Charge cards: basic guide for businesses

Currently, businesses have the option to cover expenses through a variety of bank card payment methods, such as credit cards, corporate cards, debit cards, charge cards, and virtual cards. The popularity of bank card payments is on the rise – according to data from the Hong Kong Monetary Authority, the total transaction volume of debit cards has increased 16.5% as of Q2 2024 compared to the same period last year.

As bank cards become increasingly common in corporate settings, the importance of choosing an appropriate bank card for managing company expenses is growing. This article will explore the unique features, operational intricacies, and comparative analysis with other types of bank cards, specifically focusing on charge 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. 

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.

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 and purchase protection.

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 payments 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, 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.

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.

• 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.

• Limited availability: The options of charge cards are scarce compared to the hundreds of credit cards offered.

Introduction to corporate charge cards

American Express is currently the sole issuer of charge cards in Hong Kong and Singapore. In Hong Kong, there are personal charge cards as well as corporate charge cards like the American Express Gold Business Card. These charge cards do not come with preset spending limits. The primary card carries an annual fee of HK$400, with each supplementary card incurring an annual fee of HK$295. Essential features of charge cards include:

• Free travel insurance

• Complimentary The Executive Centre Pass

• American Express points on transactions

However, charge cards typically involve annual fees. Due to cost considerations, many businesses are transitioning to more cost-effective payment solutions to manage expenses. Airwallex's free multicurrency Borderless Visa Card serves as a convenient alternative. Unlike high-fee charge cards, Airwallex's Borderless Visa Card has no card issuance fees or burdensome annual fees. ‌For frequent business travellers, Airwallex offers 0% international transaction fees and market-leading exchange rates, significantly reducing costs associated with global business transactions. This makes it an ideal choice for businesses of various scales in managing cash flow.

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 make minimum monthly payments while incurring interest on the remaining unpaid amount. The average credit card interest rate is 30%, which can add up to a considerable sum if not managed efficiently. 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 have. 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 more straightforward yet less advantageous 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 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. The virtual and physical debit cards of Airwallex Borderless Visa Card offer a more viable alternative 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:

• Free to create online instantly

• Offers both virtual and physical card options

• No annual fees

• $0 local and foreign transaction fees

• Can be issued in 40+ markets

• Unlimited 1% cash rebate* 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 140+ currencies. 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 streamlines 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.

How to choose a corporate card?

When choosing a corporate card, businesses need to consider various factors to ensure it aligns with the company's operational needs and actual usage:

1. Needs analysis: Evaluate the company's spending patterns and requirements, and consider the frequency and types of transactions in the business to determine the most suitable payment method. Airwallex Borderless Visa Card is highly suitable for enterprises that need frequent international transactions.

2. Rewards and incentives: Different cards offer various reward programs such as cashback or travel rewards. The Airwallex Borderless Visa Card provides 1% unlimited cashback on all eligible expenses.

3. Fees and rates: Pay attention to annual fees and other related costs. Small businesses should avoid high annual fees.  Airwallex Borderless Visa Card having no annual fee and companies can issue cards at zero cost.

4. Payment conditions: Understand the payment requirements of each card. Some cards may require full monthly payments, which can be beneficial for cash flow management. Using Airwallex Borderless Cards does not incur additional interest.

5. Flexibility and control: Airwallex’s Borderless Visa Card offers this flexibility to enterprises, such as the ability to set individual spending limits, aiding in expense management.

6. Application process: Different credit cards have varying approval criteria, so it is best to make sure your company meets the requirements and has the necessary documents ready. With Airwallex, you can enjoy a simple application process and quickly obtain the required card.

The right corporate card enhances financial efficiency and fosters future growth. Airwallex could be your ideal solution for flexibility and innovation. 

*T&Cs apply.

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. Can charge cards 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.