Employee credit cards: How do they work?

Issuing employee credit cards has become a popular way for companies and small businesses to streamline their expense management processes. Approved purchases become easier for the employee to manage because little to no reimbursement paperwork is needed. At the same time, it offers the company a convenient way to monitor spending.

In this article, we'll cover what employee credit cards are, how they work and some of the benefits of using them in your company.

What is an employee credit card?

Employee credit cards are issued by a financial institution and facilitated by the company for business expenses. Each employee card is linked to the company's credit account, which enables them to make purchases on behalf of the business. You'll find that most employee cards include the name of the company as well as the name of the authorized individual.

How do employee credit cards work?

Similar to personal credit cards, employee credit cards have spending limits and the company must pay off the balance in full at the end of each billing cycle if they want to avoid interest charges.

Each billing cycle, the company receives itemized statements that show all transactions made using the employee credit card, and the collective spending cannot go above the company's credit limit or the limit set for that individual's card.

Companies that use employee cards may benefit from a written policy that clearly states the rules, eligibility, responsibility of the employee, spending limits, required documentation and the consequences for violations. Employee card policies should explicitly define what is a business expense and what is not. There should not be any question of what an employee can use their card for.

How are employee credit cards different than other cards?

Employee credit cards differ from personal credit cards in several aspects:

Liability

Regular (personal) credit cards are managed by individuals who are solely responsible for paying the balance and, if applicable, interest charges. The activity on the card can affect your personal credit score. In contrast, the debt incurred on an employee credit card is the responsibility of the company. Similarly, activity on the employee cards may affect the company's credit score, which is also called a business credit score.

Authorization

To get a personal credit card, you must go through an application process that reviews your credit history and approval is granted based on your personal creditworthiness. To get an employee card, it must be issued at your company's request and is usually based on your role, your responsibilities or your eligibility based on the company policy. With employee credit cards, companies usually set a credit limit on each card and any departmental spending restrictions.

Tracking and reporting

Personal credit cardholders receive a statement each month that outlines the purchases made during that billing cycle. Employee credit cards, on the other hand, typically come with comprehensive reporting including detailed transaction information and categorization that is relevant for business expense tracking. Some even sync up to popular accounting software programs, making it easy for businesses to reconcile expenses and be prepared for tax season.

What are the benefits of using employee credit cards?

Using employee credit cards can offer several benefits for companies, including the following:

Automated expense management. Detailed transaction summaries plus centralized expense tracking help streamline the processing of any purchases made by employees. This could translate to less manual work and higher accuracy.

Rewards and perks. Many employee credit card programs offer rewards and benefits. For dollars spent, employee card purchases can earn things such as travel rewards and cash back. These rewards may amass under a company's account, or in some cases, companies allow their employee cardholders to keep the rewards as part of their compensation.

Enhanced control. Most card issuers allow companies to set spending limits or restrict card usage to authorized vendors or categories. This gives companies control over spending and helps to ensure compliance with company-wide card policies.

Convenience. Employees no longer need to put business expenses on their personal cards and companies no longer need a cumbersome reimbursement process. Whether it's booking a flight or ordering office supplies, the purchase process is often more efficient when employee cards are used.

Corporate credit cards vs. small business credit cards

While both corporate credit cards and small business credit cards serve the same purpose of facilitating business purchases, there are a few distinctions.

Corporate credit cards are typically issued to larger organizations with a significant number of employees and substantial financial resources. Authorized users may be chosen based on job function, title or those who meet specific criteria set by the company. Only companies with a certain annual revenue may apply and this includes Scorporations, C-corporations or LLCs.

Small business credit cards are tailored for small- and medium-sized businesses who have fewer employees and less monthly spending than larger corporations. Some small business cards require a personal guarantee from the owner of the company before being approved.

In summary

Employee credit cards can provide a convenient solution for managing company expenses – and you might be able to earn rewards while doing so! When implemented successfully, companies can streamline expense management, simplify accounting and maintain transparency and control. In addition, employees generally prefer having this option for making purchases on behalf of the company because it's more convenient than using their personal card or cash.

Interested in learning more about employee cards for your business? Chase Ink cardmembers can add employee cards to their account at no additional cost.