Business credit cards offer one of the most convenient ways for your company to borrow money for goods and services without having to have your purchases scrutinized by a lending institution. Best of all, the revolving credit offered by your card means that as long as you pay off your card on a regular basis, you will always have access to a certain amount of money.
But like all forms of debt, business credit cards have downsides and come with fine print that can leave an unprepared business spending far more money than they should. Below, we’ll explore some of the do’s and don’ts of business credit cards.
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Be Aware Of Terms & Fees
Credit cards come with a lot of fine print detailing everything from introductory APRs to how your reward points are calculated. The more transparent carriers will take pains to make you aware of the important details, but beware of asterisks lurking near numbers. Business credit cards don’t have as many protections as personal credit cards, so you’ll want to know if (and when) your carrier can raise your interest rates.
Choose The Type Of Rewards That Best Suit Your Business
Perks are a big part of what distinguishes one business card from another. With some rare exceptions, perks fall into one of three categories:
- Money Back: For every x amount of money you spend on your credit card, you’ll get a percentage of the expenditures back as cash. Depending on the carrier, this money may be returned as a check, a bank deposit, a gift card, or credit to your account.
- Rewards: This is a catch-all for a number of different reward schemes, where you’re credited x number of points for each dollar you’ve spent. These rewards can be redeemed for goods and services from selected vendors.
- Mileage: If you do a lot of long-distance traveling, some business credit cards use frequent flyer miles as rewards. As with the other types of rewards, you’ll earn x number of miles for each dollar you spent.
Be Aware Of Reward Tiers
As important as selecting the right reward type for your business is understanding how to maximize your rewards. Rewards are usually broken up into two or three tiers (although some don’t have tiers). In most cases, the tiers correspond to the multiplier applied to each dollar you spend. You may, for example, earn 3 points per dollar you spend at restaurants, 2 points per dollar you spend at gas stations, and 1 point for each dollar you spend on other purchases.
Ideally, you’ll want to use your card for purchases that earn you the most reward points.
Calculate The Earning Potential Of Your Card
An easy way to figure out which card is best for you is to break down your monthly credit spending into categories like travel, telecommunications, and office equipment. You can then choose a card that will give you the biggest return on your expenses.
Create A Credit Card Policy If Your Employees Will Be Using It
Since business credit cards are for business expenses, the owner isn’t necessarily the only person who will be using it. You’ll want your employees to be aware of how and when to use the card, and how to maximize its value.
Pay Too Much In Annual Fees
One of the easiest business credit card fees to avoid is the annual fee. Unlike most personal credit cards, business credit cards frequently require a yearly fee to keep active. These fees usually range from ten to a few hundred dollars. Many cards will waive the first year’s fees, so make sure you know what you’ll be paying over the long term.
Leave Balances On Your Card Longer Than You Have To
You can file this under general credit card advice, but it’s worth remembering: the longer the cost of an item remains on your credit card, the more that item effectively costs. Why would you pay a higher price than you have to? And best of all, you’re still earning rewards!
Use Your Card Recklessly Just To Earn Rewards
As nice as the rewards are, they can be a trap if you adopt the wrong mindset. Running up unmanageable balances in the hopes of maximizing your rewards points will leave you with a net loss.
Use Your Business Card For Personal Expenses
You won’t get in trouble for it, but it’s a best practice to avoid mixing personal and business expenses. At best, it’ll complicate your bookkeeping. If you’re running a small sole proprietorship with minimal expenses, you may want to just use your personal credit card.
Ignore Prerequisites For Sign-Up Bonuses
Many business credit cards offer sign-up bonuses. In most cases, you’ll need to spend a minimal amount of money before those sign-up bonuses kick in. Factor them into your calculations.
A business credit card can be a powerful tool for your business. For a side-by-side comparison of popular cards, check out our 2018 business credit card feature.