Both types of cards let you spend now and pay later. The difference is what happens when the statement arrives, and that matters most when money's tight. Here's how to choose which is right for your business.

The difference between charge cards and credit cards

We won't pretend it's complicated because it isn't. With a charge card, you have to repay the full balance every month whereas, with a credit card, you have the option to spread the payments.

How a charge card works

You pay the whole balance each month, so there's no interest on your spending. Many charge cards don't set a fixed limit. Most charge an annual fee - this can be hundreds of pounds a year. You often get rewards with a charge card too, although those with the best perks tend to have the highest annual fees. Rewards include things like travel insurance, breakdown cover, cashback and airport lounge access.

How a credit card works

You get a fixed borrowing limit and a minimum amount that you have to pay back each month. If you pay what you've borrowed in full each month, you pay no interest on purchases. Pay less and interest is charged on the unpaid balance. Annual fees are usually significantly lower than on charge cards, and plenty don't have one at all.

When a charge card works well

A charge card might be more suitable if your cash flow is steady and you're sure you can always clear the bill. It can be useful for significant, regular expenses such as travel, and if the included rewards save you money.

When a credit card works better

A credit card my be a better option if your income is more unpredictable and paying off a sizeable charge card bill could leave you short during a quiet month. In this situation, a credit card may be preferable as it allows you to make minimum payments giving you room to breathe. You may also find it easier to budget with a credit card as it comes with a set spending limit.

What happens if you miss a charge card payment?

Missing a charge card payment can result in a hefty late fee, and the provider can suspend or even close your card. The missed payment may also show on your credit file and that could prove problematic if your business needs access to credit in the future. If you think you'll struggle to make a payment, talk to the provider before the due date.

Comparing charge cards and credit cards

When you're deciding which is better for you, look at:

• annual fee against the rewards you'd actually use

• the spending limit

• late payment fees

• cards for staff, and whether you can set limits on each

• how the provider reports to credit reference agencies

How limits work on a charge card

A charge card may not have a fixed limit but that doesn't mean any purchase you attempt will go through. The provider decides whether to approve each payment based on your previous spending, payment history and credit record. Big purchases can be declined, so It's a good idea to check with your provider if you're planning to spend significantly more than usual.

Cards for your team

Both charge cards and credit cards let you add cards for staff. Set a limit on each, ask for receipts and review the statement every month. With a charge card, remember the whole balance is due each month no matter who has done the spending, and on what.

Are certain businesses better suited to a certain card?

A consultant who invoices clients on a steady schedule can handle a charge card. A seasonal retailer with a quiet winter is often better with a credit card. If you pay suppliers before your customers pay you, you'll probably want the flexibility of a credit card.

Before you choose a charge card, look at your last six months of bank statements. Find your quietest month for cash coming in. If you could pay a full month of card spending from that low point, a charge card is safe for you. If you couldn't, choose a credit card.

If you change your mind

You can switch. Many businesses start with a credit card and move to a charge card when their cash flow settles, or the other way round. Check any fees before you close a card, and keep it open until the new one arrives.