Credit cards can be an important source of company financing — they can provide capital on demand and help manage cash flow. Plus, “using a credit card with cash-back rewards can help you grow your business in the long run,” says Barry Choi, personal finance expert at MoneyWeHave.com.
But you need to be careful about how you use your card, since there are instances in which you could be held personally liable. It’s important to make sure you’re maximizing benefits and steering clear of risks.
Here are five smart ways to use your business credit card.
Before signing up for the first offer that crosses your desk, investigate various cards and programs to find one that meets your business’s needs. Some cards offer easy management for companies that will distribute cards to a number of employees, and others may offer better benefits for companies that will have only one or two cardholders.
A number of business credit cards offer lower APRs and more flexible payment plans than personal cards, allowing business owners wider access to funds, says Kelly Firment, director of affinity management at Bank of America. Many business cards also have added features and benefits, such as employee cards, cash back, travel incentives, and business expense tracking.
Some of the best business cards include the Capital One Spark business card, the Chase Ink Plus business card, and the Starwood Preferred Guest business card, according to Value Penguin.
Firment recommends comparing cards’ monthly fees, interest rates, and benefits to find the one that offers the best return on features you will use most. “For example, if you travel often, find a card that provides extra cash back on travel expenses and provides added perks, such as preferred seating or a concierge service that helps with booking flights and hotels,” she says.
Who Gets a Credit Card?
Not every employee needs a company card. Those who are regularly reimbursed for large business expenses — like sales representatives who regularly book business travel — are likely the ones who need access. “The last thing you want is to be spending all your time reimbursing employees; that time could be spent growing your business,” Choi says.
To determine whether an employee should receive a card, ask yourself:
1. Does this person make regular purchasing decisions (such as a lead software engineer or VP of product)?
2. Is this person frequently out of the office seeing clients (such as a relationship manager or salesperson)?
Provide a clearly written policy guiding employee use of the card. Many cards allow business owners to set credit limits for employees. Set limits based on the purchases you expect each employee to make. For instance, a business that has delivery drivers can give their employees a fleet (or fuel) card that caps fuel usage by monitoring gallon intake, says Vito Pagano, CEO of IMG Merchant Services Auditing, an auditor of merchant services providers.
Providing cards to employees can also offer “a convenient way to cleanly track and manage expenses,” Firment says. “It saves employees the burden of having to personally front costs until they are reimbursed. If you have a small team of trusted employees who are often being reimbursed for business expenses, providing business credit cards is a good solution.”
Use Cards Regularly — and Pay On Time
As long as you pay your credit card balance each month, using your business card for all major purchases is a smart strategy. That way you can get purchase protection, extended warranties, and rewards.
“AmEx used to be the leader, but MasterCard (e.g. MasterCard World Elite) and Visa (e.g. Visa Signature) have caught up,” says business owner Karan Goel, CEO of GetSet.com. “Check the terms and conditions and be sure to use the right card, especially for electronics/hardware purchases where the card can add to your warranty for free.”
Use Cards to Manage Cash Flow
Small businesses often have challenges with inconsistent cash flow, and business credit cards can help. “Businesses with limited cash flow [can] make credit card purchases to fill reorders, to help keep their business alive,” Pagano says. “If a business had to pay with cash only, then they would never have enough lead time to serve repeat customers.”
In addition, when you pay with a credit card, you have extra time before you actually have to pay the credit card issuer. Some card issuers offer business-friendly payment terms, such as discounts for paying a balance early or an option to defer payments when needed.
But even if you’re using a credit card to improve cash flow, “don't use cash withdrawals, as interest is charged right away,” Goel says. “And don't buy things you really can't afford unless you have absolutely no other way of financing them, because late payments can end up hurting the business owner's personal credit.”
Hopefully you’ve chosen a business credit card that offered sign-up bonuses in the form of points, miles, or cash back. In addition to using those perks, maximize the rewards offered for spending, Steele says. For instance, there are several business credit cards that offer bonuses for purchasing office supplies, telecommunications services, and travel. And keep in mind: When employees make purchases with their authorized cards, you can still receive the purchase rewards as the primary account holder.
By using the right credit card mix, you can make the most of your rewards and use them for business gifts and personal splurges. Through his businesses, Goel has earned millions of miles from credit cards and has used them to reward his employees (and himself) with free trips.