Charge cards: Basic guide for businesses

Businesses today have access to a variety of card payment methods such as credit cards, debit cards, virtual cards, corporate cards, and charge cards. These payments are gaining traction in Australia as in 2022, three-quarters of payments were made with cards.¹ 

This growing trend is especially driven by the eCommerce sector which is expected to hit $72.9billion AUD by 2028.² With the growing significance of card payments for businesses in Australia, selecting the right card to manage company expenses is crucial. 

This guide will focus on charge cards, providing businesses with a comprehensive overview of what they are, how they work, and how they compare to other cards like Airwallex Borderless Cards.

What is a charge card?

Similar to a credit card, a charge card is a type of payment card that allows businesses to spend on a line of credit and then repay the balance after the expenditures have been made. However, unlike credit cards, which allow cardholders to carry a balance from month to month, you must pay the balance in full at the end of each billing cycle. Failure to settle the bill on time may result in late fees or penalties. Since charge cards require full payment each time, they don't accrue interest like credit cards. These cards are ideal for businesses capable of managing their cash flow rigorously, as the outstanding balance must be cleared each month to avoid penalties.

Charge cards also offer businesses more flexibility in managing their expenditures as they typically come with no preset spending limit. However, charges are generally approved based on the business's creditworthiness and spending habits. These cards often come with substantial benefits, including higher spending power, enhanced rewards programs, and premium customer service features. Nonetheless, the key to leveraging charge cards effectively lies in ensuring timely payment of the full balance, thereby avoiding hefty late fees.

How does a charge card work?

A charge card operates on the principle that the cardholder must pay off the entire balance at the end of each billing cycle. Here's a step-by-step breakdown of how charge cards function:

1. Application and approval: To obtain a charge card, businesses must apply with their financial provider. The approval process typically involves a credit check to assess the applicant's creditworthiness.

2, Spending and transactions: Once approved, the cardholder can make purchases up to an amount that is implicitly set based on their credit profile, rather than a predefined credit limit determined by financial institutions. Each transaction made using the charge card is recorded and tracked.

3. Billing cycle and payment: At the end of each billing cycle, the cardholder receives a statement detailing all the transactions made during that period and the total balance that needs to be paid. The payment for the full balance on a charge card must be made by the due date specified on the statement. Failure to pay the balance in full will result in late fees.

4. Rewards and benefits: Many charge cards offer rewards programs, providing points, miles, or cashback on purchases. They may also feature additional perks such as travel insurance, purchase protection, and access to exclusive events.

Benefits and challenges of using a business charge card

Business charge cards often grant cardholders increased spending power by not imposing a predefined spending limit. They also offer rewards such as points, miles, or cashback, along with benefits like travel insurance and purchase protection. However, charge cards require the full balance to be paid off each billing cycle, which can be challenging for businesses with unpredictable cash flow. Additionally, high annual fees may not be cost-effective for smaller businesses, and approval can be difficult for those with low credit scores.

Benefits of using a corporate charge card

• No pre-set spending limit: Unlike traditional credit cards, charge cards do not have a predefined credit limit. This provides businesses with greater purchasing power, which can be beneficial for managing large or unexpected expenses.

• No interest: Charge cards don't incur interest because cardholders have to pay off the entire balance by the end of the month. As a result, there's usually no remaining amount on which to charge interest.

• Cash flow management: Charge cards help businesses manage cash flow by allowing deferred payment until the end of the billing cycle.

• Expense tracking: With each transaction recorded and tracked, charge cards provide businesses with a clear overview of their spending, making it easier to manage budgets and streamline the accounting process.

• Rewards and savings: Compared to credit cards, the American Express charge cards offer more attractive rewards programs and exclusive perks. For example, American Express Platinum Card is known for its complimentary concierge services for eligible charge card members, where its staff fulfils requests such as purchasing conference tickets and making dinner reservations at no cost for members.³

Disadvantages of using a corporate charge card

• Strict payment terms: Charge cards require the full balance to be paid at the end of each billing cycle. This can be challenging for businesses with inconsistent cash flow, as they may struggle to make timely payments.

• Late fees: Late payments can incur significant fees and penalties. Accumulating too many late fees could ultimately result in the suspension or closure of your account.

• Annual fees: Business charge cards often come with higher annual fees compared to traditional credit cards. These fees may not be worth it for smaller businesses that do not have high transaction volumes.

• Limited availability: Today, the options of charge cards are scarce compared to the hundreds of credit cards offered. Additionally, obtaining approval for a charge card can be more challenging if your business has a low credit score.

Which are the best business charge cards to consider?

There are various charge card issuers in Australia including American Express, Diners Club, JCB and others.  American Express offers the Corporate Green Card and Corporate Gold Card for businesses, as well as the Green Card, Gold Card, and Platinum Card for individuals.

The Green Card offers a flexible payment solution for managing business expenses, while the Gold Card is designed for frequent business travellers and comes with additional travel-related perks. The Platinum Card offers cardholders exclusive access to 24/7 concierge services including assistance with restaurant reservations, travel emergencies, or urgent situations around the home.

However, these cards charge expensive annual fees of up to $1450 AUD, which may not be as affordable for smaller businesses. See a more detailed breakdown of various card fees in the table below:

Sources: American Express as of 1 Oct 2024

Due to the high costs often linked to charge cards and credit cards, many businesses are shifting towards more cost-effective payment solutions for managing their expenses. Airwallex presents a compelling alternative by offering a streamlined approach to managing business finances. Unlike charge cards that come with hefty annual fees, Airwallex's multi-currency Borderless Cards do not come with the burden of high annual fees. For frequent business travellers, Airwallex offers 0% international transaction fees and access to market-leading FX rates, significantly reducing the expense associated with global business transactions. This makes it an ideal choice for businesses of all sizes that require more efficient cash flow management.

Credit card vs Charge card

Charge cards and credit cards differ primarily in their payment structures and spending limits. A charge card requires the cardholder to pay the entire balance in full at the end of each billing cycle. This means there is no option to carry over a balance, avoiding interest charges but necessitating timely and full payments to avoid substantial late fees. Additionally, charge cards typically come with no preset spending limit, although charges are typically approved based on the business's creditworthiness and spending patterns.

Conversely, credit cards enable cardholders to carry a balance. Users can make minimum monthly payments while incurring interest on the remaining unpaid amount. The average credit card interest rate is 27.89%, which can add up to a considerable sum if not managed efficiently.⁵ Credit cards typically feature lower or no annual fees compared to charge cards, making them more accessible to a broader range of businesses. They also come with a predetermined credit limit set by the card issuer, so there are more limitations to the amount your business can spend each month.

Charge card vs Debit card

Debit cards are directly linked to a bank account, enabling businesses to spend money that they already possess. When a transaction is made using a debit card, the funds are immediately deducted from the linked business account. This reduces the risk of accruing debt or late fees since the cardholder cannot spend beyond what is available in their account. However, debit cards may lack the extensive rewards and benefits that charge cards usually offer, making them a more straightforward yet less advantageous tool in the long term.

Charge cards, on the other hand, offer deferred payment and greater purchasing power as long as the full balance is paid monthly. They allow businesses to spend on a line of credit and repay the balance after the expenditures are incurred, making them ideal for managing larger expenses. Additionally, charge cards often come with robust reward programs tailored for businesses or frequent travellers, such as points and cashback.

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

Relying on credit lines through charge or credit cards can pose certain risks for businesses if payments are missed or interest accumulates on outstanding balances. Over time, this can lead to substantial financial burdens. In such cases, virtual and physical debit cards like the Airwallex Borderless Card provide a more viable alternative than charge or credit cards for businesses needing company cards and employee cards for effective expense management. They not only offer the same convenience and security as charge cards and credit cards but also help businesses avoid the risks associated with credit lines as they cannot spend beyond the funds that are available in their account.

In particular, the benefits of the Airwallex Borderless Card include:

• Offers both virtual and physical card options

• No annual fees

• $0 local and foreign transaction fees

• Multi-currency debit cards that can be issued in 37+ markets

• Unlimited 1% cashback on all eligible spending

• Option to set individual spending limits for each employee card

Another key feature of the Airwallex Borderless Cards is their ability to facilitate purchases in 10+ currencies directly from your global account funds. This provides businesses with greater flexibility when making international card payments or dealing with overseas suppliers and clients, helping them save on currency conversion fees.

Airwallex enables businesses to streamline account reconciliation through their end-to-end expense management tool. Seamlessly integrating with popular accounting software like Xero and Quickbooks, it enables real-time expense tracking and streamlines bookkeeping tasks for businesses. Sign up for your virtual corporate card with Airwallex today to simplify your business expense management.

Conclusion

Charge cards can be a valuable payment tool for businesses that provide no preset spending limits, enhanced cash flow management, and attractive rewards. However, they are often accompanied by high annual fees and significant costs if businesses fail to make timely payments. To avoid being charged hefty late fees, businesses can consider alternative solutions like Airwallex which provides multi-currency corporate cards with low fees and transparent pricing. With its real-time expense tracking and seamless software integration, Airwallex offers a comprehensive payment solution for businesses looking to simplify their global business operations.

Frequently asked questions

1. Is it hard to get approved for a charge card?

Approval for a charge card can vary significantly based on several factors, including the business's credit history, financial stability, and the specific requirements of the card issuer. Typically, charge card issuers look for a strong credit score and a history of responsible credit use. Businesses seeking to obtain a charge card must also demonstrate solid revenue streams and financial health.

2. Do charge cards exist anymore?

Yes, companies like American Express still provide corporate charge card options such as their Green Card and Gold Card.

3. Can a charge card be used anywhere?

Yes, a charge card can be used at any location that accepts the card network associated with the charge card, such as Visa, Mastercard, and American Express.

4. Does closing a charge card hurt credit?

Closing a charge card has a neglectable impact on your credit history, which is a component of your overall credit score.

Sources & References:

^1. https://www.rba.gov.au/publications/rdp/2023/2023-08/card-payments.html

^2.https://retailasia.com/news/payment-cards-drive-over-50-australias-e-commerce-transactions

^3. https://global.americanexpress.com/card-benefits/detail/concierge/platinum

^4. https://global.americanexpress.com/card-benefits/detail/concierge/platinum

^5. https://www.forbes.com/advisor/credit-cards/credit-card-statistics/ Disclaimer: 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) it is important for you to read the Product Disclosure Statement (PDS) for the Direct Services, which is available here.