What are Corporate Credit Cards? - Different Types of Cards
Credit cards have been a great financial innovation that has revolutionized personal banking. As far as retail banking is concerned, credit cards offer one of the best returns on investment for banks. Credit card divisions at most banks have been growing at a rapid pace.
Over time, commercial banks realized that there is no need for credit cards to be restricted to the retail banking space. This is when commercial banks started offering credit cards to corporations as well. This was the beginning of corporate credit cards.
Today, corporate credit cards are an important part of the overall portfolio of goods and services which commercial banks provide to corporations. In this article, we will have a closer look at what corporate cards are and the various benefits which accrue to corporations once they avail corporate cards from commercial banks.
What are Corporate Credit Cards?
Corporate credit cards are just like individual credit cards except they are issued to employees of a certain organization. The purpose of a corporate credit card is to provide an employee the freedom to be able to conveniently spend money on business-related expenses.
There are some business employees who have to travel frequently or visit restaurants and hotels with clients on behalf of the company. Often they are required to first spend the money from their pocket and then later claim the same from the corporation. Corporate credit cards eliminate the need to do so. Instead, corporate credit cards allow the employees to spend money on corporate expenses in a streamlined manner which is easier to account for.
Types of Corporate Credit Cards
There are two broad categories of corporate credit cards which are issued by any commercial bank. They are as follows:
- Individual Liability Credit Cards: Individual liability credit cards mean that the card primarily belongs to the individual holding the card. Hence, the individual is responsible for paying all the bills, fees, and charges to the credit card company on the due date. However, these individuals can then claim reimbursement based on company policy. In such cases, the credit history of the employee is also considered to be important in addition to the creditworthiness of the corporation itself. This is the reason that in such cases, banks do run a credit check on the individual. However, such credit checks do not impact their personal credit score.
- Corporate Liability Credit Cards: Corporate liability credit cards are another type of corporate credit card. As the name suggests, in this case, the bank sends the bill directly to the corporation and not to the individual.
In such cases, the corporation assumes complete responsibility for the actions of their employee. They are liable to pay all the expenses incurred by their employee to the bank along with any fees and charges. Since individuals are not responsible for making payments, banks do not consider their credit scores either. These credit cards are issued based upon the creditworthiness of the company itself.
How Can Companies Obtain Corporate Credit Cards?
Corporate credit cards are not issued to small and medium enterprises. Such companies have different types of credit cards called business cards which are issued to them. Corporate credit cards are generally issued only to large corporations which have revenues worth millions of dollars and have project credit card expenses worth at least $250000.
The exact criteria for the issuance of corporate cards may vary from bank to bank. However, the idea is that only large corporations with large projected spending should have access to corporate credit cards. Corporations are expected to submit their audited financial statements as well as tax-related documents to prove to the bank that they are financially capable of having a corporate credit card.
There are many banks that insist that corporations should have an unambiguous and well-defined policy related to how credit cards are expected to be used. It is possible that in the absence of a well-defined policy, employees may mix personal and corporate charges which may lead to accounting discrepancies and even disputes.
Fees and Charges Associated with Corporate Credit Cards
The fees and charges on corporate credit cards are generally more compared to personal credit cards. This is because of the fact that commercial banks provide more features to their corporate clients. For example, corporations can ask the bank to limit the amount of spending based on certain merchants or even expense types. This helps corporations to control certain types of expenses.
Also, commercial banks have systems in place wherein they can transmit information related to expenses directly to the ERP system of the corporation. This enables automatic processing of credit card expenses and related payments thereby reducing the manual effort and cost.
Also, corporate credit cards have certain premium features such as access to airport lounges and also frequent flyer miles. In short corporate cards tend to be more expensive as compared to personal cards. However, companies do not mind paying extra for the added convenience.
The bottom line is that corporate credit cards are a very important product provided by commercial banks. These cards are routinely used by almost all multinational companies across the world.
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