For a business owner, keeping track of everyday expenses — things like office supplies and travel — can be a challenge. While you may have become accustomed to using your personal credit cards or even business credit cards for company expenses, I’d like to share with you a better alternative. It’s called the business charge card.
A charge card is a specific kind of credit card that has all the convenience of a credit card without the costly interest. While business credit cards allow you to make purchases and carry a balance from one billing cycle to the next, the disadvantage of having to pay interest on that balance can become pretty expensive.
However, the balance on a charge card account must be paid in full when the statement is received and can’t be rolled over from one billing cycle to the next like a credit card. Because you can’t carry a balance, a charge card doesn’t have a periodic or annual percentage rate; so there’s no rate for a charge card issuer to disclose.
Here are the top five advantages of using a business charge card:
- Prevents debt accumulation: The built-in control over spending for your business is significant because charge cards won’t allow you to incur a revolving debt like a credit card. By forcing you to pay off your entire balance each month and control spending, it prevents your business from accumulating long-term debt.
- No preset spending limit: Now this doesn’t mean that you have unlimited spending power at your fingertips. Your purchasing limit adjusts with your use of the card, your payment history, credit scores, and financial status known to the charge card issuer. This is very beneficial because your purchasing limit and your business can increase simultaneously.
- Earn rewards: Getting something in return for simply paying for routine business expenses is a great incentive to use a charge card as opposed to using cash or checks. Charge cards offer reward programs that are usually much more generous than credit cards. Some rewards can include earning points for every dollar you spend, airport club access, special amenities offered by luxury retailers, special upgrades at hotels and resorts, premium car rental programs, and much more. One of my clients uses his charge card for all his business travel because of all the perks and points he accumulates.
- Insurance coverage: Several charge cards offer free insurance coverage that will replace items you’ve purchased with the card, as well as certain travel protections. For example, American Express offers $500,000 in travel accident insurance for their Business Platinum Card charge card holders. Credit cards usually have fewer insurance protections, if any.
- Detailed expense reports: Having a detailed expense report allows you to easily track past charges plus maintain organized annual records that allow for tracking by spending category. This also will help you when filing your business tax returns.
Here is a list of several business charge cards available in the marketplace:
- OPEN from American Express offers business card members the OPEN savings program designed for companies with 100 or fewer employees. Some perks include 5 percent to 20 percent discounts on shipping, travel, and business services.
- Diners Club International has been a leading charge card for business travelers since the 1950s. Features include club rewards, cash access, an airport lounge program, a 24-hour emergency travel hotline, and a rental-car insurance program.
- Universal Air Travel Plan is accepted by more than 250 airlines and thousands of travel agencies for air travel, service fees, and management fees. It’s best for companies that want to restrict charging to airline-related expenses.
- The American Express Corporate Meeting Card allows all event-related expenses to be charged centrally so that hotel rooms, meals, transportation, and so on all go on a single bill.
One other point worth mentioning is how your payment experience is reported. Some charge cards like Diners Club International will self-contain your payment experience and will only report to the business credit bureaus if your account becomes delinquent.
While this is good for protecting your personal credit scores, it doesn’t build your business credit file because they don’t report your positive payment history.