Charge card vs Credit card: Which one is right for your business

Understanding the differences between various payment cards, such as charge cards and credit cards, is crucial for selecting the right tool for your business. This choice can significantly impact your company's cash flow, purchasing power, and credit management. In 2024, the global charge card market is projected to be valued at USD 2.02 billion.¹ On the other hand, 29% of businesses sought funding via business credit cards, with 4.67% using them as their primary funding source to kick-start operations.²

While both charge cards and credit cards enable businesses to operate on a line of credit, they differ in payment terms, late fees, and interest charges. This article delves into the key distinctions between these two types of payment cards and explores fintech alternatives to traditional corporate cards, such as Airwallex Borderless Cards. By the end of this article, you should be able to determine which card payment method aligns best with your operational needs and business objectives.

What is a charge card?

A charge card is a type of payment card that requires the cardholder to pay off the entire balance each billing cycle, typically monthly. Unlike credit cards, charge cards do not have a preset spending limit, offering greater purchasing flexibility; however, this does not mean unlimited spending, as charges must still be approved based on various factors such as the business's payment history and financial resources. Like credit cards, charge cards such as the American Express Corporate Green Card, Corporate Gold Card, and Platinum Card typically come with higher annual fees and often include attractive benefits like cashback, rewards programs, and enhanced customer service. However, failure to pay the balance in full by the due date can result in substantial late fees and penalties, making rigorous cash flow management and timely payments essential for businesses that use charge cards. 

Read our blog post on charge cards to learn more about how they work and their advantages and disadvantages.

What is a credit card?

A credit card is a payment card that allows businesses to borrow funds up to a pre-approved credit limit to make purchases. Unlike charge cards, credit cards do not require the full balance to be paid off each billing cycle; instead, users can carry a balance from month to month by making minimum payments. This flexibility comes at the cost of interest charges on any outstanding balances, which can accumulate over time. Credit cards such as American Express Centurion Card (commonly referred to as the Black Card), UOB One Card, Citi Corporate Card, and OCBC Visa Business Credit Card are widely accepted and offer additional benefits like cashback, rewards programs, and travel insurance, making them a versatile tool for managing business expenses.

Advantages and disadvantages of credit cards

Advantages:

• Cash flow management: Corporate credit cards allow businesses to manage their cash flow more effectively by providing the flexibility to make purchases and pay at a later date. This can be particularly helpful during periods of uneven revenue.

• Expense tracking: Like charge cards, credit cards offer individual monthly statements with detailed transaction records, allowing businesses to monitor and control spending. However, while credit cards from banks offer expense tracking capabilities, they usually don’t provide expense management tools for end-to-end visibility.

• Rewards and incentives: Many corporate credit cards come with rewards programs that offer cashback, points, or miles. These rewards can translate into significant savings or benefits such as travel credits, discounts on business purchases, and more.

• Enhanced security: Corporate credit cards typically come with robust security features, including fraud protection, purchase protection, and liability insurance. This helps safeguard the business against unauthorised transactions and potential financial losses.

Disadvantages:

• High interest rates: One of the most significant drawbacks of using corporate credit cards is the high interest rates that can apply to unpaid balances. If a business fails to pay off the balance each month, interest charges can quickly accumulate, leading to substantial financial costs over time.

• Potential for misuse: Corporate credit cards can be susceptible to misuse by employees, whether through unauthorised personal expenditures or fraudulent activities, potentially leading to financial losses.

• Impact on credit scores: Mismanagement of corporate credit cards, such as consistently carrying high balances, making late payments, or defaulting, can negatively affect the company's credit score. This can hinder future borrowing capabilities and increase the cost of credit.

• Annual fees: Many corporate credit cards come with annual fees, which can add to the overall cost of using the card. These fees may offset the benefits gained from rewards and incentives, particularly for small businesses with tight budgets.

• Complexity in reconciliation: Managing multiple corporate credit cards across various employees can make the accounting and reconciliation processes more complex. Ensuring that all expenses are legitimate and correctly recorded demands rigorous oversight and can be time-consuming for the finance team.

• Lengthy application process: Applying for a corporate credit card at traditional banks may involve extensive paperwork and require time-consuming approvals. This can be a barrier for smaller businesses or start-ups looking to establish their credit immediately.

Credit card vs Charge card

Charge cards and credit cards differ the most significantly in terms of their payment requirements. Charge cards require the entire balance to be paid in full each cycle. In contrast, credit cards allow businesses to carry a balance over time, subject to interest rates, providing more flexibility in cash flow management. Moreover, charge cards often come without a preset spending limit, offering more purchasing power to businesses, while credit cards typically have predefined limits. See the table below for more distinctions between the two cards.

Charge card vs credit card

Charge card vs Credit card: Which is more suitable for your business?

The choice between a charge card and a credit card depends on your business's specific cash flow and financial needs. If your business has consistent cash flow and you prefer to avoid interest charges by paying off the balance in full each month, charge cards could be the right choice for you. The high flexibility in spending limits and high-value rewards can be significant advantages for your business.

Alternatively, if your business requires more flexibility in managing cash flow, credit cards offer the ability for you to make minimum payments each month and carry a balance. Their lower annual fees and greater accessibility can also provide additional incentives.

For businesses that don’t require the credit line function of charge and credit cards, Airwallex offers multi-currency debit cards that are free to create for employees and companies with no annual fee. These virtual Visa cards can be used for online payments, such as SaaS subscriptions, and offline transactions, including travel and entertainment expenses, by adding them to digital wallets like Apple Pay or Google Pay. Digital wallets have surged in popularity in Australia as the number of transactions have increased by 8200% from 2018 to 2022.⁴ Using Airwallex Borderless Cards, businesses can enjoy the added benefits of $0 local or international transaction fees and market-leading foreign exchange rates.

Below, our table compares the various fees associated with business charge cards, credit cards, and Airwallex Borderless Cards, providing a clear overview of their cost differences.

Charge cards comparison

Sources: American Express Corporate Card, American Express Platinum Card, Commbank Corporate Charge Card, Suncorp Bank Clear Options Platinum Credit Card as of 1 Oct 2024

Corporate card alternative with no foreign transaction fees: Airwallex Borderless Card

As a leading fintech company, Airwallex offers innovative all-in-one solutions for businesses aiming to optimise their financial operations. Unlike traditional charge cards and credit cards, Airwallex streamlines global transactions more cost-effectively by eliminating unnecessary fees and offering highly competitive exchange rates.

Here are more reasons why Airwallex Borderless Cards are the ideal corporate card alternative:

• No hidden fees: Airwallex offers a transparent fee structure, eliminating the common pain points associated with traditional cards such as annual fees, foreign transaction fees, and other hidden charges. This allows businesses to manage expenses more predictably and reduce unnecessary costs.

• Global transactions: Airwallex supports global transactions in multiple currencies and provides competitive exchange rates, making it an ideal choice for companies with global operations or overseas suppliers.

• Real-time expense management: Airwallex enables real-time expense tracking and reporting with its built-in expense management tool. This enhances financial oversight, and simplifies reconciliation processes, while customised spending limits ensure tighter control over employee expenses.

• Integration with business software: Airwallex integrates seamlessly with various accounting and finance software, such as Xero and QuickBooks. This interoperability streamlines workflows, reduces manual data entry, and improves overall efficiency in financial management.

• Option for physical cards: Airwallex offers businesses the option to create physical versions of their virtual Borderless Cards, providing flexibility for those who may still prefer a physical card for certain transactions.

The wrap up

Charge cards are an excellent tool for businesses with disciplined financial management, allowing for immediate high-ticket purchases when necessary. In contrast, credit cards offer a convenient payment solution for businesses still building their credit scores.

Airwallex Borderless Cards offer a compelling alternative to traditional charge and credit cards. As a cost-effective fintech solution, they help businesses save on operational costs by eliminating annual and transaction fees.

Sign up for your Airwallex multi-currency card today to simplify your global payments and enhance your financial efficiency.

Frequently asked questions

1. Does a charge card build credit faster?

Similar to credit cards, charge cards can help build credit if you consistently pay your full balance on time each month. However, the speed at which your credit improves ultimately depends on maintaining consistent, timely payments and practising sound overall credit management, rather than the specific type of card you use.

2. Can businesses earn rewards with charge cards?

Yes, many charge cards offer businesses the opportunity to earn rewards for their spending. These rewards can come in various forms such as cash back, travel points, or discounts on business-related expenses.

3. Can a business have multiple charge cards?

Yes, businesses are permitted to issue multiple charge cards to various employees or departments. The ideal number of business cards for a business largely depends on its unique needs and goals.

4. Are there charge cards specifically designed for small businesses?

American Express offers two tiers of corporate charge cards, including their Corporate Green Card and Corporate Gold Card. The Green Card is a potential choice for small businesses and comes with an annual fee of AUD 70.³ Alternatively, Airwallex Borderless Card supports multi-currency transactions with no annual fees or hidden costs.

5. Are there business charge cards with no annual fees?

American Express is the sole charge card provider we’re able to identify in Australia. It offers the Corporate Green Card and Corporate Gold Card, both of which charge annual fees of AUD70 and AUD150respectively.³

6. How much are corporate credit card fees?

Typically, annual fees for corporate credit cards can range from AUD100 to 500 per card. Additionally, there may be other costs associated with maintaining a corporate credit card, such as fees for late payments, as well as foreign transactions and FX costs - both of which also apply to charge cards.

Sources & References:

1. https://www.thebusinessresearchcompany.com/report/charge-card-global-market-report

2. https://www.forbes.com/advisor/credit-cards/business-credit-card-statistics/https://www.statista.com/statistics/1111233/payment-method-usage-transaction-volume-share-worldwide/

3. https://www.dbs.com.sg/documents/276102/1373679/Commercial-Cards-Rates-and-Fees-Schedule.pdf/

4. https://www.ausbanking.org.au/mobile-wallet-transactions-skyrocket-to-93-billion-as-98-9-of-bank-interactions-take-place-digitally/

Disclaimer: The information in this article is based on our own online research. Airwallex was not able to manually test each tool or provider. The information is provided for educational purposes only and a reader should consider the specific requirements of their business when evaluating providers. This research is reviewed annually. If you would like to request an update, feel free to contact us at [[email protected]]. This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.