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The best ways for your small business to use credit cards

A woman working from home pays her small business bills online with a credit card.

Years ago I sat next to a man on a plane who was the founder of a small business. Like many entrepreneurs, he was eager to explain how he got started. Surprisingly, he told me that he’d actually used his credit cards to finance the launch of his first business. He’d been unsuccessful raising venture capital, so with careful use of the credit available to him on his credit cards, he was able to get his first location up and running.

Finance the launch of a business with credit cards? Sounds crazy, but I believed him because I, too, used credit cards to help me grow my small business. We’re not alone – most small business owners use credit cards to start, grow, and run their companies.

Credit cards are much more than just a piece of plastic in your wallet, they’re an incredibly powerful business tool. Yes, like most tools you use in your business, there are often costs 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.

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

Customers love using credit cards. Cash is unwieldy. ACHACHACH is a type of electronic bank-to-bank transfer that goes through the Automated Clearing House network (hence its name). can be complicated. And some customers don’t even own checks. You never want to lose a sale because a customer prefers to, or needs to, pay with a credit card. In fact, being willing to accept credit cards can be a competitive advantage, especially in industries that traditionally have only sent invoices such as business and professional services, because clients appreciate being able to use their credit cards.

If you’re dealing with a new client or customer, accepting credit cards makes payments faster and easier. There’s less time for them to change their mind about doing business with you.

Getting paid

More importantly, accepting credit cards ensures you actually get paid. You don’t risk having a customer’s check bounce – or more likely – never coming. The risk of not getting paid shifts from you to the credit card company.

InvoicingInvoicingInvoicing is the process of billing your customers by issuing an invoice to them for goods sold or services rendered. clients can be risky, even when your customer has excellent credit. I’ve had that happen in my own business, a publishing company. I’ve lost thousands of dollars from very large customers who I’ve either had to chase down for years (due to their administrative snafus) or who’ve unilaterally refused to pay agreed-upon costs.

Not only that, but the money is in my bank fast. When you get paid by credit card, you typically have your funds available within a couple of days. With my other invoices, the average time to receive payment is close to 60 days. That’s a long time to wait for money.

In accounting terms, a credit card sale is considered a “cash” sale. Why? Because you’re not extending any credit to the customer. Stop and think about that for one moment. When you send an invoice, in essence you are lending your customer money until they pay you, without a sure or easy way to collect if they don’t.

Accepting credit cards may also help your company’s creditworthiness, especially if you seek bank financing. Bankers like to see cash coming in instead of receivables.

Benefits of paying with credit cards

I pay for as much as I can in my business with a credit card, and, frankly, if I could, I’d pay for virtually everything that way. Why not turn business expenses into rewards?  

Let’s be honest, we all love getting ‘free stuff.’ Most credit cards give you rewards based on the amount you charge: you get airline miles, cashback, points you can use for hotel stays, gift cards, purchases. Better yet: in most cases those rewards are not treated as taxable. 

You read that right: by using your credit card for business expenses, you turn a tax deductible spend into a non-taxable benefit. You can earn that family trip to Hawaii by using your credit card for business expenses. Cool!  

But paying by credit card has far more benefits than just miles and points. Let’s look at some of them. 

  1. 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 about an extra 30 days to pay a bill. 
  2. Purchase protection. I use one of my credit cards that has ‘purchase protection’ to buy every piece of office equipment. Such protection typically doubles your warranty, often to a year. Some even offer protection from any kind of damage or theft for a limited period of time after you first buy it. When one of our printers broke 20 months after we bought it, my credit card company reimbursed me the cost. 
  3. No missed payments, no late fees, no service interruption. Today most businesses use many cloud-based systems to run their companies. They also have telecom and other recurring expenses. I have all these bills set up on autopay charged to my business credit card. I never have to worry about missing a payment, incurring fees, or interrupting services.  
  4. Less paperwork. Handling invoices and writing and sending checks can be a hassle – and costly. Paying by credit card is fast and easy. 
  5. 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 online 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 and control over spending.
  6. Back-up. 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.
  7. Improved creditworthiness. Managing a business credit card well can significantly improve your creditworthiness and credit available to you. Generally, business expenses are higher than personal expenses. Charging them – and paying them off on time – is likely to give you higher credit scores.

Some ground rules for being a power user of credit cards

Let’s lay down the rules for using your credit card for your small business needs:

  1. Use separate cards for business and personal expenses. You can have a number of credit cards, just be certain to use each card exclusively for business or personal expenses. Don’t mix them! 
  2. Pay off your balance every month. Interest on credit card debt is high. Credit cards aren’t 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. 
  3. 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.
  4. Don’t use all your credit available. Your credit score is based, in part, by how much credit you use in comparison 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! The 4 top tips for using a credit card for your small business

The tool your business needs

Credit cards are a terrific tool for your small business. You improve cash flow and up your creditworthiness. You’ve got less paperwork, fewer headaches, and reduced risk. You get rewards you can use for personal travel. And no customer can use the excuse, “The check is in the mail.”

Rhonda Abrams is one of America’s leading small business experts. Her business plan guide, Successful Business Plan: Secrets & Strategies, was named one of the 100 best business strategy books of all time. She has also started, built, and sold four businesses. She was educated at UCLA and Harvard University and lives in Palo Alto, CA.

*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.