Business charge cards can help you manage work expenses, track employee spending and even benefit from rewards and discounts.
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Business charge cards offer a range of benefits that could be useful to you and your employees. We take a closer look at how they work and how they compare to business credit cards.
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What are business charge cards and how do they work?
A business charge card offers short-term, interest-free funding. You can use a business charge card in the same way as a credit card, but they tend to offer higher spending limits, making them useful for large purchases.
The balance on a charge card must be repaid in full each month – you cannot carry it over from month to month as you can with a traditional credit card. The advantage of this is that there’s no risk of you getting into debt. But it also means your organisation must have the financial stability to clear the balance each billing cycle, which will typically be between 25 and 51 days.
Although there is typically no interest to pay with a charge card, if you don’t pay off your balance in full each month, you will be charged a late payment fee. This can often be higher than the amount of interest you would be charged on a credit card. Late payments can also have a negative affect on your credit rating and could impact your future borrowing ability.
Many business charge cards offer a host of benefits and rewards. These can include:
Travel insurance
Free access to airport lounges
Breakdown cover
Access to events
Concierge services
Cashback
Reward and discount schemes to help your business save money.
In return, you will usually need to pay a hefty annual fee – often £100 or more.
What can you use a buisness charge card for?
You can use a charge card to pay for anything from business travel and invoices to, office supplies and equipment. You can also give your employees their own charge card to pay for work expenses. Some providers even allow you to set different spending limits for each employee, and offer expense tracking tools to help you monitor what your employees are spending.
You can use business charge cards in certain shops and restaurants, online, in cash machines and over the phone. You can also use them abroad, although fees may apply.
Business charge cards pros
There are several benefits to using a business charge card, including:
Lower risk of getting into debt
Rewards and benefits often included
High spending limit
No interest to pay
Can help businesses monitor employee spending
Business charge cards cons
Of course, there are also a number of drawbacks that you’ll need to consider if you’re thinking of applying for a business charge card. These include:
Annual fees can be high
You must repay the balance in full each month
High late payment fees
Not accepted everywhere
No Section 75 purchase protection
Charge cards vs business credit cards
Although business charge cards work in a similar way to business credit cards, there are some important differences.
For a start, there is no line of revolving credit with a charge card. You must pay off your balance in full each month and no interest will be charged as a result.
With a credit card, you can carry over the balance from month to month, making it a more flexible option. Credit cards enable you to choose how much you want to repay each month, provided it is at least the minimum monthly amount printed on your statement. If you don’t pay off the amount in full, interest will usually be charged on the remaining balance, unless you have taken advantage of a 0% deal.
Unlike charge cards, credit cards also come with a credit limit, which is effectively a limit on the amount you can spend. This will be based on your credit score and income and can vary between a few hundred to a few thousand pounds.
It’s important to weigh up these differences when deciding whether a charge card or credit card would be better for your business.
Finally, be aware that neither business charge cards nor business credit cards offer purchase protection under Section 75 of the Consumer Credit Act. This only applies to personal credit cards, not business cards.
In some cases, your business charge card provider might offer purchase protection insurance instead, but cover limits are likely to be much lower and you will usually have to pay an excess to claim. You will also typically only be covered for theft and accidental damage.
Bottom line
Business charge cards can be a great way for your business to earn rewards or benefit from perks, but it’s important to understand that they work differently to business credit cards. Crucially, you must be able to repay your balance in full each month as you won’t be able to carry it across into the following month as you can with a credit card.
Frequently asked questions
Charge cards often have high or no preset spending limits. However, this doesn’t mean your spending limit is unlimited. It will usually change depending on your payment history and credit record.
Only a few providers offer business charge cards. American Express is one of the biggest charge card providers. To qualify, you’ll usually need a good credit score and there may be a minimum annual business turnover requirement.
Yes, they can. If you make all of your repayments in full and on time, a charge card can have a positive impact on your credit score. However, if you miss payments, your card provider can report this to the credit reference agencies, and your credit score could go down.
One of the most obvious alternatives to a business charge card is a business credit card. These can offer more flexibility than a charge card and many also offer rewards and other perks, including tools to manage your cash flow and track your finances. Unlike a business charge card, you can carry over a balance from month to month, but interest will be charged which means it can quickly become expensive.
Another option is to open a business bank account and use the business debit card or prepaid business card that comes with the account. Both options allow you to give cards to your employees and, like a charge card, there is no revolving line of credit.
Fees and charges paid as a result of using a charge card for business purposes are tax deductible. For example, there are potential tax deductions for claiming annual fees. Note that there are exceptions when the transaction could be deemed to be for personal benefit, either to you or an employee who uses the card. Check with your bank, accountant, or HMRC about what you can and can’t deduct.
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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio
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