When it comes to business expenses, there are a variety of methods in which to make payments. Traditionally businesses used cash or checks, but as payment cards have become more popular for the general public, so too have they begun to be used more often by businesses. In this article we compare business prepaid cards vs. credit cards and debate their pros and cons.
What Are Credit Cards?
Credit cards allow access to a revolving line of credit that remains interest free during an agreed upon grace period. If an invoice isn’t repaid on time, a penalty fee is charged and interest accrues on the outstanding balance. If partial payment is made before the repayment date, no penalty fee results, but interest still accrues on the total amount charged. No interest accrues if the balance is paid in full by the due date. Fee, penalty and interest rate disclosures are regulated by federal law while credit card companies provide protection against unauthorized charges. Credit card perks can include an improved credit rating, cash back or points reward programs, purchase protection and extended warranties.
What Are Prepaid Cards?
Prepaid cards are pre-funded by the user and do not access a line of credit nor are they linked to any bank account. As no money is being borrowed, prepaid cards have no effect on the user’s credit rating. Because the user reloads the card as the funds diminish, there is no invoicing, interest charges or late payment penalties. However, there can be a variety of potential fees such as activation charges, reloading fees, fees for ATM use, non-activity fees and more. Fees and their disclosure are unregulated and there is no federal protection of the user’s funds if the card company fails. Compared to credit cards, prepaid cards seldom offer purchase protection, extended warranties or rewards programs.
Credit Cards Vs Prepaid Cards
Credit Cards Prepaid Cards
Access To Credit Yes No
Affects Credit Rating Yes No
Requires Money Upfront No Yes
Cash Advances Yes No
Interest Charges Possibly No
Late Payment Fees Yes No
Activation Fees No Possibly
Inactivity Fees No Possibly
Monthly Fees No Possibly
ATM Use Fees Possibly Possibly
Fee Disclosure Regulation Yes No
Company Default Fund Protection n/a No
Unauthorized Charge Protection Yes Possibly
Rewards Programs Yes Possibly
Purchase Protection Yes Possibly
Extended Warranties Yes Possibly
The Emburse Expense Management System
With the recent announcement of Emburse credit card offerings, customers can now compare business prepaid cards vs. credit cards and choose accordingly. Depending on desired methods of payment, credit history and cash flow requirements, Emburse customers can utilize credit cards, prepaid cards or both as part of their expense management program. For further information, contact Emburse today.