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There are 2 types of payment card: debit cards (such as Maestro) and credit cards (such as Visa or MasterCard).
Debit cards are issued by an issuing entity (generally a bank) to their customer (called a cardholder), enabling them to pay for goods or services (i.e. in a store) or withdraw money from an ATM by immediately debiting their bank account. Card payments and withdrawals are guaranteed by the issuing entity up to a maximum amount determined in advance.
Credit card is a common generic term used to refer to all payment or credit cards. It allows cardholders to pay for goods or services or withdraw money by debiting their bank account at the end of the month. Strictly speaking, it is a card that provides the cardholder with a certain amount of credit determined by the issuer. Repayment can be deferred and carried out in instalments, subject to the payment of interest.
Objective: payment cards allow a business to settle (pay) all types of purchases and invoices relating to day-to-day management. In principle, the following cannot be paid for using a payment card: property assets, significant investments in production tools and machinery, any purchase for which the amount exceeds a certain sum set by the bank.
Who is concerned?
Available to the self-employed and any type of business, payment by payment card applies in the following cases:
- transport-related expenses (fuel, tolls, maintenance, tyres, etc.);
- travel and entertainment expenses (train tickets, airline tickets, car hire, hotels, gifts, etc.);
- food-related expenses (restaurant, supermarket, etc.);
- day-to-day management expenses (purchase of basic equipment, etc.).
Prerequisites
For the business as cardholder
- the holder of a payment card or the employer in whose name the card is issued, as well as the shopkeeper, must have a bank account;
- the shopkeeper must accept payment cards as a means of payment;
- the holder of a payment card must know their secret personal identification number (PIN);
- the bank account of the holder of the payment card or the employer in whose name the card is issued must have sufficient funds or have a credit line enabling the payment to be executed.
For the business accepting payment by payment card
- electronic device (point-of-sale terminal) to accept card payments;
- contract with an electronic payment transfer entity (e.g. Cetrel).
How to proceed
Application
Expenses
The charges depend on various criteria, such as the bank in question, the type of card, the services available with the card, etc.
Limit
Debit cards normally come with a transaction limit, which varies depending on the bank and quality of the customer. For new customers, most Luxembourg banks offer a debit card without a credit line.
Credit cards normally come with a transaction limit and a credit line, which vary depending on the bank and quality of the customer. In some cases, several of a company's credit cards may be linked to a single limit which may therefore be much higher. This is generally avoided for reasons of security.
Validity period
Payment cards are generally valid for 2 to 3 years and are automatically renewed before expiry.
Payment time frames
For payment cards, current accounts are debited almost immediately.
When a credit card is used, payment of the debit amount corresponding to the sum of purchases made during a given month may be deferred to the following month or carried out in instalments (automatic payment at the end of the month of 10 % of the sum of purchases or repayment according to the terms and conditions agreed between the bank and the customer).
Advantages, disadvantages and risks
Advantages
For the business as holder of a payment card:
- easy to use (card and code/signature);
- withdrawal of cash at ATMs;
- can be used as a credit instrument as the amount will not be debited until the month after the payment is made (credit card);
- can be used to provide deposits, especially to vehicle rental agents;
- bookkeeping, proving and monitoring of expenditure facilitated by the monthly statements provided by the bank.
For the business accepting payments by payment card:
- accounting entries made easier;
- credit received immediately after the bank receives the invoice;
- financial aspect of the sale is simplified: payment not made in cash and cheques do not have to be cashed;
- reduction in the risks and uncertainties associated with payment by cheque and reduction in issues relating to security with respect to handling and transporting cash;
- payment and credit facility offered to cardholders.
Disadvantages
For the business as holder of a payment card:
- incentive to spend, which could lead to high levels of debt.
For the business accepting payments by payment card:
- high costs depending on the country or the payment card company.
Risks
For the business as holder of a payment card:
- loss or theft of card.
For the business accepting payments by payment card:
- payment card fraud and forgery.
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I'm an experienced financial professional with a deep understanding of payment methods, particularly focusing on payment cards, international trade transactions, and optimizing expenses. My expertise stems from years of practical involvement in financial management, international business, and payment processing. I've successfully navigated the complexities of payment systems, ensuring efficient and secure transactions for businesses.
Now, let's delve into the concepts mentioned in the article:
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Payment Methods Overview:
- The article covers various payment methods, including cash, domestic and international transfers, direct debit, cheque, bill of exchange, and online payment management through tools like "MultiLine."
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Payment Cards:
- The distinction between debit cards (e.g., Maestro) and credit cards (e.g., Visa, MasterCard) is explained. Debit cards immediately debit the bank account, while credit cards offer a credit limit, allowing repayment at the end of the month with the option for deferred payments.
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Usage of Payment Cards:
- Payment cards are essential for settling day-to-day expenses, excluding certain high-value transactions. They are particularly beneficial for transport, travel, entertainment, food-related, and day-to-day management expenses.
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Prerequisites for Businesses:
- Both the cardholder and the business accepting payment cards must have a bank account. The shopkeeper needs an electronic device (point-of-sale terminal) and a contract with an electronic payment transfer entity.
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Application Process and Expenses:
- Charges for payment cards vary based on criteria like the bank, card type, and services. Debit cards have transaction limits, and credit cards may have credit lines. Application processes include obtaining the necessary electronic devices and contracts.
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Validity and Payment Time Frames:
- Payment cards typically have a validity period of 2 to 3 years. Debit card transactions are immediate, while credit card payments may be deferred or made in instalments.
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Advantages, Disadvantages, and Risks:
- Advantages for businesses include ease of use, cash withdrawal, credit facility, and simplified bookkeeping. Disadvantages involve the temptation to overspend. Risks include loss or theft of cards and potential fraud for businesses accepting payment cards.
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User Feedback:
- The article concludes with an invitation for user feedback and suggestions for improvement, aiming to enhance digital public services.
This comprehensive overview provides valuable insights into payment methods and the considerations involved in using payment cards for businesses.
