Easier to obtain than a regular loan, the credit card is a tool widely used by businesses nowadays. Its prevalence can be explained by the level of comfort and security it guarantees business owners, and the side benefits it can offer. Credit cards are common among companies which want to improve their cash flow management practices, as well as startups and small businesses, which are not always liquid enough to cover large purchases. With the use of credit cards on the rise, it is essential to know which one to pick. Here is how.
Naturally, most companies prefer business credit cards with high limits for more flexibility especially if they are just starting and expecting significant business expenditure. There is no universal consensus on what a high limit is, it can vary depending on the country of issue, bank, type of card, credit score and credit utilization ratio, among other factors. Some cards grant limits as high as EUR 100,000 with a few premium ones adding a couple of zeroes to cover almost any transaction.
If we focus on high-limit credit cards and company cards, several additional characteristics must be considered in the evaluation process. Depending on the conditions offered by the banks in each country and the specific business requirements, these characteristics can be prioritized in different ways.
APR, or Annual Percentage Rate, is what you effectively pay for borrowing money. Although most business credit cards with high limits provide a lucrative APR, there are some which grant lower rates and even 0% for a certain introductory period, usually between 6 and 18 months. This option is recommended if you anticipate large purchases but would like to break the amount due into instalments, or need to refinance an accumulated debt.
The annual fee is the fee you pay for the yearly maintenance of your card and associated account. Even though more banks are starting to remove annual fees from specific offerings, many of the high-limit credit cards still charge these. Young entrepreneurs and startup founders might want to look for an option with no annual fee, for an introductory period, or in general. If combined with a low or 0% intro APR, it could provide a good grace period for kick-starting the business.
Example: Capital On Tap Business Credit Card
Cashback is the ability to earn back a percentage of what you spent with your card, which is very often different for the different categories of purchases. The usual cashback on all purchases you see is 1% but banks might offer up to 4-5% to encourage spend in certain categories, such as dining and entertainment, groceries, bills, and supplies. Keep in mind that a higher percentage might be offered for a specific period or spend amount, which is also a smart mechanism to attract new customers.
Payhawk recently launched a 3% cashback on all POS spend, capped at your subscription for Enterprise clients.
Cashback options are worth considering if you make regular purchases in the same categories but want to have the freedom to decide what to spend your savings on.
Example: Discover It Business Credit Card
Points, miles and similar benefits can be earned off purchases and then redeemed for travel, shopping or other entertainment activities. Like cashback, these are usually tied to a spend level and/or purchase category, many of them also to a partner merchant, such as an airline, a hotel or a store chain. Sometimes rewards are granted as a welcome bonus to incentivize customers to go with the offering.
If your employees are frequently travelling on business, or your company likes to work with preferred vendors, it is advisable to compare the rewards programs of the cards you are evaluating. Check out thresholds, number of points and their estimated monetary worth, and partner merchants.
In addition to rewards, banks sometimes sweeten the deal with special discounts, most often for high-end stores and leisure activities. You should look these up if you would like to provide your employees with exclusive perks.
If many of your employees are frequent travelers who use various means of transportation, you should review credit cards which offer free travel insurance. Comprehensive insurance would be the best option since it covers cancellation due to a wide range of reasons, lost or delayed baggage and car rental protection. One of the lessons learned from the COVID pandemic is exactly the importance of protecting money dedicated to planned travel from unforeseen circumstances.
Example: Mastercard Titanium card
Having said all of the above, credit cards in Europe are not the most popular payment instrument. Mostly for historical reasons, but also due to certain perceptions and country-specific payment infrastructure, debit cards are still the preferred method. Credit or debit, and after the COVID crisis, what we have seen is that the use of digital wallets looks like the new trend, not only for consumers but also for B2B transactions.
The good news is Payhawk can give you the best of both worlds – our high-limit business debit cards, matching the security level and other assets of credit cards. We offer both physical and virtual cards, providing the official VISA and Mastercard exchange rates and one of the lowest exchange fees on the market - 0.5%. If you want to learn more about the benefits of our cards and the expense platform, you can schedule a demo with us.
The Payhawk Editorial Team consists seasoned finance professionals boasting years of experience in spend management, digital transformation, and the finance profession. We're dedicated to delivering insightful content to empower your financial journey.