Here’s a familiar story:
You’re running a young business. You have a few expenses here and there – purchasing a web domain, getting started with WordPress, and the like. You simply use your own personal credit card and then expense it – easy.
Business is going great, and you’re starting to scale. But now, every week you’re passing out your personal credit card to different members of your team and collecting receipts. Your accounting at the end of the month involves a lot of detective work, trying to figure out which expenses, out of the sea of personal purchases, are actually for your business.
It’s time to get a business card.
At this point businesses typically look into getting some sort of company credit card or even a corporate expense card.
While they both can be used in similar ways, these two cards are fundamentally different. Depending on your business (size, growth, financial circumstances) one might be better suited than the other. Today we’re comparing them head to head, to help you evaluate which one is right for your business.
Company credit cards are often the go-to business card for many entrepreneurs.
Credit cards offer rewards. Many credit card companies have very attractive reward incentives for signing up and using their card, such as cashback, air miles, and even shopping/dining discounts.
You can build your credit score. The more you use your credit card and pay your expenses on time, the better your business credit score will be. This will make it more advantageous in the future if you choose to apply for loans, since a higher credit score typically means an easier time getting approved and lower interest rates.
Credit cards offer financial padding. At the end of the day, the essence of a credit card is money that you can use now, and pay back later. So when sales are slow or payments are late, with credit cards, you have some extra financial padding if you need it.
There can be potential for card misuse. If you lose your card or someone gets ahold of your card number, people could be making purchases with your credit – a.k.a. money that is not yours and you may not have. In some cases, you may not even notice the misuse. Chargeback cases are complicated and often take months to resolve.
You can only track what people have spent after they’ve spent it. If your policies and rules around budgets and expenses aren’t clear (as is often the in small businesses), it can be easy for employees to spend more than what you’d originally expected. This might make it difficult to forecast and adhere to budgets you want to follow.
There may be barriers to getting qualified. For the most part, credit card companies want your business. However, if you’re running a young business, that’s when you can run into some difficulties. Some require companies to have been running for a certain amount of time, or have a certain amount in annual revenue to qualify. Another complication can come if you’re not a resident of the country that credit card is issued in (but you do business there). For example, if you’re doing business in Hong Kong, you must often be a Hong Kong resident to get a credit card.
It can potentially impact your personal credit. For small businesses, sometimes banks require business owners to provide a personal guarantee – meaning that if the business for some reason can’t pay off the debt, you promise to pay it. This puts additional risk on you personally.
Corporate expense cards are prepaid debit cards for businesses and a solution that FinTech companies are innovating on.
You won’t go into debt. Any purchases you make using an expense card is using money you already have. There’s no borrowing involved, meaning you’ll never rack up any interest, late fees, or over-limit charges.
You have greater control over how much can be spent. Since you need to first load up your card with money, you can set firm budgets for spending. If you decide that $500 is your budget, then you can top up the card with $500, and not a penny more can be spent.
You can manage your card through an app. Today, many modern corporate expense card solutions come with mobile apps that help you to keep track of everything through your phone. These apps typically allow you to top up your card, see recorded transactions, add receipts and even freeze your card if you lose it.
You can get cards for all employees, with less barriers to entry. Prepaid cards often do not have minimum revenue requirements; even if your company does qualify for a corporate credit card, you can often only get one for the entire company. Expense cards, on the other hand, allow you to offer cards to any employee that needs it. This can be convenient for employees who often need to make expenses, for example during business trips.
They’re not as widely accepted. Normally to vendors, there isn’t much difference between a credit card and prepaid debit – that being said there are some merchants that don’t accept prepaid cards.
You have to remember to top up funds. With expense cards, you have to regularly remember to top it up before you use it – otherwise, you’ll have nothing to spend. If you’re using your card very regularly, you’ll need to top it up in large amounts or remember to do it more frequently.
It can be difficult to recover funds if you lose your card. When it comes to a corporate expense card, your funds aren’t being used for a bank’s financing – which sometimes means there is less incentive to recover your money.
For younger businesses, choosing one or the other will typically do everything you’ll need it to. Of course, as you start to grow, there’s nothing stopping you from getting both solutions.
Elizabeth Ching is the PR & Content Manager at Neat, a modern alternative to banks, built for entrepreneurs, startups, and SMEs. With every Neat Business account, we offer corporate expense cards that can work in tandem with a simple app on your phone.