Should Businesses Use Charge Cards or Credit Cards?

Choose between Interest-free financing or flexible payments

A young Black businessman speaks on the phone while leaning on a counter and takes notes in a notebook.
•••

 Maskot / Getty Images

Convenient purchasing options are a high priority for busy business owners. Charge cards and credit cards both supply purchasing power with the convenience to repay at a later date. These options are made more attractive with the added benefit of letting you earn rewards or access additional perks. Of course, there’s a downside to both types of cards—fees—which can include annual fees, late fees, foreign transaction fees, and finance charges.

Beyond the basics, each type of card has its own pros and cons. Exploring the details of both can help you determine the best card for your business.

The Credit CARD Act, which caps late fees and includes other protections for consumer credit cards, doesn’t apply to business credit cards.

What Is a Business Charge Card?

The most distinguishing feature of a business charge card is the monthly payment requirement. In general, you’re required to pay your full balance rather than paying your balance over time with minimum monthly payments. Partial or missed payments are penalized with steep interest charges and late fees added to your balance.

American Express is the main issuer of business charge cards, though there are some niche players such as Brex. 

These are the three Amex business charge cards:

When Should You Choose a Charge Card for Your Business?

Here’s how to decide if a charge card is right for your business.

You Have Predictable Cash Flow

Because you can’t carry a balance, charge cards are best for businesses that have established a reliable cash flow that isn’t likely to swing from month to month. That could potentially leave you unable to pay off your bill. 

You Want the Flexibility of Having No Credit Limit

Charge cards often have no preset spending limit, which can allow you to take advantage of time-sensitive opportunities that require quick access to funds, such as purchasing inventory to fulfill a rush order. That doesn’t mean the sky’s the limit—your spending capacity is based on your finances and payment history. But by comparison, credit card credit limits tend to be more rigid. They’re set when you’re approved for the card based on your credit history and information in your credit card application. 

Because you have to pay your balance in full each month, you must be diligent not to outspend your business’s ability to repay. This may mean forgoing a charge card for your business until you have a consistent, reliable cash flow to cover your monthly expenses.

You Want to Avoid Paying Interest on Purchases

You’re required to pay your balance in full each month, hence there’s no interest rate with a charge card. That said, depending on the card you choose, you may occasionally receive the option to pay for purchases over time. But the option to pay over time with interest is not baked into a charge card and therefore, there are fewer chances to be tempted into doing so and running up finance charges.  

Charge Card Pitfalls to Watch Out For

What you gain in interest savings comes at the cost of common credit card features.

The Annual Cost May Be Higher

All three business charge cards from American Express have an annual fee. Taking advantage of the card’s rewards and perks will help you offset that annual fee. But if you regularly pay your monthly card balances anyway, a business credit card without an annual fee will save you money. 

No 0% APR Deals on Purchases 

Some business credit cards have promotional interest rate offers that allow you to make a large purchase when you get the card and pay it off with 0% APR for as long as 20 months. But none of American Express’s business charge cards have such deals. If you need to finance a large purchase, you’re better off getting a credit card with a 0% APR offer.

Global Acceptance May Be Limited

American Express has a smaller global presence than Visa and Mastercard. If you travel frequently, especially internationally, you’ll need to carry a backup credit card to ensure continued access to credit.

What Is a Business Credit Card?

A business credit card offers the flexibility to pay your full balance at once or over a period of time. You only need to make the credit card minimum payment each month to avoid late payment penalties and keep your account in good standing.

When Should You Choose a Credit Card for Your Business?

Here’s what to consider when choosing a business credit card.

You Need the Versatility to Pay in Full or Over Time

With a credit card, your business can make partial payments on your balance each month or pay in full as your cash flow allows.

You’re Interested in Zero-Interest Purchase or Balance Transfer Deals

Besides the 0% APR deals we already mentioned that some business credit cards offer on purchases, you may also be interested in 0% balance transfer deals offered by some credit cards. Those allow you to pay off balances from high-interest credit cards during a low- or no-interest introductory period. Those deals aren’t possible with charge cards. 

You Want More Options for Rewards

Because there are so few business charge cards, adding a credit card to your options gives you a better selection of cards with rewards and perks.

Business Credit Card Pitfalls to Watch Out For

Business credit cards offer a lot of convenience, but there are costs and limits, too. 

You’ll Incur Interest Each Month Your Balance Isn’t Paid in Full

Unless you’re taking advantage of a promotional interest rate offer, the convenience of carrying a balance from month to month comes at a cost. Carrying a higher balance could result in hundreds of dollars in finance charges each month.

You’ll Have a Set Credit Limit

A firm credit limit caps the balance you can have outstanding at a given time, which can help you keep your spending in check, but can also make it difficult to finance larger purchases.

Your Personal Credit May Play a Role

When you’re opening a credit card or charge card to finance business purchases, both your personal and business credit are used to qualify you, even if your business is a separate legal entity. Getting approved for either a credit card or charge card may require you to have good to excellent personal and business credit. However, new businesses without established credit may opt for one of a handful of business credit cards that require no to fair credit. There are no such options within the charge card realm.

Article Sources

  1. American Express. "Understanding the Differences Between charge and Credit Cards." Accessed June 30, 2020.

  2. American Express. "2018 10-K: Competition." Accessed June 30, 2020.

  3. American Express Blue Business Plus Credit Card. "Important Information Regarding Rates, Fees, and Other Cost Information." Accessed June 30, 2020.