Owners of small and medium-sized enterprises (SMEs) may require immediate access to funds, but loans don’t always fit the bill. As a result, many businesses rely on credit cards to finance their expenses as lenders tighten their borrower requirements.
Your company credit card can be a useful tool for assisting you in achieving your immediate objectives. But if you misuse it, you’ll end up with a mountain of rising debt. Here are some ways to use your company credit card wisely:
- Establish expenditure caps for each employee
- Use it to increase your company’s credit score
- Deduct interest and yearly costs out of your company taxes
- Use your credit card to pay for big-ticket items to enjoy perks such as cashback and air miles points
- Use it wisely to maintain your cash flow while you wait for payment from your clients
- Finance large expenditures during the initial phase of your business
Pros & cons of a business credit cards
Here are six ways your business can maximise your credit cards for your business expenses:
1. Avoid paying the interest
Banks don’t earn much money from exchange fees but make a lot more when their clients become debt-trapped. Therefore, only use credit cards if you can settle your payment before or by the due date. If you only pay the minimum amount, the interest from your debt will snowball over time.
2. Optimise benefits
Credit cards often offer benefits that conventional financing sources do not provide. These perks include discounts on travel and lodging and favoured pricing for services. Always do your research to see which cards provide the most useful advantages for your business.
A few credit card companies have even started allowing businesses to create their own bonus categories as the competition for business credit intensifies. Find one or two cards that meet your needs to optimise your spending and rack up benefits effectively.
3. Seek out introductory promotions
New consumers are drawn to credit cards by their novel offers. Most credit card companies entice applicants by promising thousands of points for brand-new signups, while some promote zero annual fees. Always read the fine print because every deal has conditions.
You typically have to reach a spending quota within a set amount of time to use racked miles or points. While some offers only ask for minimum spendings, like $3,000 to $20,000 a month.
However, you must beware that a promotion could be terminated abruptly, taking you by surprise. You might be hit with a sizable bill when the introductory offer expires, costing you even more than the initial deal, if your company floats thousands of dollars on a card.
4. Track your financial statements
When using business credit cards, you must pay careful attention to your financial statements. This helps you keep track of your cash flow and gives you an idea of how your business is doing. Every week, go over your books and make a notation of your highest revenue periods. Pick a time when you’ll have more money on hand to settle your credit card bills.
5. Avoid using your business credit card on personal expenses
Using your company card for personal purchases can be tempting. Sometimes, paying your business expenses using your credit card can happen accidentally. This makes it challenging to keep track of your costs and revenue during tax season. Be disciplined with your credit card usage, and you’ll save yourself the trouble when tax season comes around.
6. Change credit cards with caution
Credit card hopping is when you switch credit cards to take advantage of benefits or rewards, such as cashback or zero-interest periods. Opening a new card account allows you to take advantage of introductory deals, which are frequently only available for new applicants.
Before selecting a card, you must do extensive study on it. Additionally, be sure to pay close attention to annual and transfer fees. Think about whether the shift is truly worthwhile. There is little benefit if you switch cards to obtain rewards points you won’t use or a reduced introductory interest rate even though you pay off your cards before interest starts to accrue.
It’s not a good idea to change to new cards frequently because doing so will decrease your credit score. It’s best to refrain from applying for multiple credit cards if you intend to apply for a sizable loan in the near future and want your credit score to be as high as possible.
Credit cards have many benefits, but if they are misused, they can rapidly become burdens. Unlike other financial funding sources, credit card interest rates are frequently very expensive, which means you risk spending more than your business makes if you aren’t careful. When circumstances are tough, using high-interest credit cards could make things worse for your company finances.
However, for prudent borrowers, credit cards offer many benefits. A developing business can benefit from brief windows of opportunity by using cash back, interest-free periods, and 60-day floats. Spend some time learning the ins and outs of your credit cards to make the most of the benefits and avoid the downsides.