Small Business Credit Cards vs Purchasing Cards

When comparing small business credit cards vs purchasing cards (P cards), the primary difference is that you don’t pay interest on P cards because the balance is paid in full monthly. Both are short term financing options for business-related purchase, but purchasing cards are meant specifically to streamline the business-to-business purchasing process.

Small Business Credit Cards vs Purchasing Cards at a Glance

When to Use Small Business Credit Cards

Small business credit cards are best used for everyday business-related purchases, earning various rewards, and issuing employee cards to monitor employee expenses. With limits typically up to $50,000, they’re an excellent way to finance your purchases.

Some instances when you should use a small business credit card are:

• Everyday business-related purchases: With limits up to $50,000, small business credit cards are best used to finance your everyday business expenses, such as office supplies
• Earn various cash back and points rewards: Some of the best small business credit cards offer cash back rewards or points rewards for specific spending categories; this can be your ticket to saving your company money
• Issue employee cards for business spending needs: Most small business credit cards allow business owners to issue additional cards to their employees; this allows you to set and control employee expenses; for example, it may be beneficial for employees who travel often to have a business credit card for travel expenses

You can also use small business credit cards to float expenses if need be, knowing they will accrue interest. However, there are some credit cards that offer a no-interest introductory period that can be beneficial if you think you’ll need to carry a balance. You can shop and compare credit cards through our credit card marketplace to help find the card that’s best for your business.

When to Use Purchasing Cards

Purchasing cards are best used by businesses to streamline their business-to-business purchasing process, control and set employee spending limits, receive robust reporting, and possibly earn pay early discounts.

Some instances when you should use a purchasing card are:

• Streamline business-to-business purchasing process: P cards allow businesses to streamline the process by making business-to-business purchases with cards instead of other payment methods, such as checks and automated clearing house (ACH) transactions
• Control and set employee spending limits: Business owners can issue additional employee cards and manage their expenses; for instance, business owners can set daily spending limits or lock and unlock the card from their account
• Integrate the P card program with your accounting software: Some P card programs integrate with your accounting software and automatically input your transactions; this integration alleviates your accounts payable team from having to enter them manually
• Potentially earn pay early discounts from suppliers: Some suppliers and service providers offer pay-early incentives, such as 1/10, net-30 repayment terms; this means in you pay your invoice within 10 days instead of 30, you will get a 1% discount

If you’re looking to simplify your purchasing process, a P card is right for you. Not all P card providers offer integration with your accounting software, but some of the best do. In addition, the best P card providers may also offer training for your employees on using their P cards properly.

When to Use an Alternative to a Small Business Credit Card or P Card

You should use an alternative, like a business prepaid card, if you don’t meet the qualification requirements, if you want to manage and control employee expenses, or if you’d rather preload funds to your cards instead of having access to a credit limit.

Some instances when you should use a prepaid business card are:

• When you don’t meet the qualification requirements: Business prepaid cards are typically for business owners who don’t qualify for or want a small business credit card; they have fewer requirements than both small business credit cards and purchasing cards while also limiting the owner’s risk
• If you want to manage employee expenses: Like P cards and business credit cards, business prepaid cards offer employee cards and the ability to set spending restrictions; through an online portal, you can control each individual employee card on the fly
• If you’d rather preload funds compared to having a credit limit: Business prepaid cards don’t come with credit limits; instead, business owners preload the amount of funds they desire; this gives you the ability to keep spending under your control and at a maximum

Business prepaid cards are best for businesses and business owners with enough cash on hand to fund their accounts. They’re also ideal for companies that are not looking to build credit as prepaid credit card activity is not reported to main business credit bureaus.

How Small Business Credit Cards Work

Once you’re approved for a small business credit card, you can request additional employee cards. When employees receive their cards, they can either make purchases online or anywhere that accepts the cards. Every transaction that an employee makes will be reported to your credit provider and added to your credit card statement.

Depending on the card, sometimes you can earn cash back or travel rewards for employee purchases. If this is the case, you will typically receive a statement credit at the end of your billing cycle. Your credit card provider will send you your bill every 30 days. It’s expected to be repaid. However, only a monthly minimum payment is required.

If your business only pays the monthly minimum and carries a balance over to the following month, those unpaid balances will accrue interest. Any unpaid balances will continue to accrue interest until they are fully paid off. Once you pay your bill, the process starts over.

How Purchasing Cards Work

Purchasing cards are usually issued to employees to make business-to-business purchases, such as purchasing goods or services. When an employee receives their card, they either make a purchase upfront or submit an invoice to their supplier or service provider. Those suppliers or service providers report the transaction to the P card provider.

Your P card provider will typically send you your bill every 15 or 30 days depending on what you agreed on. You either pay this balance in full manually, or your bill is paid automatically by your provider withdrawing funds from your connected business checking account.

Based on the services your provider offers, you will either enter your transactions manually, or they are entered into your accounting system automatically. Some of the best P card providers offer systems that integrate with your accounting software, which helps automate this part of the process. After the transactions are entered into the system, the P card process starts over.

Small Business Credit Cards vs Purchasing Cards Costs

When comparing the costs of small business credit cards vs purchasing cards, the major difference is that small business credit cards have an ongoing APR of 14% to 25%. Purchasing cards, on the other hand, are charge cards that have no interest rates because they’re required to be paid in full monthly. The APR of a business credit card is how much it cost to finance your purchases.

Small Business Credit Cards Costs

Business credit cards carry APRs compared to purchasing cards, which don’t. Some business credit cards also have an annual fee of up to $500. However, cards that carry annual fees typically offer various cash back rewards. Conversely, most P card providers don’t charge an annual fee to buy into their P card programs.

The costs of a small business credit card are:

• Expected APR: APR 14% to 25%
• Annual fee: $0 to $500
• Late fees: $35 or higher

Although the APR may seem high, there are some cards on the market that offer an introductory APR period. You can search and compare different small business credit cards through our credit card marketplace.

Purchasing Cards Costs

The costs of a purchasing card are much different than a small business credit card because they work like a business charge card. Charge cards are expected to be paid in full every month and therefore don’t carry interest rates. Instead, your account will be penalized by a late fee.

The costs of a purchasing card are:

• Expected APR: None
• Annual fee: $0
• Late fees: Generally $30 or more, but varies per provider

In comparison to a small business credit cards’ annual fee that ranges between $0 and $500, a purchasing card is generally a more inexpensive option if you can manage its repayment terms. Remember, small business credit cards give you the ability to float business expenses but purchasing cards don’t. It’s important to use a P card only if you know you will be able to pay off your entire account balance at the end of the month.

Small Business Credit Cards vs Purchasing Cards Rewards

Some of the best small business credit cards offer cash back or points rewards on your business-related purchases. These rewards can potentially be up to 5% cash back on specific spending categories. Conversely, P card generally doesn’t offer ongoing rewards. Instead, some suppliers and service providers offer pay-early discounts as an incentive.

Small Business Credit Cards Rewards

When it comes to rewards and earning money for what you spend, small business credit cards rank best in that category. Not all, but some business credit cards offer various cash back or point rewards for your business-related expenses. Conversely, P cards generally don’t offer cash back or point rewards. Instead, some suppliers and service providers offer incentives in the form of pay early discounts.

The types of rewards some small business credit cards offer are:

• Introductory rewards: Possible one-time rewards up to $500 for spending a specific amount in the first three months
• Ongoing rewards: Possible cash back rewards up to 5% for specific spending categories

Most small business credit cards that offer a rewards structure will come with an annual fee. However, if you’re using your card frequently and for everyday purchases, you can offset this fee easily with the rewards provided by the card.

Purchasing Cards Rewards

Compared to small business credit cards, most purchasing cards don’t offer rewards for your business purchases. Although you won’t earn rewards from your provider, there are other perks. As an example, you can potentially negotiate early pay discounts with your suppliers or service providers and use your P card to pay your invoices early.

For example, a supplier or service provider may offer 1/10, net-30 or 2/10, net-30 payment terms as an incentive to pay early. This means if your business pays its invoice within 10 days instead of 30 days, you can earn a discount of 1% or 2% of the invoice amount. If one of your suppliers or service providers doesn’t currently offer you an early payment discount, you can reach out to them and ask to negotiate an early pay discount.

Small Business Credit Cards vs Purchasing Cards Repayment Terms

The primary difference between small business credit cards and purchasing cards is the fact that a purchasing card is a charge card. A charge card is required to be paid in full monthly compared to a small business credit card, which can carry a balance to its next billing cycle. Although you don’t have to repay a credit card in full every month, there is a required monthly minimum payment.

Small Business Credit Cards Repayment Terms

Unlike purchasing cards, small business credit cards have a revolving credit line that is expected to be repaid each month. However, since you can float expenses with a business credit card, this makes it more flexible in regard to its repayment.

The repayment terms of a small business credit card are:

• Type of credit: Revolving
• Repayment terms: Monthly
• Monthly minimum payment: 2% to 4% of the outstanding balance

While a monthly interest fee is charged on unpaid small business credit card balance, a cardholder is only required to make a monthly minimum payment to avoid any additional late fees. Compared to a purchasing card, which requires the balance be paid in full every month.

Purchasing Cards Repayment Terms

A purchasing card is a charge card, which means the balance must be paid in full every month. Any unpaid balances will be hit with a late fee until they are repaid. Conversely, a small business credit card is expected to be paid monthly, but only a minimum monthly payment is required. Any unpaid credit card balances will accrue interest until they’re fully repaid.

A purchasing card’s repayment terms are:

• Type of credit: Nonrevolving
• Repayment terms: Paid in full every month

Most often P card providers require that you set up auto repayment with them to make sure your payment obligations are met each month. Sometimes, they also require that you have an account with the bank who is issuing the card. This helps when setting up auto pay as you can connect that account to your P card.

Small Business Credit Cards vs Purchasing Cards Qualifications

In regard to small business credit cards, credit providers require a personal credit score of 640 or higher and that you pledge a personal guarantee. This means if your business fails to repay its debt obligations, you become personally liable. In comparison, P card providers typically have annual spend, level of cash flow, and good business credit score requirements.

Small Business Credit Cards Qualifications

A small business credit card is an excellent option for if your business brings in little-to-no revenue. If you run a small or new business, a small business credit card may be the best financing method because of its relatively simple qualification requirements, compared to P cards. Purchasing cards, on the other hand, have annual spend, level of cash flow, and profitability requirements.

The qualification requirements of a business credit card are:

• Personal credit score: 640 or higher (check yours for free)
• Time in business: No requirement
• Revenue required: No requirement

It’s common for business credit card providers to require a personal guarantee because there is no revenue or time in business requirement. This means that the business owner is held liable for any outstanding expenses on the company’s business credit card account. Also when your business is new, your credit card application will be based on your personal credit. If you have a credit score below 640, consider a credit card for fair credit.

Purchasing Cards Qualifications

Qualification requirements of P cards generally vary per provider and are specific to the business applying for a card. However, as a rule of thumb, you can expect some common qualifications including annual spend requirements, business, and personal credit scores, liquidity, level of cash flow coverage, and your business’s profitability.

The common qualifications for purchasing cards are:

• Annual spend requirement: Most P card providers require that you meet a minimum annual spend requirement, typically $1 million; if your business doesn’t meet this requirement, then we recommend using a small business credit card
• Business credit score: The four main credit reporting bureaus and what they consider a good score are Dun & Bradstreet (80 or higher), Experian (76 or higher), Equifax (90 or higher), and FICO SBSS (140 or higher)
• Personal credit score: 640 or higher is generally deemed acceptable if the provider checks the business owner’s personal credit score
• Level of cash flow: 1.25 times the debt service coverage ratio (DSCR) is generally the minimum acceptable level; P card providers may use this to determine if your cash flow can cover your debt obligations

Lastly, P card providers most often want to see that your business is currently profitable and has been profitable during the last couple of years. This gives them a high-level view of your business’s financial health.

P Card vs Credit Card for Small Business: Ease of Use

There are two major differences when looking at the ease of use comparing a P card vs credit card for small businesses. The first being that a small business credit card provides a revolving line of credit and a P card doesn’t. The second being that a purchasing card is required to be repaid in full every month.

Small Business Credit Cards Ease of Use

Once you receive an approval for a business credit card and get your card in the mail, you can access your credit limit immediately. To use your business credit, you can swipe your card at any store that accepts electronic payments or by entering your card information online. The amount of your credit limit that you use is available to reuse once you repay that amount.

Purchasing Cards Ease of Use

Upon approval, account holders or business owners can issue employee cards and set card spending limits. Business owners can also revise these spend limits on the fly and through the provider’s portal. The employees of your business can use the purchasing cards issued to them like a regular credit card by swiping it with their merchants or by using a unique account number with pre-approved merchants.

Some of the best P card providers offer robust reporting and expense management tools that also come with a P card program. For example, some of these tools can automatically integrate your transactions into your accounting software eliminating any manual entries done by your accounts payable team.

P Card vs Credit Card for Small Business: How to Apply

Applying for a small business credit card is as easy as entering your business and personal information online. When it comes to applying for a P card you must set up a call with a banking representative through your desired provider. However, you can almost always start the P card process online.

How to Apply for a Small Business Credit Card

You can get a small business credit card online and in a matter of minutes after you provide your business and personal information. Typically, you will receive an approval decision within 24 hours and your credit card between seven to ten days. You can search and compare the best business credit cards through our credit card marketplace.

How to Apply for a Purchasing Card

Although purchasing card providers require you to schedule a phone call with a representative, you can start your purchasing card application process online. You’ll have to submit the information the card provider wants to review, such as your financial statement, tax returns, and basic business information. They’ll do an evaluation of your creditworthiness. If you’re approved, it will take approximately seven to 10 days to get your cards in the mail.

Some providers may supply you with a unique account number or ghost card, so you can start using your card immediately after approval. Also, a purchasing card program can take longer to set up if you are going to integrate the provider’s account management system with your accounting system and train your employees. However, there are several providers that offer employee training.

Pros & Cons of Small Business Credit Cards

Small business credit cards give cardholders access to funds through a revolving credit line that they can use as needed. They’re an excellent option for small businesses that have little-to-no annual revenue and can’t qualify other financing options like a business line of credit. Expenditures should be paid off monthly as any unpaid balances are charged interest until repaid.

Pros of Small Business Credit Cards

The positives of small business credit cards are:

• Easy access to funding: With a business credit card, it’s very simple to access your credit line and use it with vendors who accept electronic payments; this is also a great way to give your employees access to company funds when they are traveling or on the go
• Inexpensive short-term financing: Small business credit cards are great for bridging short-term working capital needs for a short, 30-day period; if you pay off your credit card every month, you can benefit from rewards and inexpensive financing without incurring interest charges
• Funding for very small businesses: Small business credit cards give micro businesses access to necessary capital; with annual revenue requirements that are generally low, business with little-to-no revenue can still get financing

Cons of Small Business Credit Cards

The negatives of small business credit cards are:

• Limited accessibility to cash: Small business credit cards make payments easy if your vendors accept credit cards; however, if they only accept cash or check this could become an issue; cash advances are usually very expensive and limited to an amount that’s less than your credit card limit
• Potential annual fees: Small business owners sometimes decide to use a business credit card to benefit from its rewards and other features; this is a great way to use your credit card as long as you make sure the annual fees you’re charged don’t offset any rewards you earn
• Can create a cash trap: If you aren’t paying down your credit card balances every month, small business credit cards can create potential cash traps; you’ll begin to pay the APR on any outstanding balance each month, which will add up quickly; to avoid any interest charges, you should pay off your statement balance every month

Pros & Cons of Purchasing Cards

Purchasing cards give businesses the opportunity to simplify their purchasing process, add efficiencies, and control employee spending in real time. They’re especially beneficial to small businesses that work with the same merchants for their business-to-business purchases. However, it’s important to note if you don’t pay your balance in full every month, your account will accrue late fees.

Pros of Purchasing Cards

The positives of purchasing cards are:

• Streamline purchasing process: P card account holders can set up card programs with their employees and specific merchants they usually use; they can issue employee cards, save up to 90% on the normal purchase order process, and use it for paying their accounts receivable early
• Control employee spending: Business owners and account holders can set employee card spending limits through their provided online portal; this gives them the ability to revise their spending settings on the go, which makes managing employee spending easy
• Take advantage of early pay discounts: Some suppliers and service providers offer pay-early discounts to business as an incentive; for example, they may offer 1/10, net-30 or 2/10, net-30 repayment terms; this means if you make your invoice payment within 10 days instead of the normal 30 days, you can earn a discount of 1% or 2%

Cons of Purchasing Cards

The negatives of purchasing cards are:

• Strict repayment schedule: Compared to a credit card, a P card is a charge card and therefore is expected to be paid off in full at the end of the month; it’s not a card that can carry a balance, so it’s only a good idea to apply for one if you know you can meet those requirements
• No cash back rewards: Purchasing card providers generally don’t provide cash back or points rewards like some small business credit cards; although you can earn rebates from the P card provider or early pay discounts from your suppliers or service providers, it’s not always guaranteed
• Requires a well-thought-out company policy: If you want to have a successful purchasing card program, it’s important to have a very methodic policy structure; the downside to this is that they take time to develop and will come with roadblocks that need to be fixed

Differences Between Purchasing Card vs Corporate Card

We’ve talked about the differences between small business credit cards and corporate cards, but you may also want to understand how P cards and corporate cards differ. The most common differences include revenue requirements, repayment terms, rewards, and their best uses.

The major features of a purchasing card and corporate card are:

The Bottom Line

A small business credit card is an inexpensive, short-term financing option that gives business owners access to necessary capital. A purchasing card, on the other hand, is a charge card generally used for streamlining a business-to-business purchasing process. One upside to a small business credit card is that some cards give you the ability to earn cash rewards.

If you’re looking for a small business credit card, a good option is the Chase Ink Business Cash℠ card. This small business credit card provides up to 5% cash back in specific spending categories. Cardholders can also potentially earn an introductory reward of $500 with no interest for the first 12 months.

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