Corporate card programs are a powerful way for businesses to take advantage of great benefits like travel discounts and control spend. Different from other business credit cards, corporate card programs require your company meet certain criteria such as a minimum of $4M in revenue and have been in business for 12 months in exchange for these benefits. Programs can also be customized to help your company mitigate risk, but you need to clearly understand your options in order to build a program that’s right for you.
We’ve outlined and explained the top 3 areas you need to learn about in order to create a low-risk corporate card program.
Understanding Liability Models
There are two types of liability models to choose from when building your corporate card program: Individual or Corporate liability. The important thing to consider is that neither model leaves only one entity entirely liable, there are exceptions for both. It’s important to understand what each actually means and how the liability is decided.
An Individual Liability Model first holds the employee (card holder) responsible for payment of any outstanding balances. It requires a “soft credit check” of the employee’s credit history (which does not affect their credit score) and requires personal information. The credit check will affect the spending limit of the card or may even cause the application to be denied by the card issuer.
It’s important to know that your company will still be considered a “debtor of last resort” with an individual liability model, which means if the card issuer cannot collect payment from the employee, you may still end up being held liable. Because of this, it’s often argued that a true individual liability model does not exist, since ultimately the card issuer has recourse over both the individual and the corporation when attempting to recover funds.
A Corporate Liability Model looks to the corporate owner of the card program for payment of any outstanding balances. Cards are distributed as decided by the corporation and there is no credit check performed on the employee. The card limit is determined by the credit standing of the corporation.
However, as a means of protection, it’s common for most corporate liability models to include a liability waiver that exonerates the company from responsibility for reimbursed or personal charges.
In 2004, 60% of companies opted for individual liability programs. However, by 2010, the popularity was reversed with 65% of companies choosing corporate liability, largely due to companies wanting to give employees the needed spending limits to fulfill their role. You can find more information on liability models in this guide written by Bank of America.
Know Your Billing & Payment Options
The largest concern for most companies creating a corporate card program is accountability. There is worry that holding employees accountable and preventing misuse or abuse of company credit cards will be challenging. Besides selecting a liability model, you can also offset these concerns by understanding your billing and payment options.
Individual Billing sends the credit card statement directly to the employee.
Individual Payment requires that the employee pay the statement balance and then get reimbursed by the company. This can also be broken down to require employees pay a specific percentage of a statement balance.
Instead of cutting employees out of the process so they never see a bill or make a payment, you can create your corporate card policy using these options to build in accountability and responsibility.
Additional Card Controls
In addition to selecting a liability model and billing and payment options, your company can add in additional layers of controls to help mitigate risk.
Spend controls allow you to determine not only how much an employee can spend per day, but also per category – changing the limit for office supplies versus travel.
Limit the number of transactions allowed in a day to prevent overuse.
Prohibit cash advances so that an employee can’t complete purchases without a paper trail of the transactions.
The most important part of creating a successful corporate card program is creating a mutually respectful policy with accountability on both sides. If employees feel that you are respecting their cash flow, they will respect yours, but by keeping both sides accountable and reconciling the statement monthly, you won’t have to wonder. If you need help reconciling your corporate cards, check out our blog post on our corporate card dashboard.