Pros and cons of corporate credit cards
Every growing business has expenses like airfare and hotel reservations paid for by employees (later reimbursed) rather than the company itself. The benefit of corporate credit cards includes keeping track of and controlling business expenses. This keeps representatives from utilizing their cash and allows the organization to pay straightforwardly, consequently making things simpler for both the employees and the businesses.
Corporate credit cards have the potential to be a growth engine for the business if used effectively. Since organizations have some control over them straightforwardly, their use can be observed and restricted easily.
What is a corporate credit card?
A kind of credit card issued for business purposes is called a corporate credit card. This indicates that the legal responsibility for all card charges lies with the business entity, not the business owner.
Corporate credit cards are typically only given to large businesses with a proven track record of success and a solid business credit history.
Frequent flyer miles and cash rebates are the benefits of corporate credit cards. Nonetheless, the greatest benefit of corporate credit cards is that individuals can be given their cards to deal with their work-explicit costs of doing business.
A corporate credit card can make it much easier for a large corporation to manage business expenses, such as paying for plane tickets.
Who can use a corporate credit card?
Individuals use personal credit cards while businesses are provided with corporate credit cards. The benefits of corporate credit cards include helping small business owners keep their personal and business expenses separate for bookkeeping and tax purposes.
Corporate credit cards frequently accompany unique advantages, yet they come up short of the purchaser securities that are expected of credit cards for people.
Benefits of corporate credit cards
1. Access to capital is given by corporate credit cards
The benefit of corporate credit cards is that the company, itself, becomes a customer. The payment history and credit score of the company are the factors that determine the available credit line.
With the help of a personal credit card or qualifications for a business, the company can typically obtain a larger credit line than the owner would. A business will always benefit from having quick access to additional capital, especially during times of growth and expansion.
Another benefit of corporate credit cards is "digital float," which is the period of time between when a credit card transaction is posted and when the balance must be paid in full before the calculation of interest. This gives organizations a grace time of roughly one month.
2. Corporate cards empower organizations to quickly scale
Organizations frequently need to burn through cash to bring in cash. Credit cards for businesses can quickly fund new technology, inventory, and equipment. When it comes to launching a new product, for instance, this advantage is valuable for both established and new businesses.
Without having to apply for a loan and wait for approval, businesses can gain the agility they need to seize new market opportunities by having immediate access to cash.
3. Corporate credit cards ease payments
The benefits of corporate credit cards allow businesses to make purchases, especially when they are made online or overseas. Making purchases from online merchants with a corporate credit card is frequently simpler.
Strong vendor relationships are a benefit of corporate credit cards for business-to-business (B2B) transactions because they settle more quickly than other payment options like waiting for a check to arrive in the mail.
4. Financial management tools provided by corporate credit cards
The benefits of corporate credit cards are broader than that of purchasing power. Financial management tools are one way that corporate credit card companies invest in the financial well-being of their corporate clients.
Clients can more accurately forecast cash flow and better analyze spending with the help of these tools. Clients don't have to worry about entering data manually because transaction data is integrated into a client's ERP and accounting systems.
The likelihood of human error can be reduced when staff members have more time to concentrate on important tasks like financial analysis as a result.
Are you confused on whether you should get a corporate card for your business? Our article on why every business should have a corporate card can be helpful for you.
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Risks associated with corporate credit card usage
Fraud and misuse
There are several benefits of Corporate credit cards such as accommodation, bonuses and rewards, and expense tracking capability.
They do, however, come with some risks. Employee misuse or fraud is one of the biggest associated risks of corporate credit cards.
Liability
The risks of corporate credit cards involves the risk of liability for unauthorized transactions. Employees' unauthorized transactions may result in the company being held liable, depending on the terms of the corporate credit card agreement.
Businesses should implement robust security measures and employee training programs to reduce this risk with corporate credit cards.
Expanded bookkeeping intricacy
Increased accounting complexity is one of the risks of corporate credit cards faced by businesses. This is because keeping track of, reporting on, and reconciling transactions is a crucial part of managing corporate credit card expenses.
A company's accounting and financial management procedures may become more complicated as a result.
Insufficient controls
The risks of corporate credit cards like fraud, misuse, and excessive spending can all result from inadequate controls. A company's financial situation can be significantly impacted by fraudulent activities.
A business credit card is more likely to be misused if there are inadequate controls. A business can suffer significant financial losses if corporate cards are misused. A company's finances can be strained by excessive reliance on credit.
Strategies to mitigate the risks associated with corporate card usage
1. Implementing spending limits and monitoring tools
Businesses should set clear spending limits for employees who use corporate cards to avoid overspending on the company's finances. Additionally, they should closely monitor employee spending and, if required, adjust credit limits to stop employees from spending too much.
Employees ought to know about the risks of corporate credit cards such as overspending and be encouraged to dependably utilize corporate cards.
2. Providing training and education to employees
Training for employees ought to cover the appropriate utilization of corporate cards, including approved costs, receipts, and documentation prerequisites. Companies can help lower their risk of being held liable for unauthorized corporate card transactions by taking these precautions.
Employees can help prevent misuse by being educated on the proper use and risks of corporate credit cards.
3. Establishing clear guidelines and policies for credit card use
Employees should be guided to use credit cards responsibly by clear policies and procedures. Businesses should also implement effective controls for spending monitoring and abuse prevention.
The risks of using corporate credit cards improperly and the significance of adhering to company policies should be properly taught to employees.
4. Regularly reviewing credit card statements and reports
Businesses should establish clear credit card usage policies and procedures, implement robust controls and monitoring systems, and educate cardholders on responsible credit card usage to reduce the risks of corporate credit cards.
The finance team is responsible for reviewing credit card reports and statements on a regular basis.
To sum up, there are numerous benefits of corporate credit cards, such as rewards, simplified expense tracking, and convenience.
Businesses should also be aware of the risks of corporate credit cards that are associated with their use, including misuse and fraud, insufficient control, increased accounting complexity, liability, and privacy and data security issues.
Businesses can effectively mitigate these risks, enjoy the benefits of corporate credit cards, maintain a healthy financial standing, and safeguard sensitive data by establishing clear policies and procedures, implementing robust controls and monitoring systems, and educating employees on responsible corporate credit card management and usage.
Manage your expenses risk-free with Volopay cards
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Volopay has both types of corporate cards, physical and virtual. These cards are installed with real-time expense tracking, direct accounting integration, two-factor authentication, spend limit restrictions, instant block and freeze, and many more features.