Biz Spotlight – Banking and FinanceBiz Spotlight – Banking and Finance
The credit card is losing ground to another piece of plastic: the debit card. But despite the lack of interest charges with debit cards, most companies are sticking with traditional credit cards.
Only a small fraction of businesses whose books he sees are using debit cards, says Edward Guttenplan, a shareholder in the East Brunswick CPA firm of Wilkin & Guttenplan.
ÂI rarely see corporate debit cards,Â he says. ÂPart of the reason is probably the fact that cardholders can get air travel, cash back and other rewards for using credit cards. Most of the time, debit cards donÂt offer these loyalty programs.Â
Another reason is float, the period making a purchase and actually having to pay. In effect, a company that pays its balance in full each month gets an interest-free loan for the period.
Purchase protection is a strong draw too. Anyone who buys something with a credit card has some leverage over the seller if a dispute develops, because the credit card company can always refuse to release the funds to the seller if the dispute isnÂt settled. With a debit card, the seller gets paid almost immediately, and itÂs a lot tougher to get money back than to not pay it out.
ÂBusinesses should always make purchases with a credit card,Â says E. Thomas Garman, a professor emeritus of Virginia Tech University. ÂVendors go out of business all the timeÂsometimes before they deliver their part of a dealÂso even a corporate purchaser needs the dispute protection offered by credit cards.Âd