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Resources | Working Capital | July 8, 2024

More SMBs Are Looking at Corporate Credit Cards — Here Are the Pros and Cons

There might be better ways to increase your working capital.


There might be better ways to increase your working capital.

If your small or midsize business is struggling to access working capital, you might have considered turning to another source of short-term funding: corporate credit cards. 

According to a survey conducted last fall, 25% of surveyed businesses said they plan to increase their use of corporate cards this year because they’re struggling to secure loans and lines of credit through their banks. 

But that could be harder than they might expect, as only 28% of smaller SMBs have access to corporate cards, according to the survey by PYMNTS.com Intelligence and Cross River. That lack of availability is just one of the reasons why corporate credit cards may not be the right choice for your organization. 

In this post, we’ll break down the pros and cons of corporate cards and suggest some alternatives that might be better for your growing company. 

But first, let’s explain the difference between corporate credit cards and business credit cards.

The difference between corporate credit cards and business credit cards

It’s important not to confuse the two types of cards because they’re very different in scale. 

A business card can be acquired by essentially any type of business, even one as small as a sole proprietorship. The credit limit is usually larger than a personal card’s. The business owner is personally responsible for the debt, and negative payment history can hit their personal credit score. Both of those things can be deal-breakers for some people. 

Meanwhile, corporate cards are designed for larger companies. According to American Express, those companies need to generate at least $4 million in annual revenue. The card limit is larger than a business credit card, and companies must meet other qualifications, like hitting a minimum spending threshold.

And the holder of a corporate credit card needs to be a corporation. All of the card’s debt ultimately falls on the corporation, not an individual, though employees can still be held accountable for prohibited spending. 

While corporate cards come with more strings, there are also several reasons why they could be useful for a business. 

Benefits of using corporate credit cards

Greater efficiency and control 

With corporate credit cards, you can give cards to multiple people on your team and set limits on how much they can spend and what they can buy — a great way of preventing cost overruns and fraud. 

Better reporting, increased insight

Centralizing transactions through a credit card can make it easier to track spending, too, whether you just want a quick check of your finances or you need to prepare official reports. Corporate cards often offer a greater level of detail in their reporting, and that information can be fed into your company’s accounting or ERP platform. 

Rewards programs 

Just like other credit cards, corporate cards often generate rewards for the companies that hold them. Those rewards could come in the form of statement credits, travel discounts or other benefits. 

Drawbacks of corporate credit cards

More difficult to access

As noted above, businesses must comply with several requirements to qualify for corporate cards, and not every business can meet those standards. In the survey from PYMNTS.com Intelligence and Cross, respondents listed several reasons why corporate cards weren’t an option for them, including compliance requirements (10.9%), eligibility requirements (10.4%) and a complicated application process (6.7%).

Balance must be paid off every month

Unlike a typical credit card, many corporate cards must be fully repaid each month. For companies that are struggling with funding and cash flow, that could be a nonstarter.

Alternatives to corporate credit cards

Let’s assume your small or midsize business has tried and failed to qualify for a traditional bank loan or line of credit. What are your alternatives to using a corporate credit card for working capital?

Factoring 

This is a well-known model in which businesses sell their receivables to a third-party factor in exchange for immediate (or almost immediate) payment. Factoring comes with fees and requirements that may not be desirable. For example, some factors require businesses to sell all of their receivables to them. The factor also takes over collection of those receivables and may not be terribly polite in the process, damaging relationships with customers. 

Early payment programs

If you have an enterprise as a customer, there is a decent chance that that large company offers some form of early payment in exchange for discounts on their invoices. Some of the world’s largest companies, for example, offer dynamic discounting programs through C2FO — you can see if any of your customers do by checking this page. The big benefit is that early payments increase your cash flow without debt. 

If none of your customers offer early payment programs, your company could still offer discounts to customers that pay early, using either static or sliding-scale discounts. Again, you bring in cash faster, without taking on debt. 

The bottom line on corporate credit cards

If your small or midsize business can qualify for a corporate credit card, you can use it to access working capital. 

But it’s not really what corporate cards do best. They excel at streamlining payments while giving companies greater oversight and control over spending.  

Instead, look at other sources of working capital — like early payments or even factoring — to increase your cash on hand. 

Businesses of all sizes around the world use C2FO to access working capital. Discover how our solutions could help you.

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Report: 2024 Working Capital Survey

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