As businesses scrambled to keep supply chains functioning and shift away from manual payment methods like paper checks and wire transfers during the COVID-19 crisis, commercial card technology rose in popularity.
But business charge cards are more than just a pandemic-time fix. They provide an alternative way to access capital, control spend, and build credit.
Charge cards vs. credit cards
A credit card is a revolving line of credit that allows you to carry a balance from one payment cycle to the next. A charge card, on the other hand, requires cardholders to pay the full balance each month or face steep penalties.
Despite firm payment deadlines, businesses may prefer charge cards. The following are some of the reasons why:
Free up cash flow
Similar to a credit card, a charge card allows a business to make payments but hold on to their cash until the end of the statement period. Some charge cards extend credit even further by delaying collection to provide additional days of cash float. Charge card providers may also extend cash float in the case of returns and chargebacks.
Business charge cards can help to bring visibility and credit discipline to spend. Without the option to carry a balance and penalties for non-payment, businesses have an incentive to plan capital outflows more carefully.
Many commercial charge cards also come with purpose-built expense management software for desktop and mobile apps. This empowers finance managers to see all expenses in one place and reference reports on transaction activity to better predict future cash needs. You can also set spend alerts and limits for merchant categories.
Integrations to accounting software like QuickBooks or Xero can give managers access to more comprehensive spend reports without the need for duplicate data entry.
Most commercial charge cards have a number of built-in fraud prevention mechanisms.
For one, the ability to set custom card limits and merchant codes helps ensure employees only use cards for the intended purposes (drinks on corporate? I don’t think so). Some commercial card providers even allow you to generate one-time use cards for specific purchases.
According to Visa, EMV chipped cards can reduce card-present fraud by as much as 76%. With an EMV chip, your charge card blocks would-be criminals with encryption and tokenization during each transaction.
In instances where security features fail to prevent fraud, many providers offer fraud insurance and zero liability for cardholders.
Seek out a card provider that has a rewards program that can bring benefits to your business. Common rewards include cash back, points on spending, and merchant funded rewards.
For example, with a merchant funded rewards program, a trucking company could take advantage of discounted fuel purchases at participating gas stations. Small discounts can amount to big savings over time.
A smarter way to manage spend
With no interest and no debt, charge cards can be a good option for businesses that need to access capital while enforcing credit discipline. For young businesses with limited credit presence, paying the full balance of a charge card every month also helps to build credit and improve future access to capital.
If your business wants to earn rewards for purchases while freeing up cash flow and improving fraud prevention, consider whether a charge card is right for you.
To learn more about financing options to reach your business goals, Visit Inxeption Capital.