Paying by credit or payment card
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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.
