All Plastic Is Not Created Equal

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.

“I rarely see corporate debit cards,” he says. “Part 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 don’t offer these loyalty programs.”

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 isn’t settled. With a debit card, the seller gets paid almost immediately, and it’s a lot tougher to get money back than to not pay it out.

“Businesses should always make purchases with a credit card,” says E. Thomas Garman, a professor emeritus of Virginia Tech University. “Vendors go out of business all the time—sometimes before they deliver their part of a deal—so even a corporate purchaser needs the dispute protection offered by credit cards.”