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Which card is right for your small business?

They may look similar, but credit and charge cards have a few key differences. Here’s what to expect.

Sponsored by the American Express Platinum Business Card. Get 400,000 Membership Rewards bonus points when you apply by May 18, 2022, are approved and spend $12,000 in the first 3 months. New American Express cardholders only. The T&Cs apply.

Sometimes we use the term credit card a little too ubiquitously. Technically, these are not all credit cards. Some of them are actually payment cards.

So what is the difference? There are a few key differences, but traditionally the biggest is that credit cards let you carry a balance from month to month, while charge cards require you to pay in full. But it’s not always the case.

I know, it’s already a bit confusing. But to help clear things up, we’ve partnered with American Express to give you a clearer look at credit and charge cards, plus information on which features might work for you.

👋 Hi! Since we’ve partnered with American Express, we’ll use some examples of its Platinum Business Card in this article, but always compare your options before signing up.

Pay off your balance

Credit cards allow you to carry a balance from month to month. So if you used a credit card to buy new computers for your business, you could pay that off over as many months as you want.

However, you will have to pay interest, so whatever you buy will end up costing you more than the original price. The longer you delay paying it back, the more it will cost you.

On the other hand, charge cards don’t allow you to carry over a balance from month to month, but there’s no point in worrying. You must pay your balance at the end of each month or statement period or you may be hit with late fees.

So what does this mean concretely? Well, if you’re dealing with relatively short-term cash flow problems and you’re sure you can pay off your balance at the end of each month, a credit card might be a good option.

It’s an effective cash flow tool without venturing too far into credit. This can be an attractive feature for business owners who don’t want to take on the risk of a credit card or aren’t yet comfortable with managing a business credit card.

Maintaining a consistent payment history on a charge card can also help you build a stronger credit score, which could potentially open up the possibility of lower interest rates on business loans, if it is. is something you are considering.

Of course, as with most things, there are a few exceptions to the rule. For example, with the American Express Platinum Business card (which is a charge card), you can actually carry over part of your balance through its flexible payment option.

With the flexible payment option, cardholders can carry over part of their balance, up to a certain limit. They are then charged interest on this deferred amount. It’s almost like a halfway point between charge cards and credit cards.

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Since a charge card balance must be paid in full each month, no interest is charged on purchases. This makes it an affordable way to free up cash flow without incurring additional fees.

Additionally, charge cards can release cash beyond a calendar month. Again using the example of the American Express Platinum Business card, it offers up to 55 days to pay for purchases.

However, this depends on your method of payment, date of purchase, date your statement was issued, and whether or not you are carrying a balance.

What’s the benefit? Simply put, you get a little extra breathing space between buying something and paying for it. This can come in handy when you need to pay something urgently and unexpectedly, but you don’t have cash on hand. (I’m looking at you, broken machines and sudden repairs).

It can also give business owners the opportunity to invest in something that can increase their production and therefore their income. For example, you can buy a new 3D printer, knowing that the extra products you sell will help pay for it.

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Credit limits

Another key difference between credit cards and charge cards is that credit cards come with a preset spending limit. To increase your spending limit, you usually need to contact the credit card company and you may need to provide proof of income or assets.

However, payment cards generally do not have a predefined spending limit. Don’t get too excited – that doesn’t mean unlimited spending.

For example, the American Express Platinum Business Card can give card members access to up to $2 million in unsecured financing over a 12-month period.

Individual purchases are approved based on a variety of factors, including current spending habits, payment history, credit history, and financial resources.

So what’s the benefit to that? Well, you will have greater and more flexible purchasing power. As long as you know you can pay it off by the end of the month, you can put high-value purchases on your charge card. This means you can also collect points on those high value purchases.

🔥 Hot tip! If you have an American Express payment card and aren’t sure if a purchase will be approved, you can use its Check Spending Power tool.

Learn more about the American Express Platinum Business Card

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