There are several types of payment cards that small businesses can employ to purchase goods and services. From business credit and debit cards to charge cards and prepayment business cards, each type comes with its own distinct features, advantages, and disadvantages.
In this article, we will take a closer look at all these different forms of card payment methods to help you pinpoint the most effective card solution for your business needs.
1. Business credit cards
What is a business credit card?
A business credit card enables you to buy goods or services for your company on credit. Employees may use it with your consent. There's a borrowing limit and a minimum payment requirement every billing cycle. Interest accrues monthly if only the minimum is paid, but there's an option to pay in full each billing period.
Where are business credit cards accepted?
Business credit cards are accepted by most purchase points, both in the UK and abroad. If you use a business credit card to buy goods or services in a foreign currency, there may be a non-sterling transaction fee to pay. You can also use a business credit card to withdraw cash from an ATM in the UK and abroad, but additional fees typically apply here too.
The main benefits of using a business credit card
Business credit cards can be advantageous to business owners for a number of reasons, but it can depend on the size, type, and stage of your business.
When it comes to credit ratings, new businesses start with a completely blank slate and for that reason, it can be important to build a good credit report as early as possible. Using less credit than you have access to and paying it off in full each billing period are established methods for building your company's credit rating.
The main downsides of using a business credit card
Alastair Hazell, finance expert and Founder of The Calculator Site, advises business credit card users to be mindful of interest charges: “If the balance is not paid in full by the due date, interest charges can be significant,” he warns. “There will also be a maximum limit on spending, which can be a limitation for some businesses, while the ability to spend up to the credit limit may lead to overspending and increased debt,” he adds.
Certain business credit cards also impose an annual fee. Over-dependence on credit, only paying the minimum amount each month, or failing to meet repayments can harm a business' credit profile.
2. Business debit cards
What is a business debit card?
Business debit cards are linked directly to your business bank account. When you or an employee uses a business debit card to pay for goods or services, you are directly using your business' working capital on that purchase.
Where are business debit cards accepted?
Business debit cards can be used for buying items online, in stores, both locally and abroad. They also allow global cash withdrawals. However, just like credit cards, foreign transactions may attract a non-sterling fee plus a purchase charge. Extra fees could apply for cash withdrawals overseas.
The main benefits of using a business debit card
Business debit cards help you to control your business spending, says Hazell: “As the funds are directly debited from the business' bank account, there are no interest charges and debit cards help in controlling spending as the funds are limited to what is available in the bank account.” Debit cards also rarely charge an annual fee.
The main downsides of using a business debit card
Business debit cards can be restrictive when it comes to cash flow. “As the funds are immediately debited from the bank account, there is no flexibility to defer payments,” explains Hazell.
3. Business charge cards
What is a business charge card?
Business charge cards are similar to credit cards as they let businesses make payments without immediate deductions from their accounts. Business charge cards don't typically impose restrictive caps on spending limits, but cardholders are asked to repay their statement balance in full each billing period.
Where are business charge cards accepted?
Business charge cards are accepted by most purchase points on and offline in the UK and abroad. There may be fees for cash withdrawals and non-sterling transactions.
The main benefits of using a business charge card
Hazell says that a key advantage of business charge cards, like the American Express® Business Gold Card, is there aren't interest rate charges as balances are repaid fully monthly. Amex® Business Charge Cards also offer up to 54-day payment terms, aiding cash flow management and flexibility¹.
Finally, unlike other business cards, charge cards typically offer rewards and collection points as standard features of their use. For instance, with the Amex Business Gold Card, you earn 1 Membership Rewards® point per eligible pound spent which can be redeemed at over 1,000 online retailers including Harvey Nichols and Currys².
The main downsides of using a business charge card
Certain charge cards can carry annual fees, so it's important to consider the options. The American Express Business Gold Card is fee-free for the first year of Card membership, for example, whereas other charge cards may not be.
4. Business prepaid cards
What is a business prepaid card?
A business prepaid card is similar to a business debit card in that it will only allow you to spend from your available working capital. However, a business prepaid card allows companies to load funds onto it in advance and use it for purchases, almost like a retail gift card. You can only spend what's on it, and you have to top it up to use it.
Where are prepaid business cards accepted?
Most prepaid business cards are accepted online and in-store in the UK and abroad, most can also be used for cash withdrawals and foreign spending may entail additional costs.
The main benefits of using a prepaid business card
A prepaid business card allows you to control your spending: “They let you limit the spending to the amount loaded onto the card, helping to manage budgets and there are no interest charges since the funds are preloaded,” says Hazell. There are also rarely any credit checks when you take out a prepaid business card, nor can how you use a prepaid card impact your credit file.
The main downsides of using a prepaid business card
“With a prepaid business card, funds must be loaded onto the card in advance which requires planning and may not be suitable for all,” says Hazell. “Also, using a prepaid card does not help in building a credit history for the business.”
Which payment card is best for my business?
The type of business payment card you need can depend on many factors, including the size and scale of your business, your cash flow and your expense requirements. It may even be that you decide to opt for more than one type of business payment card³.
Hazell concludes: “It's important for small business owners to carefully consider their specific needs and circumstances when choosing which type of card to use for business purchases.”
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
2. Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
3. The information provided in this article is for informational purposes only and does not constitute financial advice. Always consult a qualified professional before making financial decisions. We are not liable for any actions taken based on this information.
