Business Insights

Choosing a business credit card or commercial card

Which best fits your business needs? And how can you prevent employee misuse and protect against fraud?

If you have a business, a business credit card or a commercial credit card can prove powerful tools, offering convenience when it comes to purchasing.

At the same time, both options can offer safeguards against fraud and misuse. If you’re considering which is right for your business, it’s important to know what each offers your business. And which is best suited for your unique needs.

What are the key differences?

Let’s begin by defining what each type of card does.

A commercial credit card is a company-issued payment card customized to streamline routine purchases. That way, your employees can buy goods and services while avoiding cumbersome and time-consuming purchase order systems. Or manage travel and entertainment expenses.

To avoid employee misuse, these cards typically allow you to impose strict controls on how it is used, including spending limits, restrictions on merchant categories, and transaction monitoring.

Meanwhile, a business credit card acts as a more general-purpose option for a wide range of purchases, including travel, entertainment, and other day-to-day transactions.

A business credit card may also offer advantages such as rewards programs, expense tracking, and flexible payment options. However, while providing more freedom when it comes to spending, there is not the same level of transaction control or integration with procurement systems that commercial credit cards provide.

The key difference lies in intended use and control mechanisms. Commercial credit cards are specifically designed to create greater operational efficiency in procurement and are tightly managed. Meanwhile, business credit cards are favored by executives or employees with varied expense needs.

Want more details? Check out our handy chart below:

Advantages and drawbacks of commercial credit

So how can commercial credit have a positive effect on your operations? Here are the top advantages that this option can provide for your business:

Efficiency and speed

Commercial credit cards streamline procurement by allowing employees to make direct purchases, helping them avoid the process of obtaining purchase orders for everyday transactions. In turn, this reduces administrative time on the part of your bookkeeping department.

Cost savings

The reduction of paperwork and time spent processing can slash labor costs. At the same time, commercial credit cards also consolidate purchases, giving you an advantage when it comes to vendor negotiations and discounts.

Improved tracking and control

Because transactions made with commercial credit cards can be easily tracked and reported, it’s equally easy to set spending limits, restrict merchant categories, and monitor usage in real time. This in turn improves financial oversight.

What should you watch for when it comes to commercial credit cards?

Risk of misuse or fraud

Even with the best controls, there is always a risk of unauthorized or inappropriate purchases. The best precaution? Proper monitoring of purchases and clearly defined policies regarding the use of commercial credit cards.

Compliance challenges

When entrusting employees with commercial credit cards, it’s critical that proper training and oversight are in place. These measures increase the odds that all purchases follow both company policies and external regulations.

Reconciliation burden

To fulfill the potential savings of commercial credit cards, proper documentation is required. If users do not submit receipts and documentation in a disciplined way, it can prove time-consuming to reconcile transactions with your company’s reporting systems.

Advantages and drawbacks of business credit cards

If you’re considering a business credit card, here are some advantages:

Financial flexibility

With a business credit card, you can manage a wide range of purchases, from travel and client entertainment to office supplies. At the same time, a business credit card offers revolving credit, which can benefit your cash flow by allowing expenses to be paid over time.

Rewards and perks

Who doesn’t like cash back or travel points? Many business credit cards offer these perks as part of their rewards programs, as well as other benefits such as purchase protection.

Expense tracking and reporting

Business credit cards typically come with tools for tracking expenses, generating reports, and integrating with accounting software. With these tools, you can streamline financial management and simplify reconciliation.

Despite those many advantages, however, business credit cards also come with potential downsides if not managed correctly. Here’s what you, the savvy business owner, should be on the alert for.

Risk of overspending

If the user isn’t careful—or the credit card’s user isn’t monitored—overspending or misuse can arise. That’s why strict controls should be in place to prevent employees from making unauthorized or non-business-related purchases.

Interest and fees

Just like a consumer credit card, it’s important to pay off balances in full each month. Otherwise, interest charges can mount quickly. Further, some cards charge annual fees or foreign transaction fees. Make sure you understand these fees before choosing a card.

Limited control compared to commercial credit cards

Due to the nature of their flexibility, business credit cards will impose fewer controls over transactions than purchasing cards. As a result, spending policies can be harder to enforce. At the same time, it may be more difficult to restrict purchases when it comes to specific vendors or categories.

How can I make either option work hard for my company?

Whether you choose a commercial credit card, a business credit card, or some combination, it’s critical to set firm guidelines in place on how these financial tools can be used.

Here are some best practices to implement to take full advantage of these powerful financial tools:

Document spending guidelines

Provide your employees with clear, written instructions for card usage. This will limit expenditures and make it easier to enforce spending policies.

Educate your team about the program benefits

It’s important that end users fully understand why the organization is using the new card and how it will benefit them in their daily work. The better you communicate the program benefits, the more likely your program will be successful.

Implement a refined review process

Make sure you implement an organized approach to oversight. Although it may not be realistic to review every paper receipt, you should conduct routine audits and review individual spending and company trends regularly.

Safeguard the card

Your employees are responsible for all charges on their cards. That doesn’t mean they’re liable payment wise, but rather they’re in control. Make sure they understand responsible ways to manage and use their card—just the same as any other sensitive company asset.

Modern fraud protection: From chip cards to AI and virtual cards

Yet while it’s important to put internal measures in place to prevent misuse, both accidental and otherwise, it’s also critical to protect card use from fraudsters outside your organization. Fortunately, tools such as contactless payment and real time alerts via email are available to help detect and prevent fraud. Meanwhile, in your everyday operations, here are a few of the precautions you should take.

Establish strict card issuance and usage policies

The more users in your organization, the higher your exposure. That makes it a good idea to limit the number of employees who have access to commercial credit cards and business credit cards, assigning cards only when necessary. As mentioned earlier, set clear guidelines on acceptable purchases, spending limits, and required documentation. This reduces the risk of cards being misused or falling into the wrong hands.

Use real-time monitoring and alerts

Credit card providers offer any number of tools to help you and your employees stymie fraud attempts. These include transaction alerts, spending reports, and fraud detection features. It’s especially wise to set up notifications for unusual activity such as large purchases, international transactions, or charges from unfamiliar vendors. And if you or an employee receive an alert or notice a suspicious transaction, take immediate action.

Implement secure payment practices

Educate employees to avoid use of business credit cards on unsecured websites or public Wi-Fi networks. Doing so minimizes exposure and makes it harder for fraudsters to exploit card details.

Invest in employee fraud training

Your employees can’t safeguard against fraud if they don’t know what to look for. That’s why regular and comprehensive fraud training should be on every company’s calendar. While it may seem like just one more thing on your To-Do list, the fraud it could potentially prevent will be more than worth the effort.

Conduct regular audits and reconciliations

Your employees should be required to submit receipts and explanations for each transaction. Then compare these purchases against monthly statements. Be on the lookout for duplicate charges, unauthorized vendors, or unexplained expenses. These periodic audits are one of your best weapons to catch fraudulent activity early and reinforce accountability.

Want to learn more about how to detect, prevent, and report fraud on your commercial credit cards or business credit cards? Regions Fraud Prevention is always on the lookout for new threats, providing you with vital information to keep your company’s financial operations safe.

Are you ready to learn more about business credit and purchasing cards, not to mention all the different ways your business can grow? See a Regions small business relationship banker today. And when it comes to charting a path for growth, visit the Small Business section of Regions.com to learn more about creating your free, personalized Regions Greenprint® for Business plan and other services, insights and tools to help your business grow and achieve its goals.