A business credit card is a common purchasing tool for companies. Regardless of how you feel about it, credit card debt does not have to drag your company under. At least, this is true if you know how to manage it properly.
Although we do not want to admit it, debt is constant in any business. It is the norm to borrow money in order to get the company going. People start their business by getting loans to use as their capital. Naturally, you can expect that it will continue to be present while the company is growing. In fact, entrepreneurs use it to help grow their businesses.
A credit card is one of the ways that businesses stay in debt – and that does not necessarily have to be bad. When your business is in debt, that does not mean it is failing. As long as you can afford to pay back these loans, your company will stay afloat.
The truth is, there is hardly a company that functions without at least one business credit card. That is not to say that it is a necessity in any business. However, there are benefits to having a company credit card.
According to the study done by NSBA.biz, 3 out of 10 companies have admitted to relying on a credit card to meet a capital need in the past 12 months prior to the study. The first option of companies is to use a bank loan. The second option is the past earnings of the business. The use of the company credit card comes in third place.
Obviously, entrepreneurs find that the use of credit cards make things more convenient because it gives them access to funds that go beyond their actual cash. Even if they do not have enough cash on hand, it is possible for them to make a purchase. This is a good thing because the flow of the business will not be compromised just because the company finances are held up at collections – which could happen time and again.
4 ways your credit card can be an asset for your small business
As mentioned, a business credit card is something that can benefit you if you know how to use it properly. There are 4 specific ways that a credit card can be used to help keep the company afloat – especially during the first few years of its existence.
It helps you monitor your overhead expenses.
When you put all your business expenses on your credit card, you can easily monitor where it is going. At least, this is true if you have only one business credit card. It will be easier for you to generate a report regarding all your expenses. This makes it easier to file your taxes. Not only that, if you make your other employees an authorized user of the account, you do not have to be bothered with reimbursements. There are accounts that will allow you to have multiple holders and you can even assign spending limits for each. It will be easy for you to monitor even their expenses and see if there are transactions that you did not authorize.
It enables the company to build up its credit history.
Another thing that a business credit card can help with is building up the company’s credit history. This is especially helpful for new businesses. A credit history is necessary for you to prove your business creditworthiness. Sometimes, their lack of credit use leaves them unable to borrow money for bigger expenses. Once you have established a credit history, you can easily be eligible for a loan and you could even qualify to get it with a low interest. When you have a credit history, bankers, creditors and lenders can look at this report to see how you manage your credit. If you can successfully show your good credit behavior, you can convince them that you are a low-risk borrower and that will give you access to low-interest loans.
It gives you easy access to credit.
A credit card is one of the easiest ways to get credit. You only have to apply for it once. As long as you keep the balance from reaching the credit limit, you can continue to use credit for purchases and expenses. It is not like business loans wherein you are at the mercy of the banks and lending companies. If they do not approve of your application, you will not have the capital to finance the expansion or growth of the company. That could hinder you from the possibilities of increasing your profit. With a credit card, this does not have to happen. As long as you have enough room before you reach the credit limit, you can borrow money through your card. If the credit limit on the card is $10,000 and your balance on that card is $2,000, you have access to $8,000 worth of credit.
It provides you with rewards.
Just like with personal accounts, a business credit card will allow you to enjoy rewards. An article published on NerdWallet published the story of Betabrand, a clothing retailer that successfully uses the rewards of their credit card. Instead of using the profit from the company, they are using earned points to reward a deserving employee and make them feel appreciated. What the company does is to put their expenses on credit cards with high reward points. This allows them to earn the points for expenses that they require to run the business. It is a win-win situation for everyone. If you learn how to utilize the rewards on a business card, you can save a lot of money and at the same time, improve the benefits of those working with you.
All of these benefits prove that a business credit card can help you manage your finances in the company.
Tips to use your company credit card wisely
Based on the book written by Ralph E. Warner & Bethany K. Lawrence, 4 out of 10 businesses admitted that they used a business credit card to help meet a capital need. At least, this is true in the past 6 months since the poll as done. This data is further discussed in their book entitled, Save Your Small Business: 10 Crucial Strategies to Survive Hard Times or Close Down & Move On.
Since you will probably use a business credit card to manage your expenses, make sure you learn how to manage it properly. Although a credit card can help you run your business, it is also powerful enough to destroy it. If you are not careful of your credit use, the debt that it will accumulate can put your company under. To keep this from happening, here are some tips that you should follow:
- Identify the expenses that can be paid through the card. You need to create a guideline and the rules that will help you and your employees use the card. For instance, the card should only be used to pay for travel expenses and food. Or you can use it only for office supplies and not for food. When you have set the rules, make sure everyone follows – no exemption.
- Set a spending limit. It is more difficult to save on overhead expenses if you use credit cards for your purchases. However, if you set a spending limit, you can control it. As mentioned, there are credit card companies that allow people to set spending limits. Take advantage of this feature so you can keep the business from overspending.
- Make sure you pay on time. This is a rule that works for all types of credit cards – business and personal. You need to make sure that your payments are paid on time. If not, you could waste money paying for finance charges and other fees that you can easily avoid.
- Maximize the rewards of your card. If you fail to use the rewards, you could be losing money too. Think about the rewards and make sure these are also included in your financial plans. That way, you will not miss out of the freebies.
- Use the interest and fees as a tax deductible. Another thing that you need to remember is to use the interest and fees on your business credit card to increase your tax deductibles. Inform your in-house accountant or the one that you will hire to do the job. This will help lower the money that is being spent on the business and increase its profit margin.
Follow these tips to keep the credit card from ruining the finances of the company. If you do it well, you can utilize this purchasing tool to give your business the credit boost that it needs at the right time.
