Businesses have many options when it comes to payments and banking. A charge card is one of the lesser-known payment facilities available to businesses, but it is one that can be hugely beneficial for your company. Here, we’ll explore what a business charge card is, the differences between a charge card and a credit card, and list charge card advantages and disadvantages for businesses.
Charge card definition
A charge card is a payment card typically used by businesses, or sometimes by high earning individuals. It is similar to a credit card in that you can use them to make purchases without any money being immediately debited from the business bank account. To get a business charge card, you must complete a credit application to ensure the business is reliable, and there’s generally a minimum income amount that a business must report to obtain a charge card.
You cannot transfer balances to a charge card—they can only be used for spending. The most common charge cards used in the UK are issued by American Express.
Charge card vs. credit card
While they are quite similar in nature, the most notable difference between a charge card and a credit card is that a charge card has no set cap on spending.
Charge cards are able to allow unlimited spending under the condition that they must be paid in full at the end of each month. A missed payment for a business charge card can have major consequences; the business will be reported to credit bureaus and your credit score may be impacted. There are some charge cards that offer a 60-day payment period, but these are rare.
Charge card advantages
There are many charge card advantages, but uncapped spending is perhaps the biggest benefit when it comes to charge card vs. credit card.
Charge cards allow you to make payments of any size without having to draw funds from your account immediately. If you know that you’ll have sufficient funds as the month closes, but that the cash isn’t readily available to spend at the time the transaction needs to take place, you can use a charge card knowing that you’ll be able to pay it off at the end of the month.
There are a lot of attractive awards and benefits that can come with using a charge card to make purchases. Many charge cards will offer points or credits that can be used towards company expenses like concierge services, access to airport lounges, travel insurance, dining and more. Because there’s no credit facility with charge cards and they must be paid each month, there is also no interest charged.
Charge card disadvantages
There really aren’t many disadvantages that come with using a charge card, presuming you’re capable of paying it off each month. The risks that come with missing payments are certainly high, but so long as you are careful with how you spend when using your charge card, and are timely with your payments, then the benefits of charge cards should outweigh the setbacks.
The one major disadvantage of using a charge card instead of using a credit card, is that charge cards tend to come with some fairly sizeable fees that must be paid annually. Charge cards are targeted towards high-income businesses, and this is reflected in their cost, which you can expect to be at least $100 per year.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.