B2: 2.01(i) Credit cards

What is a credit card?

A credit card is a card that enables a business to pay bills online, over the phone or electronically using the Credit Card Company’s money which will then be repaid by the business at a later date. Many businesses provide company credit cards to employees such as managers and sales staff. This enables those employees to pay their business expenses whilst at the same time providing the business with a way to limit their spending and to record all payments made.

Every month, the credit card company will issue a statement recording all the transactions with the business or on their behalf. It will include:

  • Payments made on the cardholder’s behalf for services and goods
  • Receipts from the cardholder paying all, or some, of the balance for the previous month
  • Interest and other fees charged to the cardholder by the credit card company

Paying the credit card company

Following receipt of the credit card statement, a business will pay some or all of the amount outstanding to the credit card company (nb. there will be a minimum amount that must be paid). If the business does not pay the whole balance it will incur interest charges that will be added to its next month’s balance.

A business’ bank account will therefore only be affected by a purchase made on a credit card as and when the business pays its credit card balance.