The primary difference between small business credit cards vs purchasing cards lies in how frequently cardholders have to pay the full bill.
- Business credit cards allow you to either pay your balance in full or carry a balance to the next billing cycle since they offer a revolving line of credit and charge an APR Annual Percentage Rate .
- Purchasing cards that work like charge cards require full payment each month. However, those that work like prepaid or debit cards must be preloaded with funds before you can use them.
Both small business credit cards and purchasing cards (also called p-cards, procurement cards, or payment cards) can be used for business-related purchases. However, p-cards are specifically meant to streamline the business-to-business (B2B) purchasing process.
- You make daily business-related purchases: Small business credit cards are best used to finance everyday business expenses easily and conveniently, such as office supplies, equipment, internet, phone, and travel.
- You want to earn cash back, miles, and points rewards: Some of the best small business credit cards offer cash back, miles, or points rewards for specific spending categories. Using rewards business credit cards provides benefits similar to getting a discount every time you purchase from those spend categories.
- You need to issue employee cards: Most small business credit cards allow business owners to issue additional cards to their employees. This is often easier than dealing with purchase orders (POs) or reimbursing your employees for business-related purchases. Some issuers even allow business owners to set individual spending limits on employee cards.
- You want to streamline the B2B purchasing process: P-cards allow businesses to streamline the process by making B2B purchases with cards instead of other payment methods, such as checks and automated clearing house (ACH) transactions.
- You seek greater control over employee spending: Business owners can set customized spending limits and specific business expenses where the p-card can be used. P-cards offer automated expense reports that are recorded directly on the company’s procurement platform.
- You want to integrate accounting software: Some p-card programs integrate with accounting software and add your transactions automatically, so your accounts payable (A/P) team won’t have to enter them manually.
Small Business Credit Cards vs Purchasing Cards: Definition & How They Work
Small Business Credit Cards
A small business credit card is a revolving line of credit, often with a preset credit limit, that’s intended for business-related purchases. Credit cards are great for businesses needing quick funding options. Cardholders are required to pay at least the minimum payment due each month—the remaining unpaid balance will then be carried over to the next billing cycle and charged an APR.
There are different types of small business credit cards. Some of the most common types are:
- Cash back business credit cards: These offer cash back rewards on your purchases, which you can redeem as a statement credit, check by mail, or deposit to your business bank account. The amount of cash back you will earn varies per card. See our list of the leading cash back business cards for our recommendations.
- Business credit cards for travel: These offer travel rewards in the form of miles of points, which you can redeem for free flights or hotel stays. Some provide other travel perks and benefits, such as no foreign transaction fees, free checked baggage, and access to airport lounges. Our roundup of the best travel business cards can help you find one that fits the bill.
- Rewards business credit cards: Most other business credit cards that don’t have specific rewards, such as cash back or travel rewards, offer point-based rewards. Typically, they have various redemption options, including statement credits, gift cards, merchandise, and travel.
- Secured business credit cards: These are designed for business owners with low credit scores who could not qualify for regular unsecured business cards. A refundable security deposit (the amount of which will be the basis of your credit limit) is required to qualify, and it typically starts at $500. For options, check out our top-recommended secured business cards.
How Small Business Credit Cards Work
Small business credit cards work like regular consumer credit cards, except that the purchases made on the former must be intended for your business. Also, with business credit cards, you can typically add cards for your employees.
See the general process of getting and using small business credit cards.
Most issuers offer a digital application option, where business owners can apply for their preferred business credit card and submit their requirements online. However, some credit card companies may require you to visit one of their branches for in-person applications.
Ensure you know the requirements, including the credit score required, to make the application process go smoothly.
Once your business credit card application is approved, you’ll receive your card in the mail within 10 to 14 days. Some issuers will give you the card number upon approval, so you can start using the card immediately. Depending on the card, you can earn cash back, miles, or points rewards on some or all of your purchases.
Here are the important things you need to know about your small business credit card before you start using it:
- Credit card number
- Credit limit
- Statement date and due date
- APRs and fees
- Rewards, expiry, and how to redeem them
This information is crucial so that you’ll know how to use your card responsibly, avoid paying unnecessary fees, and maximize your overall rewards-earning potential.
Your business credit card provides short-term financing for your business—it comes with a credit line that you can use as working capital. You can use your credit card for your daily business-related expenses, like supplies, utilities, and rent. The best thing about having a business credit card is that it helps keep your business and personal finances separate, making tax season a lot easier.
Keep track of your credit card transactions by accessing the online banking account that most business credit cards come with. This way, you can easily determine trends in your spending habits, helping you set a budget for your company more efficiently.
Also, monitoring your expenses regularly can help you spot any unnecessary expenses and find cost-cutting opportunities for your business. Doing this can also help you notice any suspicious activity or unauthorized transactions.
Typically, you’ll receive a statement at the end of your billing cycle, usually after every 25 days. You have the option to pay your balance in full each billing cycle so that you won’t be charged with an APR. However, only a monthly minimum payment is required.
If your business pays only the monthly minimum and carries a balance over to the following billing cycle, those unpaid balances will accrue interest. Any unpaid balances will continue to accrue interest until they are paid off fully.
To maximize your rewards, keep track of them—especially if they expire—and redeem them for something useful to your business. Typically, you can access your earned rewards on your credit card’s online portal. In some cases, there is a different rewards portal that you need to access to view how much reward you have earned and what you can redeem it for.
Pros & Cons of Small Business Credit Cards
Purchasing Cards
P-cards are a type of business expense card that allows your company’s employees to procure goods and services without the need to go through the traditional purchasing and approval process. These cards are linked to the company’s account, and you can control which merchants they can be used for and how much the daily or weekly limits are.
There are three common types of purchasing cards:
- Charge cards: All card transactions are drawn from a line of credit, similar to a business credit card. You will receive your bill every 15 or 30 days (depending on your agreement). Unlike a business credit card, however, your charge card bill must be paid in full by the monthly due date, and you cannot carry a balance to the next billing cycle.
- Debit cards: These cards are typically linked to your bank account balance, and the transaction amount will be deducted automatically from your balance every time you use the card.
- Prepaid cards: The company needs to load funds on the card before it can be used for any purchase transactions. The procurement transactions will be debited directly from your prepaid card’s account balance. If you want options, check out our list of the best business prepaid cards.
How Purchasing Cards Work
P-cards are usually issued to employees to make B2B purchases, such as purchasing goods or services, and are best used for paying transactions with recurring vendors and suppliers. Compared to small business credit cards, p-cards provide more streamlined expense tracking, faster purchasing processes, and more robust control over spending.
See the usual process for using a p-card for your company.
Identify the employees authorized to make purchases on behalf of the company and then issue them p-cards.
Employers can set daily or monthly spending limits per user. They can also set a merchant category code (MCC) to allow the card to be used only with specific merchants. Some p-cards even let you block certain spending categories and set the time of the day when the cards may be used.
Employees can make purchases from suppliers authorized to accept the p-card payment. Typically, employees can process transactions only with suppliers preapproved by the company.
The p-card provider will process the transaction and send the information (along with the receipt or invoice) to the company through the procurement system. These financial transactions are recorded in the company’s general ledger or integrated through the accounting system.
In most cases, the p-card provider will issue a report of all your transactions, detailing each cardholder’s transaction details. These reports can help you keep track of your company’s expenses, allowing you to identify areas for budget improvement and cost-cutting.
If your purchasing card is a charge card, ensure you pay your bills in full on every due date. Your charge card bill is typically due monthly, but some are due on a bimonthly or even weekly basis. Monitor your billing due dates to avoid unnecessary penalties.
Pros & Cons of Purchasing Cards
Small Business Credit Cards vs Purchasing Cards: Qualifications
- Personal credit score: This depends on the type of business credit card, usually 640 or higher (but other business credit cards accept applicants with poor, fair, or limited credit).
- Time in business: None
- Revenue requirement: None, but some card issuers may set annual revenue requirements to qualify for certain business credit cards.
- Personal guarantee: Most business credit cards will require a personal guarantee from the business owner, which means that the owner will be held personally liable if the business fails to pay its debts.
- Annual spend requirement: Many providers have a minimum annual spend requirement, typically $1 million.
- Good personal and business credit score: Some p-cards, especially those that work as charge cards, require minimum personal and business credit scores.
- Level of cash flow: A debt service coverage ratio (DSCR) of 1.25x is generally the minimum acceptable level. Providers may use this to determine if your cash flow can cover your debt obligations, but the amount may vary per issuer.
Small Business Credit Cards vs Purchasing Cards: Rewards
When it comes to earning cash back, points, and travel rewards for what you spend, small business credit cards rank best. Some cards offer rewards for certain spend categories, such as office supplies, gas stations, and restaurants, while others offer fixed rewards on any and all business purchases.
Conversely, p-cards generally don’t offer cash back, points, or travel rewards. Instead, some suppliers and service providers offer incentives in the form of discounts when you use a purchasing card to pay for your purchase transactions.
If you can’t decide between a p-card vs business credit card, you may want to check the rewards and discounts offered to see which provides better savings and benefits.
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 six to 18 months. This is why, despite the costs, small business credit cards are a suitable option for those who need short-term financing and to carry a balance from time to time.
If your company has sufficient cash flow to pay your balance in full each billing cycle or you have working cash to use for your purchases, a p-card is generally the more inexpensive alternative. After all, it doesn’t come with APRs, and most don’t charge annual fees.
Small Business Credit Cards vs Purchasing Cards: Repayment Terms
Alternatives to Purchasing Cards & Small Business Credit Cards
If, for some reason, you don’t find p-cards and small business credit cards a good fit for your company, consider the following alternatives:
- Corporate cards: Corporate cards or commercial cards are best for large businesses with many employees that have high transaction volumes and need higher credit limits. Usually, they work like regular credit cards, allowing you to carry a balance into the next billing cycle with interest. Corporate cards can typically be used for any merchant or store, but employers can set monthly caps, expense restrictions, and frequency limits. For our recommendations, see our roundup of the top corporate cards.
- Virtual cards: For more security and control, virtual cards may be a suitable alternative. Similar to a p-card, they must be linked to a company’s main account. However, they only exist virtually and can be used digitally. Often, they are issued for single use, but some may issue card numbers that can be used multiple times. This option is best for businesses with frequent online transactions.
- Fleet and fuel cards: For businesses that own and operate a number of vehicles, fleet cards may be the best option. They are primarily used for fuel purchases but can also be used for vehicle maintenance at eligible locations. Some may even be used for certain product types in specific stores or merchants. Employers can set controls like limits on gallons or dollars per day or week, how many transactions are allowed per day, and authorized transactions, such as fuel only or fuel and maintenance. You may find a good option in our list of the leading fuel cards.
- Store cards: These are a type of credit card that are usually exclusive for use at certain merchants, making them ideal for businesses that make frequent purchases at certain stores. They let you save on your purchases through discounts, reward points, or cash back while helping you build your business credit. Our best business store card list is a great place to start your search.
Bottom Line
When deciding between a p-card vs business credit card, consider whether you’d prefer to float your expenses and earn rewards each month or if you have recurring purchases with specific vendors and suppliers month after month. If you choose a p-card over a small business credit card, ensure you have sufficient cash on hand to either load funds onto the card or pay your bill in full without difficulty. Whatever you choose, ensure you use your card responsibly to avoid harming your credit score and paying unnecessary penalties.
