Understanding How Employee Credit Card Works in Business

More often than not, employees spend from their own pockets to pay for company-related supplies and services. Sometimes, personal spending can be difficult to track. 

When should businesses shift to using employee credit cards? What about corporate cards: How is it any different and when to make the switch? 

Top it all off with a credit card policy and you’re set in place to leverage upon the best practices to optimize your employee credit cards. Read on to find out more.

What is an Employee Credit Card?

You want to be able to empower your employees by giving them the autonomy to spend on the business. At the same time, you’d also like visibility and control over the spending. That’s where employee credit cards can come in handy.

These are user cards the business authorizes for their employees to use for business-related spending. Most issuers would allow you to have as many user cards as you want, and they are usually free of charge.

All of these authorized cards are tied to the business’ credit card account or a prepaid business card account, so you get a bird’s eye view of every employee’s spending. As each card is issued to a named employee, accountability comes without saying as no doubt you’ll know who spends on what.

How do Employee Credit Cards Work?

Similar principles to a credit card

Because employee credit cards are an extension of company credit cards, they hold the same terms and conditions. Both operate on the “revolving credit” concept in which the employees can spend up to the credit limit on the card when the balance has been paid.

Like business credit cards, there is typically no interest charged for approximately a month during which the statement balance is paid in full. The annual percentage rate (APR) can be charged on any balance outstanding when the interest-free period ends. 

With prepaid business cards, there are no interest rates and balances to clear at the end of the month as you will only be tapping on what you have. 

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Characteristics of an employee credit card

Going back to the beauty of employee credit cards; aside from the free issuance of an unlimited number of user cards; another perk is that a business can set individual per-user limits and/or credit limits for different groups of employees to help control business spending.

Also, the adoption of employee credit cards is usually accompanied by the use of accounting and/or spend management tools to monitor employee spending and streamline expense management.

Find out how to adopt a spend management software in your company in this latest article

Payment of Employee Credit Card Balances Depending on which approach works better for your business, you can choose to either allow your employees to spend directly with the user cards you pay the balance at the end of the month – omitting the need for a reimbursement process, or the employee pays the balances and claims back the expense from the business.

Reimbursements are inevitable for any business. Before you go any further, check out our article for a guide on the top company reimbursements that growing companies should prepare for >>>

Employee Credit Cards vs. Corporate Card

What a corporate card is, it’s in its name – “Corporate.” While it has similar features to a credit card, you tend to apply for a corporate card through a special banking unit that deals with corporate card programmes. Also, the corporate aka the business, not the individual, foots the bill of the credit card debt in the case of a corporate card.

How to go about choosing to choose credit cards or corporate cards? Corporate cards tend to have a stricter set of requirements which is why newer or smaller businesses tend to go for the former. While the playing field for corporate card issuers has levelled and it’s getting easier to get a corporate card these days, some requirements remain universal as follow:

  1. Business type: Freelancer and sole trader, vs. a Pte Ltd. business
  2. Company size: Annual revenue eligibility usually starts at $4 million. Some issuers also require companies to have a minimum of 15 employee cardholders, for example.
  3. Expected activity: Some credit card issuers require a minimum expected spending quota to approve a business for a corporate credit card.

Similarities and Differences between Credit Card and Corporate Card

  Company Credit Card Corporate Card
Similarities
  • Allow users to set limits on individual cards.
  • Issued through a financial institution.
  • Do not require employees to spend their own money to make purchases on behalf of the business.
  • Require employees to submit their receipts to receive reimbursement for a charge.
Differences Company Credit Card Corporate Card
Eligibility
  • Available to businesses and sole proprietors with a good personal guarantee, regardless of age or size.
  • Typically need >$4 million in annual revenue.
  • Minimum of $250,000 in annual expenses.
  • At least 15 authorized cardholders to be approved.
Liability
  • Business owner has the sole liability by offering a personal guarantee.
  • Personal credit score is checked and personal account activity will be reported to the major credit bureaus under your name.
  • Business has the sole liability or that it is shared across all authorized cardholders.
  • Employees required to pay for transactions made on their corporate cards and submit expense reports.
Cost of Card
  • An average APR of 15% can apply.
  • Additional cards are usually free of charge.
  • No intro APR but card costs can be as high as $100 per card.
  • Can impose a minimum of 15 cardholders.
Rewards and Benefits
  • Rewards are a key selling point, including points at participating retailers, frequent flyer miles, cash rewards, and exclusive discounts.
  • Lower level of customer service.
  • Less focus on rewards, which are usually kept by the company.
  • Higher level of customer service.

How Important is an Employee Credit Card Use Policy?

As a business owner, you wear many hats and developing an employee credit card use policy should be one of the key responsibilities when you are dealing with your employees’ business spends. 

The policy will set out the guidelines for use of employee credit cards on only business purchases and not personal expenses, what (expense categories) and who (approved suppliers and vendors) they can spend on, responsibilities of the card holder, and consequences if a card is misused. 

You want to have that done as early as possible in your business and have the policy communicated clearly to all employees holding a credit card. Lastly, it would also help to integrate the policy within a Cloud-based solution like Spenmo which enables real-time updates to make sure everyone’s on the same page when it comes to managing business expenses.

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