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Debit Cards
For business owners, the debit card offers several attractive benefits and can be an ideal way to pay for monthly business expenses. The money comes directly out of your business transaction account so 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.
Charge Cards
Another alternative to credit cards is charge cards. Charge cards do not provide extended credit terms. Balances typically must be paid in full each month. Charge cards have distinct features that may prove attractive to business owners. Since the bill must be paid in full, there are no interest charges incurred.
Charge cards have no pre-set spending limit. The limit is determined by the 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 pre-set spending limit does not mean there is no spending limit.
Charge cards must be paid in full every month, which 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, this 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.
Choosing the right business credit card for your business may seem challenging but it’s time worth investing in getting the right product for your business. Managing your expenses is an important exercise of any prudent business and building up the credit history for your business will help when you go for that larger business loans to invest in growth, acquisition or increasing your business access to capital.
–James Balagot is head of business products for Citibank (www.citibank.com.au).
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