Purchase card vs. credit card: 5 key differences to know
Purchase card vs. credit card: 5 key differences to know
For many businesses, credit cards can function like tools in a toolbox. Some card types might work better for certain jobs compared to other card types. Choosing the right payment method can have an outsized impact on your company’s financials, as it can streamline operations, provide valuable rewards, and provide valuable financial control.
While both purchase cards—also known as P-cards or procurement cards—and business credit cards provide alternatives to traditional payment methods like checks and ACH payments, they serve different purposes and offer unique advantages. Business credit cards provide flexible payment options for a wide range of company travel and expenses, while purchase cards are specifically designed for procurement processes with stricter spending controls and approval workflows.
The right choice of credit cards depends on your specific requirements, spending patterns, and financial goals. Whether you’re a startup looking to establish business credit or an established enterprise seeking to streamline procurement, Brex says knowing the key differences between p-cards and business credit cards is crucial for making informed decisions.
What is a business credit card used for?
A business credit card is designed for commercial use, allowing companies to handle general business expenses while keeping them separate from personal finances. Unlike consumer credit cards, business credit cards typically offer higher spending limits, business-focused rewards, and better expense tracking features.
These cards are built for everyday business spending. Employees can use them to pay for business travel, client meals, office supplies, equipment purchases, and recurring services. They usually come with higher credit limits than personal cards and include grace periods for payments. This means businesses can avoid interest charges by paying their full balance each month. The better card programs also offer rewards like cash back or points.
Business credit cards work like a revolving line of credit that companies can use for various expenses throughout the month. Most business cards report payment history to business credit bureaus rather than personal credit bureaus. This helps companies establish or build their business credit profile separate from the owner’s personal credit history. Having strong business credit becomes important when companies later apply for loans, equipment financing, or larger business lines of credit.
Advantages of a business credit card
Business credit cards offer several benefits that make them valuable tools for companies of all sizes.
Rewards programs
Modern business credit cards feature competitive rewards structures tailored to business spending patterns. For example, Brex offers higher rewards for spending categories such as software, and those rewards can be redeemed for business needs like billboard advertising, travel, or cash back.
Expense management
The top business credit cards seamlessly integrate with expense management tools, providing spending controls, detailed reporting, and streamlined expense reconciliation. Some cards can capture receipts automatically or let employees upload photos of paper receipts. Many also include approval workflows, so managers can review expenses before they get processed. This cuts down on time spent tracking expenses and reduces errors in expense reports.
Building business credit
Using business credit cards responsibly helps build a company’s credit history separate from the owner’s personal credit. This means making payments on time and keeping balances reasonable. Strong business credit leads to better terms on future loans, higher credit limits, and access to equipment financing. It also makes it easier to get approved for commercial real estate loans or lines of credit as the business grows.
Cash flow flexibility
Business credit cards give companies options for managing cash flow. Most cards offer grace periods of three to four weeks, allowing businesses to make purchases and pay the full balance later without interest charges. Some cards also let businesses carry balances from month to month, though this comes with interest charges that can add up quickly. This flexibility helps when businesses have irregular income or need to make large purchases before receiving payment from customers.
Scalability
Card providers typically increase credit limits as businesses demonstrate good payment history and growing revenue. They also make it easy to add employee credit cards when hiring new staff. Each employee card can have its own spending limits and restrictions. This makes business cards useful for everything from small startups to large companies with hundreds of employees.
Disadvantages of a business credit card
Despite their many benefits, business credit cards do have drawbacks that companies should consider.
Potentially high interest rates
Business credit cards that allow companies to carry balances charge interest rates that can reach 28% or higher. These rates are often higher than business loans or lines of credit. When businesses don’t pay their full balance each month, interest charges add up quickly and can significantly increase the cost of purchases. For example, a $10,000 balance at 25% interest costs more than $2,500 per year in interest alone. This can hurt profitability, especially for businesses with tight margins.
Personal liability concerns
Many business credit cards require personal guarantees from business owners, especially for smaller companies or startups without established business credit. This means the owner becomes personally responsible for the debt if the business can’t pay. Late payments or defaults can damage both the business credit score and the owner’s personal credit score. In worst-case scenarios, card companies can pursue the owner’s personal assets to collect unpaid balances.
Potential for less spending control
Business credit cards typically offer broad flexibility in where and how they can be used, but this can become a problem without proper oversight. Employees might make unauthorized purchases, buy personal items, or spend beyond their intended budgets. While some newer cards offer better controls and approval workflows, many traditional business cards rely on companies to monitor spending after the fact rather than preventing problems before they happen.
Annual fees
Premium business credit cards often charge annual fees ranging from $95 to $500 or more for the primary card. Additional employee cards typically cost $25 to $175 each per year. Some cards also charge foreign transaction fees, cash advance fees, and late payment penalties. These costs can add up quickly for businesses with multiple cardholders. Companies need to calculate whether the rewards and benefits they earn offset these fees to determine if a particular card provides good value.
What is a purchase card used for?
A purchase card is designed specifically for buying goods and services from other businesses. Unlike regular business credit cards, purchase cards are built for procurement processes and focus on specific categories of business purchases rather than general expenses.
Purchase cards typically have lower spending limits than business credit cards and come with much stricter controls and approval requirements. These controls can include restrictions on which types of merchants accept the card, limits on individual transaction amounts, and requirements for manager approval before purchases can be made. The goal is to prevent unauthorized spending and ensure purchases follow company procurement policies.
Purchase cards developed as a way to replace slow, paper-heavy procurement processes that relied on purchase orders, approval forms, and checks. Instead of waiting weeks for approvals, employees could make approved purchases immediately while still maintaining spending controls.
Purchase cards have evolved from physical plastic cards to digital procurement tools. Many programs now use virtual cards that create single-use account numbers for each purchase. This approach provides better security because each transaction uses a different card number. These virtual cards also integrate with company accounting software, spend management platforms, and accounts payable workflows to automate much of the paperwork that used to be done manually.
Advantages of a purchase card
Purchase cards have benefits that make them valuable tools for organizational procurement.
Enhanced spending controls
Purchase cards provide detailed control over purchases through preset spending limits, merchant category restrictions, and approval workflows. These controls can be customized by vendor, department, employee position, or individual user. For example, the marketing department might have a purchase card that only works with approved advertising vendors, while the IT department might have cards restricted to technology suppliers. Individual transaction limits can also be set, so employees cannot make purchases above a certain dollar amount without additional approval.
Streamline the procurement process
The biggest advantage of using a purchase card is speeding up the procurement process. Traditional purchasing requires employees to submit purchase orders, wait for approvals, and then process invoices after the goods arrive. Purchase cards eliminate most of this paperwork. Instead of waiting days or weeks for purchase order approval, employees can make approved purchases immediately. This cuts procurement time from weeks to minutes for routine purchases like office supplies or equipment repairs.
Powerful integrations
Purchase card programs provide detailed transaction data that includes vendor information, purchase categories, and employee spending patterns. This data integrates with company accounting software and enterprise resource planning tools. The integration allows for automated expense reconciliation, budget tracking, and compliance monitoring. Finance teams can see spending in real time rather than waiting for monthly statements or manual expense reports.
Rewards for spending
Depending on the card provider, businesses can earn rewards on purchase card spending similar to traditional business credit cards. This means companies get rewarded for procurement spending, which often represents a substantial portion of total business expenses. Rewards typically come as cash back, points, or credits that can be applied to future purchases. For companies with large procurement budgets, these rewards can add up to significant savings over time.
Disadvantages of a purchase card
While they have their advantages, purchase cards have limitations that organizations should consider.
Short repayment period
Unlike business credit cards that typically offer grace periods of three to four weeks, purchase cards often require faster payment. Some programs require payment within days of the purchase, while others may demand payment within two weeks. This accelerated payment schedule can create cash flow problems, especially for businesses that wait 30 to 60 days to receive payment from their own customers. Companies may find themselves paying suppliers before they collect money from clients.
Less flexibility
The strict controls that make purchase cards effective for procurement can also make them frustrating to use. Purchase cards often work only with preapproved vendors or specific types of merchants. If employees need to buy something from an unapproved vendor or make an emergency purchase outside the card’s restrictions, they cannot use the purchase card. This means companies often need both purchase cards for controlled spending and regular business credit cards for everything else, which adds complexity to expense management.
Implementation complexity
Setting up an effective purchase card program requires significant upfront work. Companies need to develop detailed spending policies, train employees on how to use the cards properly, and integrate the card program with existing accounting and procurement processes. This often involves working with IT departments, training managers, and updating financial procedures. Small businesses may find the setup costs and time investment outweigh the benefits, especially if their procurement needs are relatively simple.
5 differences between a credit card and a purchase card
Understanding the differences between business credit cards and purchase cards is essential for implementing the right payment strategy for your organization. Although business credit cards and purchase cards function similarly, they differ in spending restrictions, flexibility, repayment requirements, and intended uses. Business credit cards can be used for a wide range of expenses and give employees flexibility, while purchase cards are designed specifically for procurement spending, such as supplier payments.
Here’s a detailed comparison of the five most significant distinctions.
1. Flexibility
Business credit cards and purchase cards differ in their flexibility regarding where, when, and how they can be used. Business credit cards offer broad acceptance across virtually all merchant categories with minimal restrictions on transaction types, while purchase cards typically operate with predetermined spending parameters and merchant category restrictions.
The flexibility that business credit cards provide makes them ideal for varied expenses like client dinners, travel bookings, software subscriptions, and unexpected purchases. Most business credit cards allow employees to make purchasing decisions on the spot without prior approval. Some newer card providers allow businesses to build custom expense policies that automatically enforce spending rules while still maintaining flexibility.
Purchase cards have more restrictions and are often configured to work only with approved vendors and for specific expense categories, such as office supplies, industrial equipment, or professional services. In some cases, purchase cards can be issued for a single recurring expense or for a single event, like a trade show or construction project.
Many purchase card transactions require approval through digital workflows before purchases can be completed, especially for higher-value items. While this reduces flexibility, it ensures compliance with company procurement policies and helps prevent unauthorized spending.
The key consideration for businesses is whether the priority is spending agility or spending control. Many organizations use both options, deploying business credit cards for variable expenses and purchase cards for predictable, routine procurement.
2. Controls
The control mechanisms available for business credit cards and purchase cards represent one of the most significant differences between these payment tools. Business credit cards typically have fewer spending controls compared to purchase cards, which gives them greater flexibility but increases the risk of misuse.
For many business credit card providers, spending controls operate primarily at the account level rather than the transaction level. For instance, an employee might have a $5,000 monthly limit and can spend those funds across any merchant or category until the limit is reached. Some newer providers allow businesses to create custom spending policies that restrict purchases based on department, employee level, expense category, or specific merchants.
Business credit cards will almost always have fewer rigid controls than purchase cards. Companies can control purchase card spending with very specific restrictions. Purchase cards can be limited to certain vendors, specific dollar amounts per transaction, particular days of the week, or even restricted to a single type of purchase. In many cases, purchase cards can be issued for just one recurring expense, like monthly software subscriptions, or for a specific project with predetermined spending limits.
3. Use cases
The purpose and uses for business credit cards and purchase cards represent another significant difference. Business credit cards are designed for nearly any business-related expense, allowing employees to make purchases for travel, dining, office supplies, and unexpected costs. Purchase cards, in contrast, are designed to replace lengthy purchase order processes and focus on acquiring specific goods and services, such as consulting services, shipping and packaging, and technology equipment.
Business credit cards can adapt to various spending needs across different departments and scenarios. While business credit cards can have built-in expense policies, they typically allow more freedom than purchase card policies, giving employees greater discretion in purchases as long as they stay within their overall limits.
Corporate purchase cards simplify the procurement process by creating standardized workflows for routine business purchases. Purchase cards allow employees to make direct purchases for goods and services without navigating lengthy approval processes, enabling quicker access to essential items that companies buy regularly.
For example, a company might issue purchase cards with specific transaction limits and approval requirements that work like purchase orders but happen electronically. This saves time and increases productivity because employees can focus on their core work rather than getting slowed down by administrative tasks.
4. Physical cards
The availability of physical and virtual cards is another difference between business credit cards and purchase cards. Business credit cards are typically physical cards with virtual options available, while purchase cards are usually virtual cards without physical versions.
The physical nature of business credit cards makes them suitable for face-to-face transactions and employee expense management. Many business credit card programs now offer virtual business credit card capabilities as well, particularly for online purchases and software subscriptions. However, the physical card remains the main option for most business credit card programs.
Purchase cards take a different approach, with many purchase card programs using virtual cards exclusively. These virtual credentials enable secure online purchasing while eliminating the risks that come with physical card theft or misuse. Virtual purchase cards also make it easier to create single-use card numbers for specific purchases or vendors.
5. Credit limits
Credit limit structures and eligibility requirements differ between business credit cards and purchase cards, reflecting their different purposes and approaches to risk management. The best high limit business credit cards typically feature higher overall credit limits based on the organization’s financial standing, revenue, credit history, and time in business. These higher limits provide spending flexibility and allow for larger expenses like inventory purchases, equipment, or major travel costs.
Purchase cards operate with more conservative credit limits designed around specific procurement needs rather than maximum borrowing capacity. Purchase cards often have individual transaction limits or other restrictions that affect the overall credit limit. For example, a purchase card might have a $50,000 overall limit but restrict individual transactions to $5,000 without additional approval. The card provider still determines the overall credit limit, but the practical spending limit depends on the transaction and approval restrictions put in place by the company.
The top use cases for p-cards and credit cards
While some providers may not issue both purchase cards and business credit cards, businesses can often get both from a single card program with the right provider. Rather than viewing these payment options as competing choices, companies can use both strategically for different situations, maximizing the unique benefits each offers.
Some financial platforms enable organizations to implement a comprehensive payment strategy that uses both card types within a single interface. With one card provider for multiple types of cards, businesses can gain visibility into all of their spending in one place, reducing complexity around tracking cash flow and improving efficiency.
Use cases for business credit cards
Business credit cards are designed to provide flexibility and rewards for a wide range of company expenses. Here are the scenarios where business credit cards work best.
Travel and expense management
Business credit cards are the preferred option for booking flights, hotels, rental cars, and client meals. Their rewards programs often provide higher points or cash back for these categories, generating significant value for travel-heavy organizations. Some card providers also offer integrated travel management software features.
Recurring bills
Business credit cards simplify payment for recurring expenses like software subscriptions, utility bills, insurance premiums, and monthly services while allowing for centralized tracking. Companies can set up automatic payments and easily monitor these fixed costs.
Advertising costs
Digital advertising, promotional materials, and marketing campaign expenses often require quick adjustments based on performance data, making the flexibility of credit cards valuable. Marketing teams can increase ad spending or launch new campaigns without waiting for purchase approvals.
Emergency expenses
When unexpected expenses arise, business credit cards provide immediate purchasing power without requiring lengthy approval processes. This helps businesses respond quickly to urgent situations like equipment repairs, last-minute travel, or emergency supplies.
Mobile and remote employee expenses
For team members who travel frequently or work remotely, business credit cards provide a convenient way to make necessary purchases while maintaining visibility and control for the organization. Remote workers can buy office supplies, pay for coworking spaces, or cover internet upgrades as needed.
Use cases for purchase cards
Purchase cards offer enhanced control and integration for procurement-related expenses. Here are situations where purchase cards can be the best option.
Office supplies and equipment
Purchase cards streamline the purchasing process for routine office supplies, furniture, and equipment while enforcing spending limits and preferred vendor policies. Employees can order supplies directly from approved vendors without submitting purchase orders or waiting for approvals, but spending stays within predetermined limits.
Contract-based purchasing
When organizations have negotiated preferred pricing with specific vendors, purchase cards can be configured to work exclusively with these suppliers, ensuring contract compliance. This guarantees that employees use the negotiated rates and approved vendors, preventing maverick spending that could violate contract terms.
Technology and IT purchases
Hardware, software licenses, and technical services can be effectively managed through purchase cards that enforce IT department policies and budgetary constraints. IT managers can ensure that employees buy only approved equipment and software that meets security and compatibility requirements.
Departmental budget management
Finance teams can issue department-specific purchase cards with customized spending limits that automatically enforce budget constraints without requiring constant oversight. Each department gets cards programmed with their specific budget limits, approved vendor lists, and spending categories, preventing budget overruns before they happen.
How to choose the right business credit card for your business
For businesses that can utilize both business credit cards and purchase cards, the right corporate card provider offers both. This allows your business to take advantage of the strengths of each card, deploy them strategically, and control them all within a single, unified platform.
This story was produced by Brex and reviewed and distributed by Stacker.
