Credit card debt refers to the money a company owes for purchases made using credit cards. This debt appears under the liabilities section on the company's balance sheet.
Credit card debt is considered a current liability, meaning the business must pay it off within a normal operating cycle, which is typically less than 12 months.
While credit cards often have high interest rates, they provide a convenient source of short-term financing. This is because they allow companies to make small purchases immediately. The interest charges on these debts accrue monthly, and paying this interest is mandatory.
Effectively managing credit card debt requires discipline. The ideal approach is to pay off the full balance each month to avoid incurring interest charges. If a balance does build up on a company credit card, the business can use its cash flow to make a lump sum payment at its discretion.
Credit card debt is unsecured, which means the payment terms are relatively short. If a company fails to pay according to the credit card agreement, the card issuer may demand full repayment at a high interest rate.