documentation.

Different Types of Corporate Card Programs

Businesses choose from several corporate card programs, each with distinct liability structures.

The corporate liability program is a common model where the company is solely responsible for all charges. The company’s creditworthiness determines credit limits and terms; employee individual credit is not checked.

The individual liability program places primary responsibility for paying the card balance on the employee, even for business expenses. The company may reimburse approved expenses, but the direct financial obligation rests with the cardholder.

Hybrid models combine aspects of both, with the company ultimately liable but employees potentially responsible for unauthorized spending. Prepaid corporate cards operate like debit cards, with funds loaded in advance, offering strict spending control.

Implementing and Managing a Corporate Card Program

Establishing a corporate card program involves steps for control and integration. Companies apply through a financial institution, which assesses business stability and creditworthiness to determine limits and terms. This requires submitting financial statements, tax identification numbers, and other business documentation. Once approved, the company issues cards to designated employees.

Developing clear spending policies is an important aspect of implementation. These policies outline permissible expenses, spending limits, and procedures for submitting receipts and expense reports. For example, policies might specify travel expenses within a per diem rate or certain entertainment expenses requiring pre-approval.

Integrating the corporate card program with existing accounting systems or expense management software is important. This automates transaction data flow from the card provider into company financial records, reducing manual data entry and improving accuracy.

Ongoing management involves continuous monitoring of card usage and regular reconciliation. Finance teams review transactions against company policies to identify unauthorized spending. Many card programs offer online portals with detailed transaction histories and reporting tools. Regular reconciliation of card statements with expense reports ensures transactions are accurately recorded, maintaining financial integrity and compliance.