What You Need To Know About Your Company Credit Card And If You’re Liable For Unpaid Bills

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If you have a company credit card, you may be personally liable for the charges on it – of course, it depends on the type of card. But what happens if the bills can’t be paid? You wouldn’t want your credit score to be negatively affected because of late payments or high debt.

Personal liability is baked into the clauses of most business credit cards, which is why it’s important to know what it entails, how you can get out of the clause and how to incur it. 

Different Types Of Corporate Cards

Credit card issuers typically have two types of corporate cards: one where the employer is totally responsible for any charges and one where the employee has personal liability.

For the first type, the employer or business owner is the one who opens the credit card. The employee will get the card from them, and the employer is totally responsible for the bill. In other words, an employee is the authorized user, and therefore not on the hook for payment.

With the latter type, the employee completes an application and receives the credit card statements. The employer will reimburse the employee but the employer isn’t ultimately on the hook, nor will it affect their personal credit report.

Liability With Different Credit Cards

Many companies do issue credit cards where employees aren’t personally liable. Here are a few major credit card issuers and their stance on personal liability.

American Express

American Express allows the business or employer to determine how the billing works – it means the employer can be totally responsible or the employee will receive a bill and then be reimbursed. Employees will typically be sent disclosures about the corporate card in question and their responsibilities. 

What this means is that the employee won’t be liable as long as they’ve held up their part of the bargain by making sure the card is used for business expenses and that reports pertaining to expenses have been submitted in a timely fashion. Plus, an employee’s credit reports won’t be affected as long as the account is in good standing.

However, if American Express determines an employee is liable for the charges, it could negatively affect their credit report. It’s best that everyone reads the disclosures to determine whether there is a personal liability clause and who’s responsible for what.

Bank of America

Bank of America offers both types of credit cards. If opting for corporate liability, the employer or company can make arrangements with the employee as far as billing goes – whether that’s an employee getting reimbursed or the bill being sent straight to the employer.

For cards with individual liability, the employee (or cardholder) will sign a contract with Bank of America that will be processed during the application process. This means the employee will be the one who completes the application, which the bank will then review.

Capital One

Capital One’s credit cards don’t hold employees personally liable for charges – only the business owner and the company. Each employee will receive a unique account number so that employers can track spending separately on credit card statements and when logging into their account online.

Chase

Chase offers individual, corporate or joint and several (J&S) billing and payment choices. However, liability depends on the type of credit card chosen. In most cases, it’s the employer or business owner who’s responsible for payment.

As for the J&S liability program, the employer shares the responsibility with the employee. It’ll first be up to the employee, but will revert back to the employer within a certain amount of days. To clarify what the type of liability it is, check and review the terms stated in the application.  

Citibank

Citibank offers two different types of cards for small businesses and large corporations. For small-business credit cards, the business will have an authorized officer who’s responsible for billing and payment – the employee isn’t liable. For large corporations, the employer has the choice of choosing between joint liability with the employee or corporate liability.

Does My Business Card Affect My Credit Score?

The short answer is yes, it can.

When opening a business credit card, the primary account holder offers their personal guarantee to repay any charges. Applying for a business credit card is similar to what you would do for a personal one – the card issuer will check your credit score and history to determine your creditworthiness. When this happens, it will result in a hard inquiry, which can affect your credit score.

If an employer opens a credit card and it is authorized for an employee to use, it won’t affect the employee’s credit score.

Other ways a business credit card can affect your credit score is if you make on-time payments and carry a little bit of credit card debt. This can result in an improvement in your credit score and positive information in your credit history. However, if you miss payments or make late payments or have a large amount charged on your cards, then your score and history could be negatively affected.

For authorized employee cards, your score could be affected, but not significantly. If the employer manages their credit card well, it may help your credit. But the reverse is also true if the employer isn’t as careful. If you feel that your personal credit score will be at risk, consider asking your employer to cancel your card.

How Do I Avoid My Credit Being Negatively Impacted?

Managing a business credit card responsibly is the best way to avoid your credit from being negatively impacted – the same as with a personal credit card. The main things you need to do are carry little debt from month to month if possible and always pay your bills on time. Check your statements each month to ensure all the charges are authorized by you or your employees.

Here are some more details on how you can avoid your credit from being negatively impacted.

Avoid Large Expenses On Your Company Credit Card

It’s natural to incur relatively large expenses in business, like bookkeeping, marketing budgets or purchasing inventory. However, even if you have a large credit limit, don’t charge a huge expense, even if it’s tempting. A sizable charge can increase your credit utilization ratio greatly, which can lower your credit score. Your credit utilization is a percentage that looks at the ratio between your credit limit and how much of it you’ve used. Worse, you could surpass your credit line, which can come with its own set of fees.

Your credit card’s personal liability clause can be activated if you can’t repay the balance (or at the very least, the minimum payment) within the billing payment. Plus, you’ll pay a lot in interest on your balance and risk missing payments, especially if you can’t afford it.

If you have a large expense and don’t have the cash on hand, consider other types of business loans. One type is a self-collateralized loan, where your collateral is embedded into the loan. This means you won’t be required to have a personal guarantee for the loan – the lender seizes the collateral if the loan goes into default. These types of loans also have lower credit score requirements since they’re considered less risky for lenders compared to unsecured loans.

Two types of financing you might want to consider include invoice or equipment financing. Invoice financing is for businesses that need extra cash flow to pay outstanding invoices. It could be that your cash is tied up in receivables and you need a loan until you’re paid. Lenders use your invoices as collateral and charge fees until the invoices are paid off.

In terms of equipment financing, you’ll receive a loan for equipment such as computers, machinery, restaurant supplies and vehicles to purchase what you need. You’ll pay off your loan in monthly installments, with interest.

Don’t Carry A Credit Card Balance

Carrying a credit balance means that you’re going to pay interest – that’s money your business could use elsewhere. Plus, charging amounts you’re not sure you can pay off could mean risking going over your business budget. That’s dangerous, particularly if you can’t pay your bills at all. In addition, lack of payment or carrying a large balance could mean you risk the personal liability clause kicking in.

If you must carry a credit card balance – due to unforseen expenses – consider signing up for a credit card that offers a 0% introductory APR if you anticipate a large purchase down the line. Try to find an introductory period that’s as long as possible so you can pay down the balance well within the time before the regular APR kicks in.

Only Authorize Users You Can Trust

As a business owner and the primary cardholder, you want to make sure your finances are well taken care of. That means your personal guarantee for the card is your responsibility, no matter if it’s you or your employees racking up charges. In other words, if your employee goes a bit reckless with purchases, you’re on the hook. That’s why it’s important to only add authorized users you absolutely trust.

There are credit cards that do offer more customization for employee cards in terms of setting limits and tracking spending. Business owners can set spending caps depending on the authorized user and even opt into alerts to see whenever transactions are happening.

There are also prepaid business debit cards if you want to be absolutely certain you and your employees are only spending what your business can afford. In this case, your business bank account acts as your line of credit, meaning you load money onto the card. It’ll bypass an issuer’s personal liability clause, but it also means you can’t build credit.

Other Considerations

Opening a business credit card comes with a lot of responsibilities – you need to manage your business finances well to maintain a good credit score and to ensure your business will survive. It’s also important to understand the clauses for your specific business credit card, especially as it pertains to personal liability.

Here are other things to take into consideration:

• As an employee, make sure your employer is being responsible. Otherwise, you’ll be liable for the bill. Plus, you could face negative marks on your credit history due to missed or late payments from your employer.

• To ensure you’re protected as much as possible, it’s crucial you’re aware of what’s going on. That includes looking through the application before signing on the line. You’ll also want to keep a copy of the application and read the cardholder agreement to understand your rights and responsibilities. If one wasn’t provided, ask for one and keep it for your records.

• Once you use the card, submit all receipts and expense reports to your employer as soon as possible if it’s required – and don’t forget to keep copies. Make sure that purchases are for the business and not personal use, no exceptions.

• Ask for a copy of your employer’s expense policy. Keep it in hand so you know what types of purchases are permitted and in case there are disputes.

• Make sure you pay the credit card bill on time (if you’re required to pay it yourself) and get reimbursed later. This applies even if your employer is slow to pay you back – you don’t want your credit to be negatively impacted by a late payment.

Rocket HQ^SM has partnered with CardRatings for our coverage of credit card products. Rocket HQ and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.