There seems to be more confusion than you might expect out there on how to use a company credit card. True, millions of people use them every day without making the news, but there are also plenty of local headlines about employees getting in hot water for how they've managed their business credit card.
A quick internet search for "misuse of company credit card" returns dozens of stories about employees in all ranges of positions and sectors. CEOs to entry-level employees and folks at global companies, small non-profits and even in the government sector seem to run afoul of company credit card best practices from time to time.
So just in case anyone has questions about how a company credit card works, here are some answers and a few helpful tips as well.
1. How does a company credit card work?
Generally, a company credit card works exactly like any credit card. Company credit cards can max out, have high interest and be abused like any personal credit card. They can also offer low interest rates, 0 APR introductory rates and all kinds of rewards.
One important distinction that small business owners are probably aware of already is that business credit cards weren't as affected by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that passed in 2009. Because of that, consumer credit cards have better protections than business cards, some of which are subject to practices like two-cycle billing, which can make revolving debt more expensive on a business card than on a consumer credit card. That may not seem all that important to rank-and-file employees just swiping the company card, but small business owners applying for cards to then hand out to employees definitely need to be aware of what the CARD Act protects and what it does not.
Bottom line, in general, a company credit card is just like a consumer credit card. With it, if you have a big enough credit line, you can pretty much buy anything on the planet. That's great news for small business owners looking for a bit of cash flow, but can quickly lead to trouble for employees using a company card without a true understanding of what they should be buying with it.
2. Do late payments affect your credit score?
"There are different types of corporate credit cards, one in which the company is liable for the payment and one in which the employee is billed directly by the credit card issuer, " says John Ulzheimer, president of consumer education at SmartCredit.com.
If you, the employee, signed the application with the idea that your employer is reimbursing you or making the payments for you, that's all well and good, but the payment history can affect your credit score.
"If the payments are a little late, it doesn't necessarily mean it'll be reported to the credit bureaus, but if the payment doesn't get paid, they'll track you down and not your employer," says Ulzheimer.
But if your company gave you a credit card without your having to fill out an application, then your credit history can't be hurt -- or helped, for that matter. Still, Ulzheimer says that, "frankly, that's the type of corporate credit card, if you're an employee, that you should want. You don't want the blow back if the card is stolen or if the payments are late or any other problems arise."
It's more common to have the corporate credit card in which your credit score isn't affected at major corporations, says Ulzheimer. With smaller businesses, not so much, and it's easy to understand why if you place yourself in the entrepreneur's shoes.
"If I had just one or two employees, there's no way I would issue credit cards that made me liable for whatever they did," Ulzheimer says. "I don't have the infrastructure." Indeed, plenty of small business owners have been burned over the years by employees entrusted with a company card. That's one very, very good reason for even small business owners with only a couple of employees to consider an official small business credit card -- many of which offer the ability to set individual limits on employee cards among other business-friendly perks and protections.
3. So who gets the rewards?
It's up to the employer, but most companies allow the employee to have them, says Ulzheimer.
In the case of the smaller company, the entrepreneur may be paying the bills, but the employee is taking the risk of putting their name on the credit card and seeing their score go down if a payment is late (conversely, if the payments aren't late, this can be a good way to build credit). It's a credit card that is, after all, in the employee's name, and the employee's good credit is helping the business leverage their money. And so in those cases the employee usually takes the reward spoils.
If we're talking a corporate card with a major conglomerate, the employee has little argument that they deserve the rewards, but "most large companies will allow the employee to retain the reward benefits as a way to thank them for being on the road all the time," says Ulzheimer. But again, it's up to the employer, and there's enough anecdotal evidence out there to suggest that during the Great Recession, some companies, at least mid-sized ones, were using rewards points for their own gain, as a way to stretch the company's dollar.
One other thing to think about: If you are a small business owner banking rewards on a corporate card opened in your name, remember that those rewards could eat into the amount the Tax Man allows you to deduct as business expenses. In other words, you likely can't claim that you bought $1,000-worth of office supplies if your credit card offers 5 percent back on all office supply purchases. In that case, you are likely only able to deduct $950 as business expenses. As with any tax situation, though, it's best to talk to a tax professional who can help you address your specific situation.
Most of all, rewards or no rewards, individual or company liability, it's important to treat your first corporate credit card with due caution. Learn all you can about your company's specific credit policy and tread lightly until you know the ropes. The better decisions you can make with your company's money, the better they'll feel about letting you handle some of it in the first place.
But the bottom line with a company credit card is that it's all about the bottom line; a credit card is about serving the greater good of the company and not the employee. If someone working for The Man gets some rewards, all the better, but that's a perk and not part of the job. So if you're tempted to use your company credit card like your own, better think twice and read this article again.