What are charge cards and how do they work?

Key takeaways

• A charge card lets your business spend on a line of credit with no preset spending limit, but you must repay the full balance each billing cycle.

• Charge cards can offer higher spending power, premium rewards and built-in protections, but they often come with strict repayment terms, high annual fees and limited availability.

• Airwallex Corporate Cards give businesses a debit-based alternative to traditional charge and credit cards, with no annual card fees, 0% international card transaction fees and multi-currency spend management built into one global platform.

Businesses today have access to a variety of card payment methods such as credit cards, debit cards, virtual cards, corporate cards, and charge cards. 

This growing trend is especially driven by the eCommerce sector which is expected to hit $72.9billion AUD by 2028.² With the growing significance of card payments for businesses in Australia, selecting the right card to manage company expenses is crucial. 

This guide will focus on charge cards, providing businesses with a comprehensive overview of what they are, how they work, and how they compare to other cards like Airwallex Corporate Cards.

What is a charge card?

A charge card is a type of payment card that allows your business to spend on a line of credit and repay the balance after purchases have been made. Like a credit card, it gives you access to short-term borrowing. Unlike a credit card, you must pay off the full balance at the end of each billing cycle – you can’t carry a balance from month to month.

Because the balance must be repaid in full, charge cards don’t accrue interest like credit cards. Instead, missing a payment or paying late typically results in significant late fees and potential account restrictions. Charge cards also commonly have no preset spending limit, with approvals based on your business’s credit profile and spending patterns.

Charge cards are best suited to businesses that can manage cash flow tightly, need higher spending power, and value premium rewards and services – and that can reliably clear their balance each month.

How does a charge card work?

A charge card operates on the principle that the cardholder must pay off the entire balance at the end of each billing cycle. Here's a step-by-step breakdown of how charge cards function:

1. Application and approval: To obtain a charge card, businesses must apply with their financial provider. The approval process typically involves a credit check to assess the applicant's creditworthiness.

2, Spending and transactions: Once approved, the cardholder can make purchases up to an amount that is implicitly set based on their credit profile, rather than a predefined credit limit determined by financial institutions. Each transaction made using the charge card is recorded and tracked.

3. Billing cycle and payment: At the end of each billing cycle, the cardholder receives a statement detailing all the transactions made during that period and the total balance that needs to be paid. The payment for the full balance on a charge card must be made by the due date specified on the statement. Failure to pay the balance in full will result in late fees.

4. Rewards and benefits: Many charge cards offer rewards programs, providing points, miles, or cashback on purchases. They may also feature additional perks such as travel insurance, purchase protection, and access to exclusive events.

Benefits and challenges of using a business charge card

Business charge cards can give companies more purchasing power and premium perks, but they also require strict payment discipline and often carry higher annual fees than many other card options.

Benefits of using a corporate charge card

• No pre-set spending limit: Unlike traditional credit cards, charge cards do not have a predefined credit limit. This provides businesses with greater purchasing power, which can be beneficial for managing large or unexpected expenses.

• No interest: Charge cards don't incur interest because cardholders have to pay off the entire balance by the end of the month. As a result, there's usually no remaining amount on which to charge interest.

• Cash flow management: Charge cards help businesses manage cash flow by allowing deferred payment until the end of the billing cycle.

• Expense tracking: With each transaction recorded and tracked, charge cards provide businesses with a clear overview of their spending, making it easier to manage budgets and streamline the accounting process.

• Rewards and savings: Compared to credit cards, the American Express charge cards offer more attractive rewards programs and exclusive perks. For example, American Express Platinum Card is known for its complimentary concierge services for eligible charge card members, where its staff fulfils requests such as purchasing conference tickets and making dinner reservations at no cost for members.³

Disadvantages of using a corporate charge card

• Strict payment terms: Charge cards require the full balance to be paid at the end of each billing cycle. This can be challenging for businesses with inconsistent cash flow, as they may struggle to make timely payments.

• Late fees: Late payments can incur significant fees and penalties. Accumulating too many late fees could ultimately result in the suspension or closure of your account.

• Annual fees: Business charge cards often come with higher annual fees compared to traditional credit cards. These fees may not be worth it for smaller businesses that do not have high transaction volumes.

• Limited availability: Today, the options of charge cards are scarce compared to the hundreds of credit cards offered. Additionally, obtaining approval for a charge card can be more challenging if your business has a low credit score.

Credit card vs Charge card

Charge cards and credit cards differ primarily in their payment structures and spending limits. A charge card requires the cardholder to pay the entire balance in full at the end of each billing cycle. This means there is no option to carry over a balance, avoiding interest charges but necessitating timely and full payments to avoid substantial late fees. Additionally, charge cards typically come with no preset spending limit, although charges are typically approved based on the business's creditworthiness and spending patterns.

Conversely, credit cards enable cardholders to carry a balance. Users can make minimum monthly payments while incurring interest on the remaining unpaid amount. The average credit card interest rate is 27.89%, which can add up to a considerable sum if not managed efficiently.⁵ Credit cards typically feature lower or no annual fees compared to charge cards, making them more accessible to a broader range of businesses. They also come with a predetermined credit limit set by the card issuer, so there are more limitations to the amount your business can spend each month.

Charge card vs Debit card

Debit cards are directly linked to a bank account, enabling businesses to spend money that they already possess. When a transaction is made using a debit card, the funds are immediately deducted from the linked business account. This reduces the risk of accruing debt or late fees since the cardholder cannot spend beyond what is available in their account. However, debit cards may lack the extensive rewards and benefits that charge cards usually offer, making them a more straightforward yet less advantageous tool in the long term.

Charge cards, on the other hand, offer deferred payment and greater purchasing power as long as the full balance is paid monthly. They allow businesses to spend on a line of credit and repay the balance after the expenditures are incurred, making them ideal for managing larger expenses. Additionally, charge cards often come with robust reward programs tailored for businesses or frequent travellers, such as points and cashback.

Ditch charge card fees: go global with Airwallex Corporate Cards

Relying on credit lines through charge or credit cards can quickly become costly if payments are missed or interest starts to stack up. For growing businesses, that can turn everyday spending into a drag on cash flow.

Airwallex Corporate Cards flip that model on its head. They’re multi-currency Visa debit cards that give your team the flexibility of a corporate card without the sting of interest or annual card fees. Your employees can spend with confidence, while finance stays in control of every dollar.

In particular, the benefits of Airwallex Corporate Cards include:

• Virtual and physical cards for your team. Spin up corporate cards in minutes for employees, teams and departments, and manage everything from a single, real-time dashboard.

• No annual card fees. Avoid the high yearly fees often associated with traditional corporate charge cards and keep more budget for growth.

• 0% international card transaction fees. Pay overseas suppliers or spend while travelling without extra foreign card transaction fees; only Airwallex’s standard FX margin applies when a currency conversion is required.

• Multi-currency debit cards for global teams. Issue corporate cards in key markets and link them to your Airwallex Wallet so teams can spend directly from held balances in multiple currencies.

• Fine-grained spend controls. Set individual spending limits, merchant and category controls, and date-based limits for each employee card, so you can prevent out-of-policy spend before it happens.

Another key feature of Airwallex Corporate Cards is their ability to draw directly from your multi-currency wallet across a range of major currencies (including AUD, USD, EUR, GBP, SGD and more). This gives businesses more flexibility when paying international invoices or SaaS subscriptions, and helps reduce unnecessary currency conversion fees.

Airwallex also helps finance teams close the loop faster with built-in expense management and accounting integrations. By connecting to tools like Xero and QuickBooks, you can sync card spend automatically, capture receipts, and keep your general ledger up to date with far less manual work.

Sign up for your virtual corporate card with Airwallex today to simplify your business expense management.

Frequently asked questions

Is it hard to get approved for a charge card?

Approval for a charge card can vary significantly based on several factors, including the business's credit history, financial stability, and the specific requirements of the card issuer. Typically, charge card issuers look for a strong credit score and a history of responsible credit use. Businesses seeking to obtain a charge card must also demonstrate solid revenue streams and financial health.

Do charge cards exist anymore?

Yes, companies like American Express still provide corporate charge card options such as their Green Card and Gold Card.

Can a charge card be used anywhere?

Yes, a charge card can be used at any location that accepts the card network associated with the charge card, such as Visa, Mastercard, and American Express.

Does closing a charge card hurt credit?

Closing a charge card can affect your credit score, but the impact is often limited and depends on your broader credit profile. Closing an account may change your average account age or total available credit, which can influence your score, so it’s worth considering how it fits into your overall credit strategy.

What fees are common on corporate spending cards?

Common fees on corporate spending cards can include annual card fees (which can run to hundreds of dollars per card each year), late payment fees on charge and credit cards, and foreign transaction fees of around 2%–3% on many bank-issued cards. Some providers may also charge cash advance fees, card issuance or replacement fees, and additional costs for premium rewards programs. Debit card-based corporate card solutions may avoid many of these charges.

Sources:

1. https://www.rba.gov.au/publications/rdp/2023/2023-08/card-payments.html

2. https://retailasia.com/news/payment-cards-drive-over-50-australias-e-commerce-transactions

3. https://global.americanexpress.com/card-benefits/detail/concierge/platinum

4. https://www.canstar.com.au/credit-cards/what-is-the-average-credit-card-interest-rate/ Disclaimer: This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) it is important for you to read the Product Disclosure Statement (PDS) for the Direct Services, which is available here.