For a startup or small business to be self-sustaining, avoiding debt and spending cash wisely is a necessity. This is where a business credit card comes in handy, as it assists business owners in more ways than one, including streamlining your cash flow, building your business credit, tracking your expenses, and obtaining credit.
Bear in mind that it is very important to understand how to effectively utilise your business credit card in order to reap these benefits. In this guide, I will share with you some helpful tips and practical strategies that you can employ in order to manage your business credit card without incurring loss.
What Are Business Credit Cards and How Do They Work?
Now first of all, let’s start by comprehensively discussing business credit cards before fine-tuning how to manage them; knowing the basics is crucial after all.
In layman’s terms, a business credit card is basically an account opened with a bank or a credit provider that is tailored specifically for businesses as opposed to individuals. Such cards are used to pay for business travel, marketing, supplies and other expenses, unlike personal ones which are used for general purchases.
Managing ordinary expenses becomes much simpler by using this method, thus making the filing of taxes and tracking of business expenditures much more expedient and efficient.
To put it simply, business credit cards are the best option available as they provide wonderful features such as bonuses, rewards, cash-back programmes, and others which small business owners can benefit from. When used responsibly, the card enables you to earn business credit and eventually boosts your business credit score. It acts as a gateway to availing future business financing alternatives such as small business loans or business lines of credit.
Best Practices for Using a Business Credit Card
If you do want to use your business credit card without damaging your credit and landing in debt, you have to learn how to manage your credit. Here are a few steps that should assist you:
| Best Practice | Explanation | Actionable Tip |
|---|---|---|
| Use for Business Expenses Only | Keep business and personal expenses separate for easier tracking and tax filing. | Set up separate accounts for personal and business use. |
| Pay On Time | Late payments can result in penalties and higher interest rates. | Set up automatic payments or payment reminders. |
| Track Your Spending | Monitor your transactions to ensure you stay within your credit limit and budget. | Use expense management software like QuickBooks. |
| Pay Full Balance Each Month | Avoid interest charges by paying off your balance in full. | Always aim to pay your statement balance in full. |
| Monitor Cash Flow | Keep an eye on your cash flow to avoid relying too heavily on credit for day-to-day expenses. | Regularly review your cash flow statements. |
| Maximize Rewards | Take advantage of loyalty programs or cash-back offers to save money. | Use cards that offer rewards for purchases you make often. |
Use Your Business Credit Card for Business Purchases Only
It’s quite convenient to use your business credit card to pay for personal expenses, particularly when funds are low, but it can lead to issues during tax season and expense management. Business credit cards were created to cater for business needs only.
A wise decision would be to separate personal and business expenses as that would make it easier for your accountant and also prevent your credit report from getting tarnished.
Pay Your Credit Card Payments on Time
Any missed due dates will attract interest and late fees which can be quite hefty. You might want to consider automating your credit card payments or simply adding a reminder for due payments so you do not come late. Try to aim to always pay off your total in monthly dues; doing so will help you have access to your revolving line of credit and prevent you from incurring excessive interest.
If you do not want to forget any due dates and are looking for a suitable way to manage payments, you can consider using an expense management system.
Monitor Your Credit Card Spending
In order to prevent yourself from overspending, setting a limit and closely monitoring your expenses is important. If using a specific credit card frequently results in a limit violation or comes close to it, this can negatively impact your business credit score.
It might be beneficial to inform the people within your team who are close to the limits in advance through an alert system or implement a cash management system to ensure you respect the credit limit.
Track Expenses Efficiently
Business owners can leverage applicable software like QuickBooks or Xero to tag and track your expenses. Some of this software integrate with your business credit card, allowing you to easily keep track of your spending and avoid overspending.
How to Choose the Right Business Credit Card
It can be tedious when it comes to selecting a business credit card because of the number of options available. Follow the tips below to make a suitable decision.
Assess Your Business Needs
Before you start searching and comparing business credit cards, consider what your business absolutely requires. Do you take a lot of business trips? You should get a card that has good frequent flyer programmes. If you’re more into frequent office and other business procurement, a card is better where you can get back some cash or vouchers for office materials.
Evaluate Interest Rates and Fees
To make the right choice of a business credit card, one should be mindful of comparing annual percentage rates (APR), the yearly premium and all other fees including foreign transaction fees. There are some cards that do not charge a fee for purchases for a set period which could be useful when making a significant purchase.
Understand the Rewards and Benefits
Each card has different offers. Some cards provide reward points for every pound spent, while others may provide discounts on certain categories, for example fuel or restaurant meals. Spend some additional time trying to understand the card offerings and choose one that suits your business needs.
The Benefits of Using a Business Credit Card Wisely
Several privileges can be afforded to you if you choose to be prudent with your business credit card:
Improved Cash Flow Management
For business owners, management of cash flow is always a daunting task. In that regard, the use of a business credit card can assist you as it enables you to utilise a credit limit which is subject to repayment over time. The ability to do this is quite useful especially when revenues aren’t coming in consistently.
Build and Strengthen Your Business Credit
It cannot be denied that responsible utilisation of business credit cards makes it possible to establish a good business credit score. A healthy business credit score increases your chances of securing unlimited future financing at good interest rates. The importance of maintaining a tailored business credit profile in the business realm for expansion cannot be overstated.
Access to Financing and Investment Opportunities
You hold the reins as a director with a company credit card. By having this, you are given the option of credit granting the power to meet unexpected business costs. For instance, you can use it to assist with operational overheads or to tide you over until a large remittance is received. It is vital in both short and long expense phases.
How to Leverage Business Credit Cards to Grow Your Business
Building your business as a manager can be difficult, but utilising your business credit card as a tool for expansion is always a good strategy. These are the steps to follow:
Fund Marketing Campaigns
Marketing requires funds, and those funds are sometimes hard to come by, let alone pay for a campaign. Use your credit card to settle the account, and once your business begins to earn, they will reimburse you. Worry not; many business credit cards offer services aimed at replacing lost business profits as they provide marketing expense benefits.
Cover Unexpected Costs
With corporate cards or a small business credit card, you can even gain access to credit without having to apply for a business line or business loan. This way, at times when you need urgent equipment replacements or other operational necessities, your company will easily be able to fund them.
Invest in New Opportunities
Raising funds through credit cards can be beneficial in multiple situations such as the introduction of a new product, targeting a new market, or hiring new employees. Making smart use of credit cards can free up cash required to tap into new business opportunities.
What Are the Risks of Mismanaging Your Business Credit Card Spending?
This type of credit offers myriad benefits, but if not managed correctly, it can lead to risks such as:
Accruing Unmanageable Debt
When using a credit card becomes a habit, debt tends to build up; worse still, there becomes a reliance on one single card. When that card has a payment made, it barely scratches the surface of the debt, or vice versa. While credit protection strategies may seem helpful, in truth, preventing oneself from falling into debt seems like a better option.
Damaging Your Business Credit Score
When a balance on a credit card is carried over time, it causes an uproar regarding the Business Credit Score, in relation to how much is owed and how many loans can be taken in the future. Moreover, when debts aren’t paid on time or the balance is simply too high, it leads to late payments, which also results in diminished scores.
Over-Limit Fees and Interest Rates
Whenever a business applies for a credit card, it almost always has limitations, which, if exceeded, leads to over-limit fees. If the balance on the card rolls over the limit, somehow the penalty comes in the form of higher interest rates on that balance.
How to Avoid High Interest Rates on Business Credit Cards
You may have business balances that are not paid off, thus incurring interest fees. Follow these tips to avoid a situation like this and don’t let your balances roll over with interest charges.
Pay Your Balance in Full Every Month
Having your entire business balance settled on a monthly basis means that interest fees won’t be added, which is the best way to utilise your credit card as it lowers the cost.
Shop for Low APR Cards
While you are searching for business credit cards, there are a few factors you should pay attention to, including the Annual Percentage Rate (APR); make sure to focus on those that have lower ratios. Even an additional fraction of interest will benefit you in the long run.
How to Keep Your Business Finances in Check Using a Business Credit Card
For a business to succeed, it needs to have its administration in order and debts managed; here are a few ways to ensure sound practices with a credit card.
Use Expense Management Software
Tools such as QuickBooks, FreshBooks, or Xero have come as one-stop solutions for managing a business credit card and will keep you informed of your expenses, ranging from combining personal and business transactions to categorising the costs.
Set Spending Limits
For employees possessing a company credit card, ensure that card usage complies with company policy. Alternatively, you can also provide a budget for various sections or each employee accordingly.
My Opinion
The desire for ownership of a business credit card is reliant on the ability to control oneself and maintain an organised system, as well as having a clear understanding of objectives regarding how a business credit card has been acquired. Some of the measures you have stated will help you in using business credit cards as a means of enhancing your business credit rating, improving business cash flow management systems, and expanding the company.
Take note of how you spend money, as well as when making payments, and which card works best for your type of business. A business credit card, when effectively utilised, can be essential to the business and its success.
