The key to running a successful business lies in empowering the financial team with the correct payment methods. Choosing the right payment methods for any business has become very crucial in today’s times. This is because how you pay is often a reflection of your core business habits. Choosing the right type of corporate card: credit or debit, is of utmost importance in streamlining the financial aspects of your business.
While a debit corporate card can be synonymous with simplicity and budget control, a credit corporate card can be seen as a tool for flexibility and growth. The most common question that arises while choosing between the two is: which one is the better option for my business?
Both corporate debit and credit cards offer certain advantages to a business, but they also come with a set of risks. Let’s explore the key advantages offered by both while keeping in mind the distinctive set of differences that set them apart from each other.
Corporate Credit Cards
A corporate credit card allows businesses to make purchases or take financial steps on a credit line. This credit limit is mainly predefined and set by the financial institution issuing the card. For example, platforms like Aspire usually issue corporate credit cards to businesses with a predefined credit limit. The business is billed by the financial institution, mainly at the end of the monthly billing cycle, and they can either repay the amount completely or partially. If paid partially, one must keep in mind that the credit card issuing authorities might charge you interest on any outstanding balance.
Benefits of Corporate Credit Cards:
- Rewards and Cashback: Many platforms offer business credit cards that have specific rewards and cashback on certain spending categories. This can significantly help businesses reduce their net expenditure.
- Increased Fraud Protection: Corporate credit cards have a better and improved fraud protection system in place as compared to other business cards. This is because the funds are not directly deducted from a business’s current account but from the credit line offered by the credit card issuer. Hence, issuers typically offer strong protection and quicker resolution for any fraudulent activity taking place.
- Improved Cash Flow Management: The key advantage of a corporate credit card is that you can very easily continue your business operations while delaying certain payments for a time. For example, if planned properly, you can make a purchase during a grace period and then pay it off without any interest before the deadline.
- Builds Long-term Credit: Using a business credit card helps in building up strong credit for your business. This can be utilised in the future to open doors to much better financing options and improved credibility with major lenders.
Drawbacks of Corporate Credit Cards:
- With a credit card, there always comes an undeniable risk of overspending.
- Often, when you only pay the minimum amount due and not the entire outstanding balance, your business might incur higher interest charges.
- There are many corporate credit cards that come with higher annual maintenance charges and interest rates.
Corporate Debit Cards
Corporate debit cards are the cards that are directly linked to your business’s current account. For example, financial platforms like Aspire offer businesses an Aspire Debit Cardthat is directly linked to their business’s account. If you make a payment using your business debit card, then that specific amount will be immediately deducted from your account balance. It does not involve the risk of high interest charges at the end of every billing cycle because you are not utilising any credit line, but you are using the actual funds that your business has earned.
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Benefits of Corporare Debit Cards:
- Impossible to Overspend: With a corporate debit card, you never have to risk overspending your budget limit. This is because purchases will automatically be denied once you reach a point where the funds run out.
- No Interest Rates: Since you are not using a credit line (and using only your own money), it is impossible to get any interest rate on your purchases.
- Lesser Charges: The annual maintenance fee of corporate debit cards is far less when compared to corporate credit cards. Many financial platforms even offer debit cards that charge no annual fees or foreign transaction markups.
Drawbacks of Corporate Debit Cards:
- Unlike a credit card, a corporate debit card does not allow you to build your credit profile.
- Business debit cards usually do not offer rewards or cashback as a credit card does.
- There’s only limited fraudulent activity protection offered by business debit cards as compared to a credit card. If somebody misuses your business debit card, then the funds will immediately be deducted from your account, and you will find yourself in a financial contingency until the debit card provider resolves the issue.
So, which one is the correct choice for your business? There’s no universally correct answer; businesses tend to utilise a balanced combination of both. Many businesses have found that using both debit and credit cards works strategically in their favour. Ultimately, the way your business pays for its expenses is what matters. Both corporate debit cards and credit cards are immensely powerful tools, but only when used correctly. Hence, analyse your business’s needs, cash flow, purchase habits, and long-term goals to make the correct decision.
