Small Business Credit Cards vs Purchasing Cards

The primary difference between a small business credit card and a purchasing card is that a purchasing card is a charge card. A charge card requires payment in full each month while a small business credit card allows you to carry a balance into the next billing cycle. Both are short-term financing options for business-related purchases, 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

You should use a small business credit card to:

• Make every day business-related purchases: Small business credit cards are best used to finance everyday business expenses easily and conveniently, such as office supplies or equipment, internet, phone, or travel.
• Earn 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 is like getting a discount every time you purchase from those spend categories.
• Issue employee cards for business expenses: Most small business credit cards allow business owners to issue additional cards to their employees. This is often easier than dealing with purchase orders or reimbursing your employees for business-related purchases.

When to Use Purchasing Cards

You should use a purchasing card are to:

• Streamline the 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. You can set daily or monthly spending limits, determine where the card can be used, and lock and unlock the card from your account.
• Integrate the P-card program with your accounting software: Some P-card programs integrate with accounting software and add your transactions automatically so that your accounts payable (A/P) team won’t have to enter them manually.
• Potentially earn pay-early discounts from suppliers: Some suppliers and service providers offer incentives if you pay your bill early.

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

One alternative to a small business credit card or purchasing card is a business prepaid card like Bento for Business. It’s similar to a debit card, but you must have enough cash on hand to fund the account. It may be the best choice if:

• You don’t meet the qualification requirements: Business prepaid cards are typically for business owners who don’t qualify for or don’t 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.
• You want to manage employee expenses: Like P-cards and business credit cards, business prepaid cards offer employee cards. You can restrict merchant categories and set up flexible spending amounts.
• You’d rather preload funds than have a credit limit: Business prepaid cards don’t come with credit limits. Instead, business owners preload the amount of funds they want to spend. This gives you the ability to keep your spending under your control.
• You’re rebuilding your credit: Prepaid cards don’t require a credit check and your prepaid card activity isn’t reported to the major business credit bureaus.

How Small Business Credit Cards Work

Once your business credit card application is approved, you’ll receive your card in the mail within 10 to 14 days. Some card issuers will give you the card number upon approval so you can start using it immediately. Depending on the card, sometimes you can earn cash back or points rewards on some or all of your purchases.

You’ll typically receive a statement at the end of your billing cycle, usually every 30 days. 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’re paid off fully.

How Purchasing Cards Work

Purchasing cards are usually issued to employees to make business-to-business purchases, such as purchasing goods or services. Employees can 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 your agreement. You can either pay this balance in full manually or have your bill paid automatically through your connected business checking account.

Small Business Credit Cards vs Purchasing Cards Qualifications

If you own a new business, a small business credit card may be the best financing method for you because of its relatively simple qualification requirements compared to a P-card. Purchasing cards, on the other hand, have annual spend, level of cash flow, and profitability requirements.

Most business credit card issuers require a personal guarantee because there’s 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.

P-card providers 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.

Small Business Credit Cards vs Purchasing Cards Costs

While the APR may seem high for business credit cards, many of them offer an introductory 0% APR for anywhere from nine to twenty months. Given the cost of an APR plus an annual fee, a purchasing card is generally a more inexpensive option if you can manage its repayment terms.

Small Business Credit Cards vs Purchasing Cards Rewards

When it comes to cash back or points rewards for what you spend, small business credit cards rank best in that category. Some cards offer rewards for certain spend categories such as office supplies, gas stations, and restaurants. Others offer rewards on all business purchases. Conversely, P-cards generally don’t offer cash back or point rewards. Instead, some suppliers and service providers offer incentives in the form of discounts.

Small Business Credit Cards vs Purchasing Card Repayment Terms

Remember, small business credit cards give you the ability to float business expenses but purchasing cards don’t. Although it’s recommended that you pay your credit card bill in full every month, it isn’t required. What’s required is the monthly minimum payment.

It’s important to use a P-card only if you know you’ll be able to pay off your entire account balance at the end of each month. Often, P-card providers require that you set up auto repayment with them to make sure your payment obligations are met. They may also require that you have an account with the bank that’s issuing the card. This helps when setting up autopay, as you can connect that account to your P-card.

Bottom Line

A small business credit card is an easy payment method for financing your business that’s accepted by most retailers/suppliers. A purchasing card is a good choice for streamlining a business-to-business (B2B) purchasing process, especially if those purchases are recurring. Consider whether you’d prefer to float your expenses and earn rewards each month or if you have recurring purchases month after month and can pay your bill in full without difficulty. See our article on employee credit cards and best practices for more options and recommendations.