Charge Card or Business Credit Card: What’s the Difference?
A charge card or business credit card can be an important tool in business. Having an easy way to make purchases can help you expand your business, take care of your many business subscriptions, or cover travel expenses. Business charge cards and credit cards are necessary for growing while separating business and personal expenses.
But, as a business owner, you are bombarded with choices when it comes to payment options for your business. The most common choices that will appear are credit cards, but it is worth turning your attention to charge cards to see if they are an alternative that works for you.
A line of credit is appealing to all business owners and finance managers. But you have the choice about how you want to manage this ongoing credit – a credit card will offer longer repayment terms, while a charge card is a month-to-month option that allows for closer control of your business spending. In addition, if you are a business with a regular cash flow, a charge card will help avoid a future where your business is hindered by growing interest. Often, charge cards and credit cards are assumed to be the same products, but what are the actual differences between the two, and which one is right for you and your business?
What is a Charge Card?
A charge card is a less common payment method used by businesses with high turnover or looking to grow. Some people are turned off by the idea of business credit cards due to long-term contracts and hidden interest fees, making your business seem unappealing. Before discounting the idea of credit, consider if a charge card could be a better fit.
Like a credit card, there will still be an application, which will require proof of income, but after that, you can use a charge card for any payment required for your business to run. The fundamental difference between the two is that a charge card has no interest, and the balance needs to be paid in full for each statement period. This may also be paired with a small monthly fee for each card. Compared to interest fees, a monthly charge can be a cheaper option for you for business credit.
Charge Card vs Credit Card
Both credit and charge cards grant a line of credit to your new or growing business, and both have eligibility criteria. They are approved based on your business's financial history and credit score using credit bureaus.
With a charge card, you’ll have a pre-set spending limit each month. With a credit card, you’ll have an overall credit limit. But only credit cards require a personal guarantee during application. Some charge cards will also have built-in personal liability, but, like Archa, there are charge card options that will not require you to risk your personal assets.
Once assessed, charge cards will allow you and your employees to make purchases on behalf of the business, with payment due in full at the end of the monthly billing cycle. Both charge and credit cards offer rewards, including the ability to earn points, access airport lounges and get travel insurance when the card is used to pay for trips. Examples of these cards include the Amex Platinum card and the Diners Club card. But you must be wary that upfront rewards can distract from longer-term contracts or significant interest rates.
The two cards are really quite similar. The primary way to understand which is right for you is to consider how you want to make repayments. Credit cards will allow you to carry a balance across months, adding interest and fees to the amount due. This could mean you end up paying a much greater sum than your balance + monthly fee that you would pay with a charge card.
Here, a charge card differs because it requires you pay the balance in full each month by the due date. You can’t carry a balance beyond the payment terms, but based on this, there is also no interest to pay on the purchases you have made. If your business has a steady cash flow, charge cards could mean cheaper credit for your business in the long run.
Charge card advantages
With this understanding, does a charge card sound right for you? If your business can rely on a consistent cash flow, then having an interest-free line of credit that is paid off each month might be a good fit. As a business owner or finance manager, it will allow you to have more control over spending and budgeting while providing a seamless payment method for business purchases. Company charge cards also allow you to empower your staff with the ability to purchase on behalf of the business. With a small monthly fee, the charge card is low risk, especially if you can rely on a consistent monthly income.
Probably the biggest advantage is the avoidance of interest on spending or the temptation to let interest accrue. Credit cards will have minimum repayment requirements but allow you to carry a significant amount of your spending across months, then charge interest on whatever you cannot pay. With charge cards, there is no danger of these mounting fees, as payment is due for full spending at the end of each month.
Charge card disadvantages
The terms of a charge card could be seen as harsh, but really a charge card offers you all the benefits of a credit card with a much smaller risk. However, if you are less certain of your upcoming turnover, then using a credit card with more flexible repayment options might be the choice you have to make. If you are looking for access to credit but need the flexibility to pay off purchases over time, forecast how the interest payments of a credit card will add up and affect you in the long run.
As there is no interest, charge cards will also have an monthly or annual fee associated with each card. As previously referenced, while this is an upfront fee, it often works out to be less expensive than the interest repayments on a credit card. With a monthly fee model, the fees from a charge card will be regular, so they can be built into any budgeting and will never grow to anything unsustainable. Realistically, if you can build a reliable cash flow in your business, then a charge card will typically be the cheaper option of the two, with the constraint of monthly repayment.
When comparing any charge cards and credit cards, it’s a good idea to read the terms and conditions before making a decision.
What’s different about Archa’s card?
If you have weighed up the options and decided that a charge card is the right choice for your growing business, Archa could be the perfect fit. While built around a charge card, Archa is an all-in-one spending solution for your business. In a market flooded with credit cards and disguised interest rates, Archa provides an alternative that fits with a more honest and transparent way of doing business. No additional fees, quick approval, Xero bank feed integration and access to multiple cards are just some features offered to you. Although credit cards may be more available, it is worth considering charge card products such as Archa, whose speedy onboarding process can approve you for a charge card in minutes.
On top of this, you can also access all the benefits and perks that come with credit cards through Archa. This includes instantly issuing multiple cards to staff so that you empower your team and no longer have to worry about the headache of employee reimbursements. Xero bank feed integration comes as standard, so for bank reconciliation and reporting, the stress and manual data handling is removed. A handy receipts feature also makes it easy to capture receipts. You simply take a photo of your receipts and upload them using the Archa smartphone app, and they are automatically matched against your Archa transaction bank feed. This saves you time and eliminates the manual handling that can lead to errors.
These features, indispensable in modern business, are supported by our onboarding and customer experts to give you the best experience in business credit.
Make a more informed decision about your business spending! Don’t just make the obvious choice regarding credit and charge cards; choose what is right for your spending habits and cash flow. Then, with Archa’s help, you can organise your business to work in the interests of long-term growth. If you want to learn more about the options that a charge card will provide to your business, speak with an Archa expert and get the ball rolling on a safer and smarter option for your business.
Learn more about Archa business credit cards.
Also, check out our Business Credit Card Guide.