In this post, I will show you seven business credit card tips for small businesses.
Business credit cards come with multiple benefits, from providing you the cash to help run your business. They help build a good credit history, provide a large number of rewards and perks, and keep track of employee expenses.
Though this sounds like a great proposition, it could be a burden if not managed properly.
Below are seven tips to help you manage your business credit card wisely.
Table of Contents
7 Business Credit Card Tips For Small Businesses
1. Use It Only For Business Expenses
Business credit cards are a great way to split business and personal expenses. Using a business credit card for personal uses can prove disastrous, making it difficult during bookkeeping and audits. It is also essential to know when to use them.
It is advisable not to use business credit cards for significant expenses that cannot be paid back in full before the interest rate starts piling up. The main reason is that the interest rates for business credit cards are higher than that of personal credit cards.
2. Responsible Usage
A credit limit has to be set for business expenses. It is preferable to mention it in the company policy about how much an employee can spend on business-related purchases. Many companies provide such services where they draft policies according to the company’s needs.
There can be restrictions for transactions up to a specific limit, products to be purchased, and date and time. It is also applicable to individual employees. Doing this will prevent them from making unwanted purchases. Such purchases will reduce your credit score, as will missing your monthly payments.
3. Accountability
Every business should have a foolproof accountability plan to ensure that business credit cards are correctly used. This can be made by making it mandatory to submit proof of receipt every time a purchase is completed, and this applies to all the employees working there. Also, providing business credit cards to employees based on their seniority level will not help reduce unnecessary expenditures and avoid confusion.
4. Making Use Of The Rewards And Benefits Provided
Most business credit cards have benefits like 0% APR, sign-up bonuses, rewards, and perks. 0% APR is the policy where no interest is charged on purchases made during a specific period. Sign-up bonuses are cash prizes when a certain amount of money is spent using your credit card.
However, it would be unwise to spend a considerable amount beyond your budget to get a cash prize. Purchasing a card that benefits your business by providing rewards on a specific product category is also advised. Many also offer benefits like car rental insurance, warranty, and protection.
Rewards can be divided into tiered bonuses and fixed-rate rewards based on purchasing habits. Tiered reward cards can be used by businesses that purchase a specific product type. Fixed-rate reward cards are helpful for companies that purchase various products.
5. Monitoring Card Activity
The credit card company sends notifications to you as a text or an e-mail every time a purchase is made using the card or if an unauthorized purchase is made. Online and mobile banking services have made it easy to check your account activity from anywhere.
Read more here about credit card validators that can help you monitor your card activities. As mentioned, purchase details and monthly billing cycles are to be noted for future reference.
6. Report Unauthorized Transactions
It is wise to report unauthorized transactions immediately to the card provider. You are advised to do this to prevent you from paying unwanted charges for a transaction never meant to be made on behalf of your business. When you are notified of such a transaction, you must report it to the company, which will block your card and secure your account.
7. Don’t Close Your Account
When you close your business credit card account that you have had for quite some time, your credit utilization ratio increases- in other words, the ratio of the amount of credit you use to the total credit limit increases. This results in your average account age being reduced. This affects your credit score. Hence, it is advised to keep your account open and not to use your card.
Business Credit Card Tips For Small Businesses: FAQs
A business credit card can be a valuable tool for small businesses, offering rewards, building credit history, and managing cash flow. However, using them responsibly is crucial to avoid falling into debt. Here are answers to frequently asked questions about using business credit cards effectively:
What are the key benefits of using a business credit card?
- Rewards and benefits: Many cards offer rewards programs that earn points, cashback, or miles redeemable for various benefits, like travel, office supplies, or statement credits.
- Building business credit: Responsible use of a business credit card helps establish and improve your business credit score, which can be crucial for securing future loans and financing.
- Improved cash flow: Business cards offer a grace period, allowing you to delay payment for purchases until your statement comes due. This can help manage cash flow and optimize your financial resources.
- Convenience and expense tracking: Business cards simplify expense tracking by providing segregated statements for business purchases, allowing for easier accounting and tax preparation.
- Purchase protection: Some cards offer extended warranties, purchase protection against theft or damage, and travel insurance, adding another layer of security for business purchases.
What are some essential considerations before applying for a business credit card?
- Business needs: Assess your business needs and choose a card with benefits aligned with your spending habits, like rewards for office supplies, travel, or specific categories.
- Fees and interest rates: Compare annual fees, interest rates on purchases and cash advances, and any other potential fees associated with the card.
- Creditworthiness: Check your business credit score before applying to understand your approval chances and choose cards with requirements that align with your creditworthiness.
- Company policy: Ensure your personal and business spending are separated and comply with any company policies regarding business credit cards.
How can I use a business credit card responsibly?
- Only spend what you can afford to repay within the grace period: Avoid carrying a balance to avoid accumulating high-interest charges.
- Set spending limits: Establish spending limits for authorized users and monitor usage regularly.
- Pay your bills on time: Consistent on-time payments contribute positively to your business credit score.
- Review statements regularly: Check your statements for any errors or unauthorized charges.
- Secure your card: Treat your business card like any other financial instrument and protect it from unauthorized use.
Are there any alternatives to business credit cards?
While business credit cards offer numerous benefits, they are not the only option for small businesses:
- Debit cards: Debit cards provide immediate access to available funds in your business checking account, promoting responsible spending and avoiding debt.
- Business loans: Business loans can be helpful for specific needs like financing equipment or expansion but come with repayment terms and interest charges.
- Lines of credit: Similar to a credit card, a line of credit allows you to borrow up to a set limit, but repayments are typically made in instalments with interest.
Conclusion
Voila! The seven business credit card tips for small businesses.
The best option for your business depends on your specific needs and financial situation. Carefully consider your alternatives, understand the associated benefits and risks, and prioritize responsible financial management for a healthy and sustainable business.
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