3 Ways to Make the Most Out of Your Business Credit Card
Entrepreneurs and small-business owners of all types rely on credit cards to keep their organizations running smoothly. A 2018 survey by Visa found that 70% of small businesses use a credit card for business expenses, while 53% of small businesses use business credit cards on a regular basis.
But despite this widespread usage, business owners still find ways to get into trouble with credit cards, says David Bender, president of Expedia Cash, a New Orleans-based ATM sales and service company. “In my opinion, businesses basically use credit cards the wrong way — as consumers do,” he says.
Bender, who worked as a banker for 14 years and who has been in the payments space for more than two decades, says correctly using a business card “is a way of being able to utilize someone else’s money literally for free.”
These three tips can help you maximize your business plastic.
Use It as a Tracking and Reporting Tool
While some business owners use their personal cards for business purposes without running into trouble, Bender says mixing up work and personal use often causes complications for a company’s accounting and tax reporting. “When you start mixing the money together, that’s when you start having problems,” he says.
“If you can use it for the business and pay it off at the end of the month, it’s a great tracking tool for any type of information you may have to look back on, like an IRS audit,” he says.
“Especially nowadays with technology, when you get your credit card end-of-the-year statement, it shows you everywhere you’ve been, and it groups spending for you into different categories. It makes for a very effective accounting system, although you may have to transfer it into QuickBooks.”
Shop Around for the Best Rewards
Rates on business credit cards tend to be below the national average for general-purpose cards. As of October, rates offered online for business cards were around 15.2%, about 2.2 percentage points lower than the national average for all cards.
Some cards, such as the Brex Corporate Card for Startups, offer no annual fee, while others, such as the Business Platinum Card from American Express, charge big annual fees but offer a host of travel perks and rewards based on your spending.
Other cards offer bonus points for certain types of spending. For example, Chase’s Ink Business Preferred Credit Card offers triple points for certain types of business travel or social media advertising, which can really add up for specific types of companies.
Never Skip a Payment
Unlike personal credit cards, business plastic isn’t bound by the same consumer protections set by the Credit Card Accountability Responsibility and Disclosure Act of 2009, better known as the CARD Act. That means rules that require 45 days’ notice to raise rates or that give 21 days to pay a bill after it’s delivered don’t automatically apply for business cards.
There are other consequences that warrant a closer look by business owners. For example, a WalletHub study found that 38% of business card issuers don’t apply payment amounts above the minimum required to the balance with the highest interest rate — something that’s required for consumer cards.
When it comes to business cards, missing payments or carrying high balances can hit your business with unexpected fees and interest. “The worst thing you can do is charge and carry the balances,” Bender says. If your revenue or billing cycle is longer than your credit card billing cycle, he suggests building in the interest costs in your budgeting.
Finally, Bender urges business owners to remember that even with a business card, it’s almost certainly secured by a personal guarantee. Bender says it can be tempting, especially in a startup, to use a credit card to continue to float a struggling business even after it’s clear things aren’t working, but that can have long-term financial implications for the business owner. “I think that’s just a tragedy,” he says. “A well-thought-out and well-designed business plan will carry you through even a failed business. A lot of people will use that credit card to extend that life when failure is inevitable.”