Prepaid cards and credit cards are both financial tools that can help your business grow, but there’s a big difference between them. By understanding these differences, you can choose the most suitable method of finance for your business.
The choice you make will depend on what benefits you want for your business. Business credit cards often offer perks, like cash back rewards or purchase protection, while prepaid cards can be more cost-effective and help you limit spending.
What are prepaid cards and credit cards?
Prepaid cards and credit cards are usually used to make business transactions which are separate from your main current account. This is sometimes useful if you want to track spending in a particular way, or if you want to limit access to your financial accounts.
For instance, if you give an employee a company credit card, they can use it without also having access to all of the company’s funds and transaction records.
Why do businesses use prepaid cards and credit cards?
In some ways they’re quite different, so your reasons for using one or the other might vary. A credit card can act ask an additional source of finance, helping you manage your cashflow. A prepaid card can help you budget, or control spending, helping you to organise your finances.
Comparing prepaid and credit cards for your business
Prepaid cards are not linked to an existing line of credit at a bank or other financial institution. Instead, you’ll deposit money into the account before using it, a bit like topping up a gift card or your phone.
Credit cards, however, use funds that are credited to you by a financial institute, such as a bank. It’s not ‘your’ money, and you’ll need to repay any credit that you use (usually with interest charged on top).
| What is a prepaid card? | What is a credit card? |
| A financial tool that is funded by a business. You (or the business) deposit the funds, and then can only spend them using the card. | A financial tool funded by a finance institute, such as a bank. The bank agrees you can borrow funds using the card, up to an agreed credit limit. |
| Available without credit checks. | Only available with satisfactory credit checks. |
| Not linked to any line of financial credit. | Directly linked to a line of financial credit. |
| Useful to limit business spending and expenses. | Useful to access credit when the business needs it. |
Spending restrictions and access to credit
Spending with prepaid cards is limited to amount that you make available on the card. That is, you can only spend what you ‘top up’. Conversely, credit cards can allow businesses to make use of revolving credit, borrowing funds when they need it, and paying it back when they can.
Security considerations
Whilst a prepaid card isn’t linked to a current account, and spending is limited to the balance available, it’s also more difficult to recover any unauthorised spending like you can with a credit card.
Prepaid cards do not come with the same level of protection on spending through the use of section 75. Credit cards, however, offer section 75 protection as standard for all purchases over £1000.
Fees, penalties, and interest
Prepaid cards don’t carry the same financial burden of additional charges, because you’re not accessing a line of credit.
Using credits cards can incur additional fees in several ways, such as an annual charge for using the card, late payment fees, and interest rates.
Getting something back
Prepaid cards do not offer any form of spending rewards. Credit cards often include spending incentives and benefits, such as cashback and redeemable points against travel and shopping.
What about a debit card?
A debit card is linked to your current account, so anything you spend from there comes straight from your business bank account.
How do I keep my different payment methods organised?
Collecting all of your business financial transactions in one place by syncing your different accounts allows for better transparency, and helps you manage cashflow within your business. Tracking your company spend will also allow you to stay on top of the total money coming in and out of your business, giving a complete representation of profit and loss.
With Pandle, you can sync all of your bank, PayPal, and Stripe accounts directly from one user-friendly app. All at the click of a button!
Ready to organise your business finances? Why not chat to one of the team using the Live Chat button on screen, or sign up for your free Pandle Pro trial today.
