Business debit and credit cards - pros and cons

Using credit and debit cards for your business saves the inconvenience of a chequebook and the risk of cash.

As well as owners, employees can also be issued with credit and debit cards, the spending limits for which can be set by the owner.

There are a number of card providers. The terms and conditions and, in the case of credit cards, the interest charged on any outstanding balances can vary.

As with all forms of finance there are both pros and cons to using cards instead of cheques or cash to make business payments.

Cards offer a greater degree of flexibility; for example, they can be used on the phone and online as well as for 'in person' transactions. There is also a certain amount of free credit: the outstanding amount on credit cards does not have to be settled until the end of a set period (usually a month, although sometimes longer depending on the provider). Since most are recognised across the world, they can be used on overseas business trips.

They can be a source of immediate cash withdrawals (but credit card providers will probably charge interest on the cash from the day on which it is withdrawn).

They also involve slightly less administrative work. Irrespective of the number of individual purchases for which a card is used, there is only a single statement to be settled at the end of each month. That statement can similarly help simplify record keeping of business expenditure.

On the downside, the major problem is debt and interest payment. Credit cards that are not paid off in full by the end of the stipulated 'credit-free period' will automatically trigger an interest charge of varying amounts. Not only is this an expensive way of borrowing money, it runs the risk of tempting a business to overspend. Cards are also open to fraud.

Business owners must be likewise careful to ensure that any employees issued with cards do not make inappropriate or unauthorised purchases. To counter the problems of unnecessary purchases it may be useful to set up a check system that controls the sort of transactions that employees can make.