Charge card vs. credit card: Which one is right for your business?

Understanding the differences between payment cards, such as charge cards and credit cards, will help you select the right tool for your business. This choice can significantly impact your company's cash flow, purchasing power, and credit management. 

At the end of 2024, the global charge card market was valued at $3.47 billion.¹ On the other hand, 44% of businesses reported using credit cards to improve business cash flow or as financing, 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 make purchases without immediate payment, they differ in payment terms, late fees, and interest charges. This article explores the key distinctions between these two types of payment cards and explores fintech alternatives to traditional corporate cards, such as Airwallex Corporate Cards.

Read on to determine which card payment method aligns best with your operational needs and business goals.

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 don't have a preset spending limit, providing greater purchasing flexibility. However, this doesn't mean unlimited spending – transactions are still subject to approval based on factors such as the cardholder’s payment history, financial resources, and spending patterns.

Like credit cards, charge cards – such as the American Express Corporate Green Card, Corporate Gold Card, and Corporate Platinum Card – can come with higher annual fees and valuable perks, including rewards programs, travel benefits, and enhanced customer service. However, failure to pay the balance in full by the due date can result in substantial late fees, penalties, and potential restrictions on future spending, making cash flow management and timely payments critical for businesses using charge cards. 

What is a credit card?

A credit card is a payment card that gives businesses access to a revolving line of credit up to a pre-approved limit. Unlike charge cards, credit cards don't require full repayment each billing cycle – companies can carry a balance by making minimum payments. However, interest charges apply to unpaid balances, which can build up over time.

Business credit cards – such as the American Express Business Platinum Card and Chase Ink Business Premier Credit Card – are widely accepted and may offer additional benefits, including rewards programs, cashback, and travel insurance, making them versatile tools for managing business expenses.

Advantages and disadvantages of credit cards

Advantages:

1. Cash flow management: Corporate credit cards allow businesses to manage their cash flow more effectively by providing the flexibility to make purchases and pay later, which can be helpful during periods of uneven revenue.

2. 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.

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

4. Enhanced security: Corporate credit cards typically have robust security features, including fraud protection, purchase protection, and liability insurance. These features can help safeguard your business against unauthorized transactions and potential financial losses.

Disadvantages:

1. 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.

2. Potential for misuse: Corporate credit cards can be misused by employees, whether through unauthorized personal expenditures or fraudulent activities, ‌ leading to financial losses.

3. 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, hindering future borrowing capabilities and increasing the cost of credit.

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

5. 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.

6. 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 most significantly in payment requirements and spending limits. Charge cards require the entire balance to be paid each billing cycle, while credit cards allow businesses to carry a balance over time, subject to interest charges, as long as they make the minimum payment.

Charge cards don't have a preset spending limit, but this doesn't mean unlimited spending – purchases are still approved based on factors like payment history and financial standing. In contrast, credit cards typically have a predefined credit limit, which may be adjusted based on the cardholder’s usage and creditworthiness. See the table below for more distinctions between the two.

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 cash flow and financial needs. A charge card may be a good option if your company has consistent cash flow and prefers to avoid interest charges by paying off the balance in full each month. While charge cards don't have a preset spending limit, purchases are still subject to approval based on financial history and payment behavior. Many also offer high-value rewards and premium perks that can benefit frequent business spenders.

Alternatively, if your business requires more flexibility in managing cash flow, a credit card lets you make minimum monthly payments and carry a balance – though interest charges apply to unpaid amounts. Credit cards also tend to have lower annual fees and are generally easier to qualify for than charge cards.

For businesses that don’t need to borrow funds or carry a balance, Airwallex offers multi-currency debit cards with no annual fees, which are free to issue for employees and companies. These virtual or physical 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, accounting for roughly half of global eCommerce payment transactions in 2023.³ With Airwallex Corporate Cards, businesses can benefit from $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 Corporate Cards, providing a clear overview of their cost differences.

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

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

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

1. 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.

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

3. Real-time expense management: Airwallex enables real-time expense tracking and reporting with built-in expense management, improving financial oversight and simplifying reconciliation processes. Customized spending limits ensure tighter control over employee expenses.

4. 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.

5. Virtual and physical card options: Airwallex enables businesses to issue both virtual and physical Corporate Cards, offering flexibility for those who need a physical card for specific transactions.

Find the right corporate card for your business

Charge cards are an excellent option for businesses with disciplined financial management. They enable high-ticket purchases without interest when paid in full. In contrast, credit cards provide flexibility for companies that are still building their credit history.

Airwallex Corporate Cards eliminate annual and transaction fees for a cost-effective alternative, helping businesses reduce operational costs while streamlining global payments.

Frequently asked questions

1. Does a charge card build credit faster?

Like credit cards, charge cards can help build credit if you consistently pay your full monthly balance on time. However, the speed at which your credit improves ultimately depends on maintaining consistent, timely payments and practicing 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 allow businesses to earn rewards for their spending. These rewards can come in various forms, such as cashback, travel points, or discounts on business-related expenses.

3. Can a business have multiple charge cards?

Yes, businesses can issue multiple charge cards to various employees or departments. A company's ideal number of business cards 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 the Corporate Green Card and Corporate Gold Card. The Green Card is a potential choice for small businesses and comes with an annual fee of up to $75.⁴ Alternatively, the Airwallex Corporate Card supports multi-currency transactions with no annual fees or hidden costs.

5. How much are corporate credit card fees?

Typically, annual fees for corporate credit cards range from $0 to $695 per card. Other costs may be associated with maintaining a corporate credit card, such as fees for late payments, foreign transactions, and FX costs, which also apply to charge cards.

Sources:

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

2. https://www.forbes.com/advisor/credit-cards/business-credit-card-statistics/

3. https://www.statista.com/statistics/1111233/payment-method-usage-transaction-volume-share-worldwide/

4. https://www.americanexpress.com/us/credit-cards/business/corporate-credit-cards/

5. https://www.americanexpress.com/us/credit-cards/business/corporate-credit-cards/american-express-platinum-corporate-card/

6. https://www.americanexpress.com/us/credit-cards/card/platinum/

7. https://global.americanexpress.com/card-benefits/detail/no-foreign-transaction-fees/platinum

8. https://creditcards.chase.com/business-credit-cards/ink/premier