Business credit cards offer flexibility, convenience, rewards and security. They have become a must-have in every business manager’s toolkit.

But you might have heard they are tricky to use well and even risky for your business’ credit score and spending habits.

Despite their reputation, often linked to debt, these cards offer perks which might save your business substantial amounts of money if used properly.

In this guide, I’ll explore the benefits, best practices, and warnings that surround the use of credit cards in business and explain why your business should absolutely use one.

Business Credit Cards – Understanding the Basics

Business credit cards, much like personal credit cards, offer a revolving line of credit with a set limit, allowing you to make purchases and withdraw cash up to that limit, but they are specifically designed to meet the unique financial needs and challenges of businesses:

Higher Credit Limits – You will usually get higher credit limits on business cards, enabling your company to manage bulk purchases and larger expenses.

Tailored Rewards – Business credit cards frequently come with rewards that are targeted at business expenses, such as office supplies, travel, or telecommunications services.

Detailed Reporting – Most business credit cards offer more detailed transaction reports and will help you keep track of your business expenditures. This can be really helpful during tax season or when reviewing company finances.

Additional Cardholders – The majority of providers let you issue additional cards to employees, and set individual spending limits and track each card separately.

How Do Business Credit Cards Work?

Application Process – To get a business credit card, you must submit an application to the card issuer. This usually involves providing details about your business, such as its type, annual revenue, and Unique Tax Reference number (UTR).

Interest & Fees – If the card balance isn’t paid off in full each month, interest will accrue on the remaining amount. Rates can vary based on the card and the creditworthiness of your business. There might also be other fees, like annual fees, cash advance fees, and late payment fees.

What are the Benefits of Business Credit Cards?

Business credit cards come with some very interesting advantages and rewards for your business, no matter how large.

Financial Flexibility – One of the most obvious benefits of a business credit card is financial flexibility. This can either be an amazing lifeline in case of unexpected expenses or an easy financing tool if you see a unique investment opportunity but don’t immediately have cash available.

Enhanced Expense Tracking and Management – Business credit cards often come with advanced features designed specifically for expense tracking and management. These usually take the form of monthly statements categorising expenditures to integrations with accounting software to mobile apps that allow real-time tracking of expenses.

Rewards and Incentives Tailored for Businesses – These cards’ rewards and incentives align more closely with typical business habits. Cashback on office supplies, bonus points for travel or dining, or discounts with specific vendors can add up and save your business significant amounts of money over time.

Strengthening Business Credit History – Your business, too, has a credit history that your lenders and suppliers often review. Regularly using and promptly paying off a business credit card can be a great way to build and maintain a strong business credit score.

Business Credit Cards – Addressing Common Concerns

Let’s address some common concerns businesses have about using a credit card.

Do Credit Cards Encourage Overspending?

While credit cards do offer the convenience of buying now and paying later, they do not inherently promote reckless spending. Just like with personal finances, responsible management of business credit cards requires discipline and oversight.

Do Credit Cards Always Lead to Debt?

Not necessarily. When managed properly, a credit card is simply a tool for streamlining transactions. The key is to pay off the balance in full each month to avoid accumulating interest.

Do Business Credit Cards Have Hidden Fees?

While some cards may have fees, they aren’t “hidden”. The terms and conditions, which one should always read before acquiring a card, clearly list any potential fees. Many business cards also offer zero annual fees.

What are the Risks of Using a Personal Card for Business Expenses?

When managing a small business, it can be tempting to use your personal card for business expenses. But over time, this might bring more complications than perks.

Complicated Bookkeeping – When personal and business expenses are mixed, it becomes challenging to discern which expenses were for the business. This can make preparing financial statements and tax returns more tedious.

Missed Tax Deductions – Without a clear delineation between personal and business expenses, you might overlook legitimate business expenses that could be tax-deductible.

Personal Liability – If your business is structured as an LLC or corporation, mixing expenses could pierce the corporate veil, making you personally liable for business debts.

Impact on Personal Credit – Using a personal card for business can impact your personal credit score. If the business has a large expense or a bad month, it could harm your personal credit.

How to Manage and Avoid Credit Card Debt?

Pay in Full – Always aim to pay off the full balance each month. This not only avoids interest but also builds a positive credit history for your business.

Set a Budget – Have a clear budget for your business and stick to it. Knowing your limits will prevent overspending.

Regularly Review Statements – Monitor your credit card statements monthly. This helps in catching any unauthorised transactions and better understanding your spending patterns.

Use Alerts – Many credit card companies offer customisable alerts for spending thresholds, payment due dates, or when you’re nearing your credit limit.

Keep a Cash Reserve – Having a cash cushion can help you avoid relying too heavily on your credit card, especially during lean times.

Understand Interest Rates – If you ever do carry a balance, be fully aware of the interest rates. Some cards offer low introductory rates that can skyrocket after the initial period.

How to Use a Business Credit Card Effectively

Managing Credit Card Expenses and Payments

Set Clear Expense Policies – Clearly outline which expenses can be charged to the business credit card. This ensures that the card is used only for legitimate business expenses and prevents any confusion or misuse.

Categorise and Track Spending – Regularly review statements and categorise expenses. This not only aids in accounting and budgeting but also allows you to identify spending trends.

Timely Payments – Always pay the credit card bill on time. This not only avoids late fees but also ensures a good credit score for your business. Automated payments can help in ensuring you never miss a due date.

Maintain a Low Credit Utilisation – Try and use less than 30% of your credit limit. A high utilisation ratio can negatively impact your business’s credit score.

Maximising Rewards and Benefits

Choose the Right Card – Research and choose a card that aligns with your business expenses. If your business involves frequent travel, opt for a card that offers travel rewards or airline miles. If you have high office supply expenses, look for cards that offer cashback.

I would advise you to take a look at Capital on Tap if you’re looking for outstanding cashback and rewards.

Understand Reward Structures – Some cards have rotating categories for rewards, while others have a flat rate for all purchases. Know your card’s structure and capitalise on its benefits.

Redeem Wisely – Regularly check the rewards points and redeem them before they expire. Ensure that you’re using them in a way that offers the best value to the business, be it through travel, cashback, or purchasing supplies.

Reducing Misusages and Abuses

Regularly Monitor Transactions – Regularly check statements for any unauthorised transactions. If something looks suspicious, report it immediately.

Limit Employee Access – If multiple employees need to use the card, consider getting additional cards with set limits. This way, you can control the spending of each card and ensure that it isn’t misused.

Update Passwords and PINs – Regularly update online banking passwords and card PINs to avoid unauthorised access.

Enable Alerts – Many banks offer transaction alerts. Enabling this feature can notify you of large or unusual transactions, helping you catch any misuse immediately.