Business credit cards

Business credit cards are a type of commercial payment solution for businesses that provide short-term credit facilities to employees, allowing them to purchase relatively low-value items.

The most common form is the corporate credit card, which is very similar to the personal credit card; purchases are made on credit guaranteed by the card-issuing bank, while the cardholder is given a grace period to pay the issuer the balance spent.

Additional features are available to personal cards such as travel insurance and fraud protection. Loyalty reward schemes may also be included.

Business credit cards allow payments to be processed simply, helping companies monitor and manage employee travel and entertainment expenses. This solution can deliver significant process efficiencies, aid visibility of spend across the organisation and abolish paper-based processes. It can also help manage the company’s liquidity and enhance the ability to manage suppliers by providing supplier spend analysis.

Other variations of business credit cards include the purchase/procurement card, which is specifically used for low-value procurement transactions. Another variation is the prepaid card, which looks and functions similarly to a conventional credit card, but needs to be preloaded with an amount of money prior to the cardholder being able to make purchases. Although these are technically not credit cards, they allow for efficient financial transactions.

Common use

If used sensibly, business credit cards help bridge short-term funding gaps and manage expenditure. In this case short-term means under 30 days.

Costs

The following costs need to be considered, depending on how the card is used:

  • if the balance is cleared in full before the payment grace period, the only possible cost would be any regular fees associated with the card. Interest charges and fees for the use of revolving credit can be very high
  • fees are charged for some extra services such as paper statements
  • payment solutions such as procurement and prepaid cards may incur system implementation costs, in addition to fees on transactions.

Timeframe

Once an application is submitted for a business credit card, a decision is normally made within 24 to 48 hours. For larger organisations that require a more complex solution, thousands of cards for example, the decision and issuing of the cards will take longer to complete.

Advantages

  • easy to monitor and manage expenses of employees
  • reduces the need to keep petty cash
  • users can defer balance payments beyond the payback grace period by incurring interest. This is useful for a start-up business when there are multiple outlays but no immediate income
  • organisations with a high volume of low-value procurement transactions gain efficient payment capability and reduced spend processing cost
  • relatively easy to use.

Disadvantages

  • unsuitable for long-term borrowing due to high levels of interest on revolving balances. These are most expensive in financial services
  • merchants are charged a percentage fee for accepting card transactions. Some merchants transfer this cost to the customer.

Other options

The right finance for your business section of this website gives examples of financial structures that are suitable for different trading types and sizes of business.

Business credit cards are short-term borrowing solutions; other options to help firms manage their cashflow include a business overdraft or cashflow finance/invoice factoring. 

To finance a purchase such as new machinery for business use, an asset financing solution such as hire purchase/leasing may be more suitable. 

For longer term financing needs, firms should consider a bank loan or a commercial mortgage.