Business credit cards and charge cards explained

Business cards are built on one of two models. A business credit card gives the business a credit limit and lets the balance be repaid over time: pay the closing balance in full and no interest is charged on purchases, carry part of it and interest accrues at the card’s purchase rate. A charge card gives credit only until the statement due date: the full balance is due each statement period, no interest applies to purchases paid on time unless part of the balance is moved to a pay-over-time facility, and a late payment fee applies if the balance is not cleared on time.

That difference shapes everything else about the two products. A credit card can smooth a gap between paying suppliers and being paid by customers for longer than one statement cycle, at the cost of interest. A charge card is built to be cleared each cycle, and where it can carry part of a balance it does so through a separate pay-over-time facility with its own limit and interest rate, which is why charge card issuers can offer flexible spending capacity instead of a fixed limit and why charge cards are aimed at businesses that run high monthly spend and clear it every cycle.

Charge cards in Australia are offered mainly by American Express, along with corporate charge cards from some of the major banks. The feature most associated with them is the absence of a pre-set spending limit. That does not mean unlimited spending: each purchase is still approved against the issuer’s assessment of the account, which moves with the business’s spending and payment history. It does mean that a large, irregular purchase is not capped by a limit set months earlier.

The trade-off is the payment rule. The closing balance is due in full by the payment date, and a late payment fee is charged when it is not paid in full and on time. Some charge cards include a facility to pay part of the balance over time, up to a set limit,, which works like a credit feature attached to the charge account and carries its own rate.

Corporate charge cards sit within a company-level program. The organisation sets each employee’s spending controls, receives consolidated reporting and is billed centrally or reimburses employees, depending on the liability arrangement. American Express publishes corporate green, gold and platinum charge cards, Qantas-branded corporate cards, purchasing cards, a meeting card for event spending, and a business travel account, a centrally billed account that uses virtual account numbers for travel bookings rather than cards carried by staff.

A business credit card works much like a personal one. It has a purchase rate, an interest-free period on purchases, commonly up to 44 or 55 days, when the balance is paid in full, a cash advance rate, an annual fee, and often a rewards program. Business card feeds published under the Consumer Data Right range from low rate cards with modest annual fees to premium rewards cards with Qantas Points or other frequent flyer earn and higher fees.

Two features separate business cards from personal ones:

• Who is liable. On many small business cards, the owner or a director applies and is personally liable for the debt, either jointly with the business or under a director’s guarantee, even though the card is in the business’s name. On corporate cards, the company is liable, either solely or jointly with the cardholder. The liability arrangement is set out in the card’s terms and in the application.
• Expense management. Additional cards for employees, individual limits per card, merchant category controls, receipt capture and transaction feeds into accounting software are the core of most business card offers.

Because a card used wholly or predominantly for business purposes falls largely outside the National Credit Code, several rules written for personal credit cards do not necessarily apply, including the responsible lending assessment framework built around consumer credit. A small business customer’s card is still covered by the Banking Code of Practice where the issuer subscribes to it, by the unfair contract terms laws, and by the Australian Financial Complaints Authority.

Rewards are a larger part of the business card market than the personal one, because a business can put a large share of its costs through a card. Earn rates on business cards are usually quoted in points per dollar, sometimes with a higher rate for spending with particular categories and a cap on the amount of spend that earns at the full rate.

Annual fees on business cards are charged per account on some products and per card on others, and where the fee is per account, additional cards carry a fee of their own on some products and none on others. Premium charge cards tend to carry higher annual fees than low rate credit cards, reflecting the travel benefits, insurances and rewards packaged with them.

The figures that separate business cards are:

1. The payment model, credit card or charge card, and whether the business needs the ability to carry a balance.
2. The liability arrangement, personal, company or joint, and who signs the application.
3. The annual fee, for the primary account and for each additional card.
4. The interest rate and interest-free days on a credit card, or the late payment fee and any pay-over-time facility on a charge card.
5. The rewards program, including earn rates, caps, excluded transactions and what points convert to.
6. Expense controls and integrations, such as per-card limits, receipt capture and accounting software feeds.

Current business credit and charge cards are listed on the Business Credit Cards table, and personal cards are on the credit cards hub.