Small Business Credit Cards vs Purchasing Cards

A credit card is a loan that you take out from your bank or other financial institution, using the money in your checking account. A purchasing card is similar to a gift certificate and are typically used for items like groceries and clothes, not taking on debt.

The “purchasing cards for business” is a relatively new option that stores offer. These cards can help small businesses save on credit card fees and interest rates, which are typically higher than those offered by standard credit cards.

A buying card is a charge card, which is the major distinction between a small company credit card and a purchase card. A charge card demands full payment every month, however a small business credit card enables you to carry an amount forward to the following billing cycle. Both are short-term financing solutions for company purchases, but purchasing cards are designed to make the business-to-business buying process easier.

A P-card, procurement card, or business charge card is another name for a buying card.

At a Glance: Small Business Credit Cards vs. Purchasing Cards

When Should You Use a Credit Card for Your Small Business?

A small company credit card should be used to:

• Make daily business purchases: Small business credit cards are best utilized to fund everyday company costs such as office supplies or equipment, internet, phone, or travel in an easy and handy manner.
• Earn cash back and points for particular purchases: Some of the finest small business credit cards provide cash back or points for specific purchases. It’s as if you’re receiving a discount every time you shop in those categories.
• Employee cards for company spending: Most small business credit cards enable owners to issue supplementary cards to their staff for business expenses. Dealing with purchase orders or reimbursing your staff for business-related expenditures is frequently simpler.

When Should You Use a Purchasing Card?

You should use a credit card for the following reasons:

• Streamline the purchase procedure for business-to-business transactions: P-cards help companies save time and money by allowing them to make business-to-business purchases using cards rather than cheques or automated clearing house (ACH) transactions.
• Business owners may issue extra employee cards and establish spending limitations for them. You may establish daily or monthly spending limitations, restrict the card’s usage, and lock and unlock the card from your account.
• Integrate your accounting software with the P-card program: Some P-card applications interface with accounting software and automatically input your transactions, eliminating the need for your accounts payable (A/P) staff to manually enter them.
• Suppliers may give you a discount if you pay early: If you pay your payment early, several suppliers and service providers may give you a discount.

When Should You Use Something Other Than a Small Business Credit Card or P-Card?

A business prepaid card, such as Bento for Company, is an alternative to a small business credit card or purchase card. It functions similarly to a debit card, except you must have sufficient cash on hand to fund the account. It might be the best option if:

• You don’t satisfy the minimum qualifications: Company prepaid cards are generally used by business owners who do not qualify for or do not want a small business credit card; they have less restrictions than both small business credit cards and purchase cards, while also reducing the risk to the owner.
• You want to keep track on employee spending: Employee cards are available on corporate prepaid cards, just as they are on P-cards and business credit cards. You may set up variable spending levels and limit merchant categories.
• Preloading cash is preferable than having a credit limit: There are no credit restrictions for business prepaid cards. Business owners, on the other hand, preload the amount of money they intend to spend. You’ll be able to keep your expenditures under control as a result of this.
• You’re working on repairing your credit: Prepaid cards don’t need a credit check, and your use isn’t recorded to the main corporate credit agencies.

How Do Credit Cards For Small Businesses Work?

Within 10 to 14 days after your company credit card application is accepted, you’ll get your card in the mail. Some card issuers will provide you the card number as soon as your application is approved, so you may start using it right away. You may be able to get cash back or points rewards on some or all of your purchases, depending on the card.

A statement is sent to you at the conclusion of your billing period, which is normally every 30 days. Only a monthly minimum payment is necessary, though. If your company just pays the monthly minimum and carries a debt over to the next month, interest will be charged on the outstanding amounts. Unpaid bills will continue to earn interest until they are completely paid off.

Purchasing Cards and How They Work

Employees are often given buying cards to conduct business-to-business expenditures, such as purchasing products or services. Employees have the option of making an upfront purchase or sending an invoice to their supplier or service provider. The transaction is reported to the P-card provider by those vendors or service providers.

Depending on your agreement, your P-card provider will send you a charge every 15 or 30 days. You have the option of paying this sum in full manually or having it paid automatically from your linked business checking account.

Qualifications for Small Business Credit Cards vs. Purchasing Cards

A small company credit card, as opposed to a P-card, may be the greatest financing option for a new firm because of its very straightforward qualifying standards. Purchasing cards, on the other hand, have criteria for yearly expenditure, cash flow, and profitability.

• Qualifications for Small Business Credit Cards
• Qualifications for Purchasing Cards

• 640 or higher on your personal credit report
• There is no need for time spent in business.
• Required Income: There is no necessity.

• Annual spend requirement: Many P-card companies have a minimum annual expenditure requirement, which is usually $1 million. We suggest utilizing a small business credit card if your company does not satisfy this condition.
• A good credit score for a business: The four major business credit reporting agencies, as well as what they consider a good score, are as follows:
  • Dun & Bradstreet: 80 or higher
  • Experian: a score of 80 or better
  • Equifax: a score of 90 or better
  • If you have no business credit history, your FICO SBSS score must be at least 140.
• 640 or higher on your personal credit report
• 1.25 times the debt service coverage ratio (DSCR) is considered the minimum acceptable amount of cash flow. This might be used by credit card companies to see whether your cash flow can fulfill your debt commitments.

Because there is no need for income or time in company, most business credit card providers demand a personal guarantee. This implies that any outstanding charges on the company’s commercial credit card account are the responsibility of the business owner. Your credit card application will also be dependent on your personal credit while your company is beginning.

P-card providers often want proof that your firm is successful now and has been profitable in the last two years. This provides them with a broad overview of your company’s financial condition.

Costs of Credit Cards for Small Businesses vs. Purchasing Cards

While the APR on business credit cards may seem to be high, many of them provide an initial 0% APR period of nine to twenty months. A buying card is often a more affordable alternative provided you can handle its repayment terms, given the cost of an APR plus an annual fee.

Small Business Credit Cards vs. Purchasing Cards: What’s the Difference?

Small business credit cards are the finest when it comes to earning cash back or points for your purchases. Some credit cards provide points for certain purchases, such as office supplies, petrol stations, and restaurants. Others provide incentives for all company purchases. P-cards, on the other hand, seldom give cash back or point benefits. Instead, some vendors and service providers give discounts as incentives.

Repayment Terms for Small Business Credit Cards vs. Purchasing Cards

Small company credit cards, on the other hand, allow you to float business spending, while purchase cards do not. Although paying your credit card balance in full every month is suggested, it is not necessary. The monthly minimum payment is all that is necessary.

It’s crucial to utilize a P-card just if you’re certain you’ll be able to pay off your whole account amount each month. To ensure that your payment commitments are completed, P-card issuers often ask that you set up auto repayment with them. They may also need that you have a bank account with the issuing bank. This is useful when setting up autopay since it allows you to link that account to your P-card.

Conclusion

A small business credit card is a convenient way to fund your company that is approved by most shops and suppliers. A buying card is a fantastic option for expediting a B2B purchasing transaction, particularly if the purchases are recurrent. Consider if you’d rather float your costs and earn benefits every month, or if you have recurrent purchases and can pay your bill in full every month. For further information and ideas, see our post on employee credit cards and best practices.

The “disadvantages of purchasing card” are that they do not offer rewards, and they charge higher fees. Purchasing cards can also be used to pay for goods and services.

Related Tags

• purchasing card vs credit card
• procurement credit cards or corporate purchasing cards (p-cards) can be used for small purchases
• purchasing cards pros and cons
• p-card vs corporate card
• corporate purchasing cards are issued to