Prepaid cards vs. credit cards: How to know what’s best for your business
Many business professionals use credit cards as the standard mode of payment in their everyday transactions. However, there is another excellent card that millions of people in the business industry are using: prepaid cards.
There are three primary cards available in businesses:
- Personal card. There are reimbursed.
- Prepaid cards. Funded by the company.
- Company cards. The finance department pays the bank directly.
The challenge comes when it is choosing between prepaid cards and credit cards to use. To know the right card to use in your business, you need to know the advantages and disadvantages of both cards.
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Prepaid cards
There are cards loaded with cash for purchases anywhere.
Advantages of prepaid cards
Eligibility
Prepaid cards are suitable for everyone since you don’t require any company or personal information to get one. Therefore, approval is guaranteed. The only factor considered when obtaining a prepaid card is the minimum amount necessary for activation.
Accessible and simple functionality
Prepaid cards work similarly to prepaid debit cards or prepaid credit cards for goods and services. Funds addition to prepaid business cards can be done through several ways: bank account transfers and direct deposit. It allows funds addition at the participating merchants.
Spend control
Prepaid cards control spending, especially in making purchases out of policy expenses. The transaction will not proceed without enough funds on the card. For example, a company like soldo can add only the amount required for a certain activity to avoid overspending.
Extra privacy and security
There is no need to provide sensitive user information like an office or home address, and it is not linked to any bank account. It is difficult to trace your lost prepaid card if you choose to omit sensitive information.
Disadvantages of prepaid cards
High usage and activation fees
The initial activation fee for using a prepaid card is high than the standard annual credit card fee. Some companies charge their clients a one-time fee for using ATM services.
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Zero benefits
There are no points or cashback when the cardholder uses a certain amount through the prepaid card. It is a disadvantage since other business cards offer a reward that can build up quickly.
Limited funds
Prepaid cards only have the money already deposited by the user since it cannot borrow money from any bank. Prepaid cards lack the resolving credit abilities.
No lost card
If your prepaid card is stolen or lost, there is no customer support service to act on the incident. Therefore, no funds will be recovered.
Credit cards
It is a card that one can get from a typical bank, financial institution and allows the holder to borrow funds.
Advantage of credit card
High spend limit
Credit cards offer a security net for the event of business fund emergencies. The revolving business credit of credit cards is available at any time for business’ sake.
Employee spending visibility
The finance team can keep track of the employees’ spending in real-time through company credit cards. Credit cards offer detailed information by tracking suppliers and inventory purchases.
Credit card security
Credit cards are vulnerable to a security breach, but they offer security when it comes to transactions. The linking of sensitive information ensures that every purchase made by a certain card is legit.
Disadvantages of credit cards
Internal fraud risk
Business credit cards have a high expense and available credit fraud if there is no strong expense policy.
Fewer perks for company credit cards
Company credit cards have a high credit line and are linked to major businesses or companies. Therefore, perks in a consumer card are disconnected.
Credit card charges
Most credit card companies charge an annual fee, especially on cards with high credit lines.
Choosing between prepaid and credit card for employee reimbursement will depend on the individual business needs. The card type you select needs to align with the spending habits and the company’s compliance policies. If your employees have expenses often, then a prepaid card is the best card, but if you have many employees, go for a credit card.
