A guide to business credit cards
What is a business credit card?
A business credit card is issued solely for a company’s use and not an individual’s.
Businesses have often used credit cards to allow staff to make necessary purchases. In recent years, as it has become harder for small firms to get hold of loans, many more have used business credit cards to temporarily finance their operations.
Although some cards are free, others charge an annual fee of anything up to £80.
Benefits
A business credit card allows you to manage your company finances more flexibly and not be so reliant on your debtors to fund any buying you need to do.
They allow staff to buy items and services they need for work without having to meet the cost themselves and then submit an expenses claim.
It can be seen as a mark of trust in your employees, as well as making it easier to keep track of spending.
Negatives
Just as with a personal credit card, it can be tempting to spend more than you should with a business card, so it’s important to be careful.
There is a danger that employees will misuse the card, so companies need to be careful about who they allow to use their credit facility.
Alternatives
Small and medium-sized businesses could request an overdraft from their bank or use prepaid cards to allow their employees to make corporate purchases. The other option of course, is that individual employees cover company expenses using their own credit or debit cards and then submit an expenses form to recover the costs.
Glossary of terms
APR
This stands for Annual Percentage Rate. Any firm that lends money is required by law to quote the APR. Introductory rates do not include arrangement fees you may be charged and also don’t reflect any higher rate of interest that your borrowings will ultimately revert to. The APR takes into account the interest on a loan plus and additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.
Balance Transfer
Balance transfer rates are applied to existing card debt that is being moved from one issuer to another or a consolidation of other debts. These rates tend to be lower than standard rates and apply to the debt transferred or consolidated for a specified term or until it is repaid in full.
Credit Card
Credit cards are a form of borrowing used to purchase goods and services, to obtain cash advances and for consolidating debt.
Direct Debit
This allows an organisation to take money directly from a persons bank account
Minimum payment
The amount you must pay each month to keep your account in order
Interest-free period
The time between when you buy something on the card and the date when you must pay your monthly bill. This can be 50 days or more and is interest-free. So if you settle your bill in full every month, it's free borrowing.
Promotional Rate
A rate that is applied to your account until a given expiry date. Thereafter it will revert to the rate applicable to your account at that time.
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Representative Example: If you spend £1,200 at a purchase interest rate of 16.94% (variable) your Representative APR will be 16.9% (variable).