Almost everything can be done via the Internet now, and if there’s something that isn’t, it will soon be. Students are learning online, office workers are working remotely, and the list goes on.
Making a payment for an online purchase is no exception. Thanks to the rise of the Internet and online technology, businesses no longer rely on cash as their main payment method.
Online payment is made via credit cards, debit cards, e-wallets, etc. Debit cards and e-wallets are mainly for personal use, while businesses prefer credit cards to process their transactions, which usually involve paying invoices.
What makes credit cards the preferred choice by businesses? Check out this article to have a good grasp of credit card used in a business context, including their features and benefits.
How credit cards work
Before we explore the benefits of credit cards for businesses, let’s learn how these cards work.
As you probably know, a credit card is a payment card that allows cardholders to make a purchase upfront and pay it off later. Every credit card has a different spending limit depending on the cardholder’s creditworthiness. The credit card spending limit is the maximum amount you can borrow from banks or credit unions.
The spending limit is determined by the card issuer after they assess your financial situation when you apply for a credit card. Generally, small businesses will have a lower spending limit than big companies. Unless a small business is backed by a trustworthy third party, its spending limit will never be as high as that of a big business.
When you use a credit card to process your payment, the purchase amount is automatically added to your outstanding balance. To clear your balance you can choose between two options: pay in partial installments or pay off the balance in full, which we’ll discuss in more detail below.
If your business has a poor cash flow, you might want to pay your debt partially rather than all at one time. Banks and credit unions allow businesses to break down their total debts and pay a small amount each time. Remember, there’s also a required amount you have to commit to paying each month, called the minimum payment.
The minimum payment is the least you have to pay to avoid penalties or bad debt. Each card company has its own regulation to set the minimum, but it often ranges from around 5% of your outstanding balance. The unpaid balance will be charged interest according to the bank.
Paying off the balance in full is the other choice. If you’re able to pay off your debt in full within 30 days, you won’t be charged any interest. Many credit card companies allow a 30-day pay-off debt program, but the time varies from company to company.
3 benefits of paying invoices with credit cards
1. Safer than cash
As you carry cash in your wallet or an envelope on your way to pay invoices for your vendors, have you ever had the thought that you may be robbed? No matter how cautious you are, there are situations which are higher risk than you would expect. Going out with a big stack of cash makes you a target for thieves. Gone are the days when it was necessary to carry a big amount of money from place to place to pay invoices. With a credit card, you can pay invoices for your vendors with just a couple of clicks.
2. More secure than debit cards
If you think that online payments via debit cards solve the issue of your money being stolen, you may have to think again. Online payments aren’t 100% safe. Your money can be stolen physically, and it can also be taken or lost digitally when cyber fraud occurs. There’s a big difference between how a credit card and a debit card in terms of security.
When it comes to fraud, the biggest difference between a debit card and a credit card is how you get your money back. When abnormal spending occurs on your credit card, you have to report the fraud as quickly as possible to the card issuer. They will handle the issue, and your account doesn’t have to suffer from any missing funds.
However, with a debit card, your bank account balance is affected when a fraudulent transaction takes place. No matter how quick you are, the transaction has already taken place before you can take any action. If it’s a small amount of money, chances are you could manage to get through it. But if it’s a high-value transaction, you could experience a domino effect on your business.
3. Easy to track spending
Budget optimization is every business’s dream. It helps you determine the most effective use of a business’ dollars to reach a goal successfully. But before you can create a realistic budget, you must know how you’re spending.
If your business’s main payment method is cash, you have to collect receipts, filter them by categories, and organize them separately month by month. Whether it’s because you physically misplaced a receipt or filed it incorrectly into the wrong category, such mishaps will affect your budget tracking.
But this tedious task can be solved if you switch to using credit cards. Each transaction using credit cards will be displayed by date, description, category, and amount. Card issuers tend to classify your transactions by category, and you can customize your categories in a way that suits you.
Let’s say your company is an apparel company and you’re spending money on different types of material such as fabric, buttons, zippers, and so on. You have a general category named “material” that sums up all expenses. Then again, you want to know the specific expense for fabric, threads, or buttons. Go to the “material” category and set up sub-categories for each section you want to track. That way you have a detailed picture of your spending as well as detailed reports for each sub-category.
Most major credit card issuers also let you generate reports to see how much you’ve spent in different categories in a given time. If you analyze the reports, you know exactly how you’re spending. This helps you optimize your budget.
The bottom line
Credit cards provide customers with multiple benefits and certain protections for payments. Therefore they are convenient for businesses as they can pay invoices to their vendors anytime, anywhere with just a couple of clicks.
For vendor businesses that want to send out a large number of invoices automatically, check out Accountdock. AccountDock is billing software that supports users in sending bulk invoices at scheduled times. All invoices are stored on the cloud and categorized by customer names. If your customers want to grab all their receipts in one shot for their billing department, provide them with their invoice history with a few clicks!