Essential business credit card tips
Discover essential business credit card tips for small business owners to maximize rewards, manage expenses efficiently, and build strong business credit.
Over 190 million consumers in the US use a credit card, and small business owners should too.
Credit cards have a lot of benefits. They are fast and convenient, extending credit for purchases that would otherwise be out of reach. Rewards and points offered by credit cards sweeten the deal, putting real value in consumers’ pockets (over $40 billion in 2022).
However, accepting credit cards is only half the story for business owners.
Small businesses can also leverage business credit cards to pay business expenses and enjoy many of the same benefits as consumers do, such as convenience, ease, and rewards.
Credit cards can even help business owners finance the launch or expansion of their business when other sources of financing are not available. In fact, 44% of businesses have used credit cards for financing or to improve cash flow.
Credit cards are much more than just a piece of plastic in your wallet — they’re an incredibly powerful business tool. Like most tools you use in your business, there are also costs (often high) associated with using or accepting credit cards. But in comparison to the benefits you receive, you’ll find those fees are well worth it.
It’s time for you to become a power user of credit cards in your small business. Here’s what you need to know.
Accepting credit cards
Every business should accept credit cards – period.
In business, you have two primary goals: making sales and getting paid for those sales.
Accepting credit cards helps you do both.
Making sales: give customers an easy payment method
Customers love using credit cards. Cash is unwieldy. ACH can be complicated. And some customers don’t even own a checkbook anymore. You never want to lose a sale because a customer prefers, or needs, to pay with a credit card.
Accepting credit cards can give you a competitive advantage, especially in industries that traditionally work with invoices, such as professional services. Clients who appreciate being able to use their credit cards may choose your business over one that doesn’t.
If you’re dealing with a new client or customer, accepting credit cards makes their payment instant and simple. There is simply less time for them to change their mind about doing business with you, and that means more sales.
Getting paid: receive funds much faster
Accepting credit cards ensures you actually get paid. You don’t risk having a customer’s check bounce – or more likely – never arriving. The risk of not getting paid shifts from you to the credit card company.
Invoicing clients can be risky, even when your customer has excellent credit. Businesses may be wasting precious time and money chasing down late-paying customers, or dealing with customers who refuse to pay agreed-upon costs. Credit card protections allow you to avoid these kinds of hassles.
With credit card payments, businesses get the money in the bank fast. Funds are usually available within a couple of days (or less) of the payment. Other payment methods, such as check or wire transfer, may take weeks or even months. That’s a long time to wait, and directly impacts cash flow management.
Accepting credit cards may also help your company’s credit score, which is helpful when applying for loans and financing. Banks like to see cash coming in, instead of just receivables.
Benefits of paying with credit cards
Let’s be honest, we all love ‘free stuff.’ Most credit card companies give rewards based on the amount you charge to the card: airline miles, cashback, points towards hotel stays, gift cards, and purchase discounts. Better yet: in most cases these rewards are not treated as taxable.
Why not pay with credit card and turn business expenses into rewards too?
Business credit cards offer far more benefits than just miles and points. Let’s look at some of them.
- Improved cash flow. When you pay off your balance every month, a credit card is the cheapest line of credit you can get. You have approximately 30 extra days to pay a bill.
- Purchase protection. Credit card issuers set guardrails against fraud and payments disputes, so you get an extra layer of protection. Some credit cards offer warranty protections, such as extending warranty periods or even covering damage or theft for a limited period of time after the purchase.
- Recurring payments. Today most business owners use cloud-based software to run their operations, such as CRM tools or online graphic design tools. They also have telecom and other recurring expenses. These bills can be set up on autopay charged to a business credit card, so payments are always on time and services are never interrupted.
- Less paperwork. Writing and sending checks can be a hassle. Paying by credit card is fast and easy.
- Tracking. Credit card companies track your expenses a whole lot better than you probably do. Sign in to the online portal of your business credit cards, and you’ll likely find a ton of tracking tools enabling you to see how and where you’ve spent your money. These tools will save you time when preparing your taxes as well as give you more insight into, and control over, spending.
- Back-up for disputes. If you end up in a dispute with a vendor, you have more leverage when you’ve paid with a credit card. You can challenge the charges with the credit card company. This doesn’t mean it’s going to be resolved in your favor, but you have no recourse at all if you’ve written a check or paid via ACH.
- Improved credit score. Managing a business credit card well can significantly improve your credit score and available credit. Generally, business expenses are higher than personal expenses. Charging them – and paying them off on time – is likely to boost your creditworthiness
If you’re wondering, “what can I use my business credit card for?”, the answer is almost everything. This includes office supplies, utility bills, mobile phone bills, subscriptions, business lunches, employee gifts, travel expenses, gas for company cars… the list goes on.
By using your credit card for every possible business expense, you can maximize your rewards, enjoy extra protections, and improve your cash flow and business credit score.
Having said that, all good things come with a downside. It’s essential to know how to use a business credit card properly, so you maximize the pros and minimize any drawbacks.
Business credit card tips
There are two major traps of credit cards that businesses can easily fall into.
The first is overextending your credit and struggling to pay off the balance on time. The second is accidentally using it for personal expenses.
Here are some tips to avoid those traps and get the best out of your business credit card:
Don’t overplay, or underplay, your credit hand
Start by asking yourself, how many business credit cards should I have?
The answer will be different for every business, so there is no set number. Having one credit card may be enough for a freelancer or solopreneur.
For small to medium businesses, having multiple cards increases available credit and financing options, and lets you provide employees with their own credit cards.
Rather than focusing on the number of cards, make sure that each business credit card you use serves a clear purpose and gives you the maximum cost/value benefit.
Set clear rules
Without setting clear guidelines, credit card usage can get out of hand. So, set clear rules for all employees who have access to it and follow them yourself.
Decide which expenses the company’s credit cards can be used for and set upper limits on card charges. Put the policy in writing and ask relevant employees to sign it. Provide each cardholder with a copy to use for reference.
Setting clear rules will ensure everyone, including you, adheres to the company’s budget.
Track expenses
The set-it-and-forget-it attitude doesn’t work with credit cards. You should periodically track the expenses made using the company card by going through the online statements provided by the credit card company.
Tracking your business expenses will help optimize your budgeting and tax preparation, and promptly identify fraudulent activity.
Monitor credit utilization
Credit utilization determines how much of your available credit you’re using, and it’s a good idea to keep it within 30%. If your credit utilization gets higher than that, your credit score may take a hit.
Make timely payments
Timely payments on your credit card can save you serious money on interest charges and penalties. Also, by paying on time, you’ll boost your business’s credit score and establish a good credit history.
If you find yourself struggling for any reason, don’t wait to seek assistance. There are debt relief options, such as debt consolidation, that can help you pay off your credit card debts and get back on track.
Familiarize yourself with reward programs
Earning rewards feels great, but you should also know how and when to use them.
Some cards, like cashback cards, give the reward instantly. Others have a threshold requirement, such as minimum monthly spend, which you must achieve in order to receive the reward. Points expire if they are not used within the specified window. Some card issuers partner with specific brands or businesses, so you only benefit from cardholder discounts if you purchase from those stores.
All these terms and conditions can be tiresome, but you need to know the details of your card’s reward programs to maximize the benefits.
Deduct your credit card’s extra expense from your taxes
You can deduct any credit card interest, annual fees, and late charges from your business’s taxes, as long as the purchases are business-related. When tax season comes around, make sure to take advantage.
Some ground rules for being a power user of credit cards
It’s time to lay down the business credit card rules for small business owners. By following these rules, you can leverage maximum power from your credit cards while minimizing your risk exposure.
- Use separate cards for business and personal expenses. While some business owners pay business expenses on their personal credit cards, it is not recommended. Mixing business and personal payments can cause complications during tax season, and makes it harder for you to track and maintain your business finances. If you don’t absolutely have to, then don’t!
- Pay off your balance every month. Interest on credit card debt is high. Credit cards are not a way to spend more than you can afford. They’re a tool for cash flow management. Try to always pay the full balance as soon as you can.
- Watch those cash advances. You can use a credit card for a cash advance if necessary. Just be careful as they tend to have high costs or interest rates.
- Don’t use all your available credit. Your credit score is based, in part, by how much credit you use compared to how much you have available. As you increasingly use your credit cards, you can ask for higher credit lines. But don’t use it all!
How to choose a credit card for your business
There are many business credit cards on the market, and each provider will promise you that theirs is the best. If you’ve decided that a business credit card is the way to go, here are some tips and guidance about how to choose the right one.
Credit cards: The tool your small business needs
Is a business credit card worth it? Yes! Credit cards are a terrific tool for your small business. You improve cash flow, access financing, and up your business credit score. Enjoy less paperwork, fewer headaches, and reduced risk. Take advantage of rewards and points for personal travel and other fun perks. And best of all, customers can no longer use the excuse, “The check is in the mail”!
No payment method is perfect, though. Credit cards fees and interest charges can be high, and there is always the risk of spending more on credit than your business can afford.
The key is to use your business credit card wisely, with caution and discretion. Track your credit card expenses closely, and make sure you are not overstepping your budget.
Then you’ll minimize the downsides and reap the rewards of business credit cards, in more ways than one!
*This guide is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
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