Corporate credit cards are very common in companies. No matter the company’s size, they are a financial tool intended to improve and optimize daily finances and, by extension, the company’s cash flow. Let’s find out more about this type of card and learn why it can be so useful, as well as its potential advantages and disadvantages.
What are corporate credit cards?
Corporate credit cards are understood as financial products intended for a company. They are very clearly oriented to the expenses and day-to-day running of companies. For example, to cover employees’ travel expenses, the daily costs of supplies on a day-to-day basis, or unexpected expenses.
A corporate credit card is not much different from a regular credit card. Its use is the same: we can use it to make payments or purchases on credit that are due for payment within a certain time cycle. Typically, the time cycles for paying the credit charges are monthly.
On the other hand, corporate credit cards offer management and expense control tools since, through balances and expense entries, they favor better management of the finances of the company’s employees. In addition, we should add the gift programs or advantages they may have.
An important aspect is to distinguish corporate cards from business cards. They are not the same. Business cards are more oriented to small companies or even sole proprietorships. You have to consider that they are cards with more credit limitations and that not many duplicates will be issued. It is difficult for small businesses to qualify for corporate credit cards.
How do you apply for and obtain corporate credit cards?
The first thing to be clear about is that not all financial institutions apply for their products. That also applies, of course, to credit cards. That is to say, although we will show you some common aspects of all the different cards, certain suppliers may ask you for other data or complementary requirements.
The first fundamental requirement is that it is a card that only a corporation can request. In fact, they must be explicitly and formally constituted as one of these three formats:
- S-corp
- C-corp
- LLC
That means that if you do not fall under any of these legal figures, you will not be able to apply for corporate cards.
From this fundamental condition, other conditions may arise. The most common ones refer to the company’s cash flow. For example, if you want corporate credit cards with certain credit limits, it’s required that your company’s turnover exceeds a certain amount of money. Another potential prerequisite may be for the financial institution to require the company to have a certain amount of money on deposit. And finally, another variable may be carrying out a certain number of annual operations or moving a certain amount of money with corporate credit cards per year.
These amounts are variable, ranging from more or less reasonable charges for a small or medium-sized company to quantities in the millions for large companies. It is important to remember that these cards do not usually require any personal guarantee from the company’s partners. Therefore, the financial entity covers itself with this type of requirement.
Advantages and Disadvantages of Corporate Credit Cards
Within this type of corporate credit card, we find both advantages and disadvantages. We are going to review both concepts separately so that you can have a clearer vision of whether your company needs this product or not.
Advantages of a corporate card
One of the main advantages of corporate cards is that they allow a much more agile and optimized operation in the face of unforeseen expenses or travel expenses generated in the company.
On the other hand, it is also considered an interesting advantage in not requiring a personal guarantee from the partners. That avoids putting the personal assets of the entrepreneurs at risk.
Another great advantage is that it makes a good follow-up and controls the employees’ expenses. Thanks to all the control and management systems that credit cards have today, they can do that.
And, of course, there are all the added advantages that these products can have: from deferred credit payment to benefit and bonus programs.
Disadvantages of credit cards
The first disadvantage concerns the very nature of this product: it is necessary to be established as a company with certain legal conditions. Therefore, not everyone has access to these products.
On the other hand, the requirements to qualify for these cards, even if they do not include a personal guarantee, go much further and can require anything from bank deposits to company guarantees or a certain amount of annual turnover.
Finally, an important disadvantage for many companies is the need to present good corporate accounting audits. Keep in mind that good corporate credit history is essential to be able to obtain this product. Any cash flow setback can negatively affect your credit history.