Credit card

What it means

A credit card is a payment card linked to a bank credit line. The holder pays not with their own money in an account but with credit that they repay later. Unlike a debit card, money is not taken from the current account at the moment of payment.

A typical feature is the interest-free period. If the holder repays the full balance by the due date shown on the statement, no interest is charged. If they pay only the minimum, the rest accrues interest at a high rate, well above that of an ordinary loan.

A credit card is a form of consumer credit when held by an individual for private purposes, and the bank must state the APRC and assess the ability to repay. Corporate credit cards are governed by the contract with the company and are often used mainly for travel and purchases abroad.

How it works in practice

With a company credit card, every payment must be backed by a document such as a receipt or invoice. The employee submits the documents with an expense claim and the accountant matches them with the statement. A payment without a document is a problem because the company cannot treat it as a tax-deductible expense.

In the books, card purchases are recorded on the transaction date, not when the card balance is repaid. The amount owed to the bank on a credit card is a current liability, and in business trip claims card payments appear within travel allowances as expenses already paid.

For payments in foreign currency, the bank applies its own rate and a conversion fee. In the books, the expense is translated at the rate set by internal policy, and the difference from the amount charged by the bank is shown as an FX difference. It helps to have a card in the currency used most often.

What to watch out for

Late payment interest and cash withdrawal fees on credit cards tend to be high. Cash withdrawals usually accrue interest from day one with no interest-free period, so a credit card is not suitable for funding day-to-day operations; a cheaper overdraft or working capital loan serves that purpose.

In the case of an unauthorised payment or goods not delivered, the holder can ask the bank for a chargeback. Deadlines are limited, though, so statements should be checked regularly and suspicious transactions reported immediately, not at the year-end close.