We’ll walk you through how to create a corporate credit card policy, from identifying its purpose and determining eligibility requirements to establishing employees’ reporting requirements and having them sign the agreement. Your policy must cover rules on eligibility, spending limits, documentation requirements, use of rewards, payment terms, limitations, and consequences for noncompliance.
While you can create your policy from scratch, using a template helps with legal compliance and avoiding mistakes. To assist you, we’ve created a free downloadable corporate credit card policy template you can edit and use.
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If you want an easier way to create a corporate credit card policy, Rocket Lawyer can help. The online legal service provider offers custom legal documents, including a corporate credit card policy template that’s completely customizable to your needs.
Step 1: Identify the Purpose & Effectivity Date of the Policy
The purpose of the policy must be clearly stated to ensure that everyone involved understands the reason why there is a corporate credit card policy. In addition, the policy should include the date when it will take effect to avoid confusion.
Step 2: Identify the Type of Corporate Credit Card the Company Is Using
There are two types of corporate credit cards:
- Company liability cards: The company assumes complete responsibility for the use of the card. The issuer will send the bill directly to the company, and the company will be liable to pay all expenses charged to the card.
- Individual liability cards: These typically belong to the employees holding the card, and they are primarily responsible for paying their bills. The employees will then request reimbursement from the company based on the corporate credit card policy.
Understanding the card-specific requirements helps you create a better corporate credit card policy, taking into consideration the cardholder liability, reporting requirements, and expense reimbursements, if applicable.
Step 3: Determine the Eligibility Requirements
Corporate credit card policies should outline the eligibility requirements regarding who can be issued a card. Some companies only issue corporate credit cards to full-time employees. Other companies limit cards to specific departments, such as sales and purchasing.
Additionally, it’s important to decide how corporate credit cards are to be issued. For example, some companies determine the employees who are eligible for the card, while others require employees to submit an internal application for approval.
Step 4: Set Limitations & Acceptable Usage
A corporate credit card policy should include the acceptable usage of the card and any restrictions. To prevent abuse and misuse, it’s crucial to limit your corporate credit card spending based on certain factors, such as:
- Frequency limits: Some credit card companies allow you to limit the number of times a card can be used in a week or a month. In most cases, you may set the days when the card can be used (for example, on weekdays only).
- Spending caps: You can also limit a weekly or monthly spending cap for each employee, depending on their business-related spending needs. This is to avoid unnecessary expenses and potential overspending.
- Expense categories and approved merchants: You can also set the expense categories and merchants for which and where the credit card may be used. For instance, the card may only be used for fuel expenses at specific gas stations.
Typically, corporate credit cards allow you to set different limits per employee depending on their roles. If you plan to set different limits, it’s best to also include this in your policy. In addition, if you allow certain exceptions to the restrictions stated above, you need to indicate the approval process. For example, if there is a need for an employee to spend over the spending limit, you should indicate the step-by-step process on how the employee should obtain approval.
Step 5: Establish Reporting Requirements From Employees
Some companies require expense reports for individual liability and company liability cards. Since the bill for individual liability cards is sent to each cardholder, employees typically submit an expense report to the accounting department with their bill attached to request payment. Once approved, the bill is paid on behalf of the employee.
On the other hand, the bill for company liability cards is sent directly to the company with details of all expenses charged on employee cards. The company might pay the bill before any expense reports are submitted, but you may also require each cardholder to submit detailed reports within a certain period to ensure that all charges are authorized.
Make sure to outline your expense reporting policies and procedures, such as required receipts, justification for each expense, and the approval process.
If you don’t want to go through the hassle of manual employee expense reports, use prepaid business cards from a service like Emburse Spend Card (read our Emburse Spend Card review to learn more). You can easily control spending limits and expense categories through an online dashboard and eliminate processes such as approvals and expense reports.
Step 6: Determine the Consequences for Inappropriate Usage & Policy Breach
If your employee breaches any provision of your corporate credit card policy and uses the card inappropriately, it’s important to identify the consequences clearly. Smaller infractions, such as a salesperson overspending on a client, might result in the temporary suspension of their corporate credit card. Larger issues, however, such as fraud, can result in the termination of an employee.
Step 7: Identify Who Will Authorize Transactions & Enforce the Policy
Identify the authorized person who enforces your corporate credit card policy. This person will also be responsible for things like credit card repayment, expense report approval, authorization for transactions, and any disciplinary actions resulting from credit card misuse.
Typically, the chief operations officer (COO) or chief financial officer (CFO) of a company takes ownership of a corporate credit card policy. However, business owners, CEOs, and other senior leaders are also known to enforce corporate credit card policies.
Step 8: Review the Policy & Have Employees Sign the Agreement
Once everything is in place, review the policy and disseminate copies to the concerned employees. It’s best to have someone from management or HR discuss the terms of the policy with employees. Ensure that their questions are answered and that they have read and understood the provisions, terms, and conditions of the policy before they sign the agreement.
What to Include in Your Corporate Credit Card Policy & Why
Corporate credit card policies vary depending on the business. If you are unsure how to create a corporate credit card policy, the following guidelines can help ensure that your policy is transparent and unambiguous:
The eligibility section lists the types of employees, roles, or departments that are eligible for corporate credit cards. The card issuance section describes the approval process for issuing new cards.
The credit limits section clearly defines limitations, including frequency limits, monthly credit limits, limits on specific expense categories, and merchant restrictions. You’ll want to include limits for travel, entertainment, office equipment, and any other expenses if you plan to set separate limits for each spending category.
Note that card issuers may put a limit on your corporate credit card account. If this is the case, it’s important that you know the corporate limits placed on your account. It’s possible for these limits to be either an overall corporate credit limit or a card-specific limit.
The acceptable use section of a company credit card policy outlines the allowable expenses charged to a corporate credit card. Often, companies will denote here that the card is for “approved business expenses only.” Meanwhile, the prohibited use section should clearly identify the credit card transactions that are deemed inappropriate and prohibited (e.g., personal expenses).
This section is applicable if you require employee-submitted expense reports. Expense reporting is a good idea because it helps keep cardholders accountable for their spending. Things such as required receipts, the due date of expense reports, and a description of and the reason for the purchase are included here.
Card issuers are specific about the liability of cardholders.
- If you have a company liability card, your business is responsible for all credit card payments, and your employees aren’t liable.
- If you have an individual liability card, your card issuer will hold either the individual liable or both the company and the cardholder jointly liable.
In addition, payment terms are an important component of a corporate credit card policy. The specific terms outlined by the card issuer dictate the policies you create around card repayment. For instance, many corporate credit cards allow you to carry a balance, while some corporate credit cards require that balances be paid in full each billing cycle. You must include who will be responsible for paying the APR Annual Percentage Rate and late fees in your corporate credit card policy.
The rewards section outlines the ownership of the company credit cards. It’s important that your company credit card policy clearly defines who has the right to redeem rewards and how they should be used. The card cancellation section should include the company’s right to cancel or suspend corporate credit cards as needed.
This section defines the potential consequences of credit card misuse and violations of the terms of the corporate credit card policy agreement. The policy should include the corresponding penalties for specific violations, such as revocation of card privileges, disciplinary action, or even termination of employment.
The disputed items section addresses the potential for erroneous charges on an employee’s corporate credit card. It’s common for businesses to hold their employees responsible for clearing up any disputed charges, returns, or adjustments on their cards. The employee responsibilities section should list all the expected obligations from a cardholder.
Best Practices for Corporate Credit Card Policies
The following tips can help ensure that all stakeholders use the corporate credit card appropriately and reduce your company’s financial risks:
- Enforce the policy: To ensure that everyone in the organization will respect your policy, you need to be strict in enforcing it. All employees, even those with high ranks, should comply with the rules and regulations stipulated in the agreement.
- Adjust the terms as needed: Review your policies and procedures periodically and study the spending trends and expense patterns in your business. Adjust any outdated terms to ensure that your corporate credit card policy still serves the purpose of your business.
- Limit the number of cardholders: Although most credit card issuers offer unlimited employee credit cards at no additional cost, you need to ensure that you only provide cards to those who need them.
- Choose virtual and single-use cards whenever possible: To limit your company’s risks, you may choose virtual and single-use cards that can have more rigid usage restrictions. These cards may only be used for specific purchases, preventing any unauthorized use.
- Monitor expenses regularly: Keep track of your corporate credit card bills regularly and ensure that all purchases are authorized and in compliance with the policy. Assign someone from the organization to approve the charges and audit the transactions.
Drawbacks of Creating a Corporate Credit Card Policy Yourself
If you decide to create a policy on your own, then know that it will require more work, and you can potentially forget to cover specifics. As such, it’s best to work with an attorney to review the policy for any mistakes—but this could incur additional costs.
Consider the following drawbacks before deciding to create a corporate credit card policy yourself:
- It requires more time and effort: Without a corporate credit card policy template, you have to do all the work yourself. Creating a policy from scratch tends to be more time-consuming, and it can be prone to error, too.
- You could potentially leave out important rules: It’s easy to miss including important rules when you create the policy yourself. However, if you use a template, it helps ensure you’ve covered all the bases.
- Using the correct legal language is difficult: Since a corporate credit card policy is a legal document, you need to use legal language when creating one. However, this can be difficult if you are not knowledgeable about legal jargon. A customizable template ensures that the correct language is used to protect your business.
Creating a corporate credit card policy on your own can be time-consuming and challenging. Fortunately, there are customizable templates that you can use to simplify this process. Companies like Rocket Lawyer give business owners access to affordable corporate credit card policy and procedure templates to ensure their policies protect their businesses.
Frequently Asked Questions (FAQs)
Corporate credit cards are cards used to fund a large company’s working capital and daily needs. These are primarily designed for businesses with $4 million in annual revenue and $250,000 in annual card expenses and are available to C-Corp, S-Corp, and select LLCs. These are best for companies needing to issue cards to employees to pay for business-related expenses.
No, they don’t. This means that the business owners will not be held personally liable for the debt of the company.
No. When applying for a corporate credit card, the card issuer won’t consider a business owner’s personal credit score and would most likely not perform a hard credit inquiry. This means that even though a business owner has a low personal credit score, the company may still be approved for a corporate credit card as long as it meets the business credit score requirement.
Small business credit cards are cards that are used for business-related purchases. They are available to all business types, including sole proprietors, freelancers, and consultants. Most of these types of cards don’t require a minimum annual revenue to qualify; however, issuers will typically check the owner’s personal credit score and require a personal guarantee as part of the approval process. This means that the business owner is personally liable for the business’s debt. Check out our list of the best small business credit cards for options.
No. A corporate credit card is meant for business expenses only. A company’s corporate credit card policy should outline usage policies that should apply to everyone who was issued a card. In most cases, employee cardholders are extremely prohibited to use corporate credit cards for personal expenses.
If you’re the owner of the company, it’s crucial to also follow the terms set in your corporate credit card policy and avoid using the corporate credit card for non-business-related purchases. This keeps your business and personal expenses separate, which is critical for your business accounting and tax preparation.
Bottom Line
Creating a corporate credit card policy is essential to limit the risks associated with issuing employee cards. While you have the option to create your own corporate credit card policy from scratch, it’s easier to use a template that’s fully customizable to your needs. We hope our guide on how to create a corporate credit card policy, as well as our template, provided everything you need.
