Credit cards are often what people think of first when paying business expenses. But there are several other types of “cards” that can also be used to charge business expenses, each with a distinct set of features. They are debit cards, charge cards and cards issued by individual merchants. When used in conjunction with conventional credit cards, they provide additional flexibility and options for handling day-to-day business expenses.
For business owners, the debit card offers several attractive benefits and can be an ideal way to pay for monthly business expenses. Because the money comes directly out of your checking account, you don’t have to worry about interest charges or spending more than you can afford. Your charges are deducted from your checking account as soon as you make them. This can be helpful in keeping your company on budget and your balance sheet free of credit card debt. There are usually no annual fees, as debit cards normally come free with your checking account. Finally, debit cards generally offer the same reporting benefits as credit cards. In fact, your charges appear directly on your bank statement. Some debit cards may even provide reward benefits.
Another alternative to credit cards are charge cards. Charge cards do not provide extended credit terms. Balances typically must be paid in full each month.
Charge cards have a number of distinct features that may prove attractive to business owners. Because your bill must be paid in full, there are no interest charges incurred
Charge cards generally have no preset spending limit. Your spending limit is determined by your credit history and your ability to pay. On the other hand, credit cards often have a spending limit that cannot be exceeded. It is important to remember that having no preset spending limit does not mean there is no spending limit.
Because charge cards must be paid in full every month, it keeps credit balances from appearing on your balance sheet. Finally, most charge cards offer quarterly reports that make it easier for you to track and budget your expenses.
If there is one major downside to charge cards, it is that most charge annual fees. Some of the cards also charge extra fees for their loyalty programs. In addition, because balances must be paid in full each month, charge cards do not offer the payment flexibility provided by conventional credit cards.
Store Credit Cards
Another way to pay for company purchases is with a credit card issued by an individual merchant. Store credit cards work similarly to regular credit cards, but are issued by one specific store or vendor. When compared with conventional credit cards, debit cards and charge cards, they offer a unique set of features.
Store charge cards can generally only be used at the store or vendor that issued them. Assuming the card is issued by a vendor or store that primarily provides business-related goods and services, ensures that all of the expenses charged to the card will be business-related. This eliminates any need to sort out which expenses are business-related and which are personal when it’s time to update your books.
In some instances, store credit cards may be easier to obtain than a bank-issued card because stores want you to purchase their goods, and therefore encourage customers to take out a charge card. In addition, most merchant charge cards do not have annual fees and may offer special benefits. For example, the first time you use your store card, some merchants may provide you with a discount on the total purchase. However, if you carry a balance, you should carefully review the card’s APR to make sure it is not higher than that of other credit card issuers. Finally, if you get a card from an office supply store, using this card for all office supplies makes it easier for you to track and budget these expenses.