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Corporate Credit Cards: Convenient or Costly?

Corporate credit cards are widely used by businesses in managing company expenses. Easier and quicker than petty cash and reimbursements, business owners also enjoy some of the perks that come with it, like points and insurance. But is it the best fit for your company? We take an in-depth look at using these cards, and what it means for your business. 

Although it operates similarly to personal credit cards, company credit cards are instead linked to company accounts. Employees use the card to purchase business-related expenses such as company travel, medical, food, and others. They then submit the receipts to the finance team as proof of expenditure. 

 

Because of its exclusive nature, company cards are usually only reserved for managers and senior positions in the company. Regular employees would usually use the company’s petty cash, or go through reimbursement for expenditures. 

 

While company credit cards can be convenient, there are some drawbacks to using them. Let’s take a look at some of the main ones. 

 

Lengthy application and approval process 

Applying for any credit card isn't clear cut, and most businesses would have to go through a tedious application process. A standard application process would require businesses to submit documents such as company financial statements, company partnership agreements, meeting minutes, and company deeds. The business owners and directors would also be required to submit personal identification and financial documents. 

 

As a result, most cards take time to approve, that is, if they are approved. This does not include the shipping time for the card to finally arrive at the company’s doorstep. As a result, some businesses end up waiting months, which is not ideal for companies that require agility and flexibility. 

 

High costs of cards

Company credit cards can be costly, either directly or indirectly to the business. Generally, most business credit cards issued by banks require businesses to have a turnover of around $75,000 annually. Companies must also consider the interest rates associated with these cards, which is about 20% p.a. on average. Some of these costs could be waived by the company, but they often have strings attached - i.e. only on the first year of application. 

 

There’s also the card fee itself. Most company credit cards have an annual fee of $150 per card at a minimum, and some annual fees can go up to $1,750 a year. However, it's important to note that most banks do offer cheaper card options for small businesses, but it requires a personal guarantee, which brings us to our next point. 

 

Some cards require personal guarantees

Small businesses who wish to enjoy credit cards perks such as zero interest or low card fees would, unfortunately, be required to have a personal guarantee. Because most small or new businesses do not have an extensive credit history, banks would be unwilling to lend money without a financial commitment from the business owner. These cards are otherwise known as Personal Liability Business Credit Cards.

 

A Personal Liability Business Credit Cards would mean that the small business owner is personally liable for any outstanding debts incurred by the business. In the event of outstanding debt, the bank would look to the business owner to recover the amount and not the business entity itself. It is a risky way to manage company expenses, and it puts the business owner in an unnecessary financial position. 

 

Lack of visibility and control on spending

Just like personal credit cards, transactions on business credit cards are commonly seen only in monthly statements. But unfortunately, there is no way of knowing if the money is spent on actual company matters. 

 

Lack of visibility also means lack of control, i.e. the inability to change spending limits and budgets instantly. For example, most business credit cards require the finance personnel to call the bank in order to change lending limits. Ideally, a small business card should also give control to the finance team to stop a card immediately, rather than calling the bank to do it. Wouldn't it be better to have a card that allows you to see your expenses and change your card limits as and when you want it? 

 

Corporate credit cards still require manual receipt tracking 

While corporate credit cards require less paperwork than reimbursements and petty cash, there is still the need to manually keep track and store receipts, which can be a hassle. There's so much paperwork involved in using a company card that keeping track of receipts can become a nightmare.

 

It’s a tedious process for the employee to return the receipt to the finance personnel and an even more tedious process for the finance department to chase receipts. Receipts are also prone to being misplaced or lost, which can be another challenge. Ideally, receipts should be digitally kept and reconciled with the transaction. This makes the expense management process fuss-free for all parties involved.  

 

Prepaid corporate cards: The new way forward

With prepaid corporate cards like Budgetly, small businesses can get the convenience of a corporate credit card without worrying about personal liabilities and lengthy application process. Plus, our cards start from $10 dollars a month. 

 

To learn more about how Budgetly works, download our eBook, Managing Expenses with Budgetly. Alternatively, schedule a demo with us today to find out how we help businesses make expense management easier. 

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