Do you and your employees use a business credit card for business expenses and purchases? Are you besieged by banking product offers, but not sure which one to choose?
Many small business owners enjoy the benefits of using a business credit card. This is an easy way to separate business expenses from personal expenses while closely tracking total expenses. In addition, these cards offer revolving credit to cover larger or smaller expenses that may arise from time to time, such as the purchase of new equipment or repairs in the office. If you pay off your balance quickly, your small business will build a good credit reputation, which will make it easier to obtain future loans or funds.
Business credit cards are also a convenient way for employees to pay for travel expenses or hospitality expenses incurred with clients. Additionally, some cards are made even more attractive by offering welcome bonuses and rewards programs, including the chance to earn cash back or airline miles.
But just like personal credit cards or other sources of financing, business credit cards are not without risk. Their interest rates may be higher than those of personal cards and their liability protections less comprehensive. Annual fees and interest can undermine savings from rewards programs. It is therefore essential to control your expenses and monitor credit charges in order to preserve the financial health of your small business.
If you’re considering applying for a Business card or are unsure if you’ve made the best card choice, here are a few things to consider.
Avoid accumulating a balance
As a general rule, don’t use your credit card for purchases that you can’t afford to pay when due. You’ll probably get a better interest rate with a loan or line of credit than with a card where you only pay the minimum amount. Remember that the interest you pay only eats away at savings from cash back or loyalty programs. Not to mention that credit difficulties due to your Business card could tarnish your personal credit rating.
Demand transparent accounts
First and foremost, you need to ensure that your company credit cards are used for relevant expenses. Before issuing cards to your employees, even those in high positions, establish a rigorous system of verification and authorization of expenses. Assign credit cards according to clear rules to avoid jealousy between employees. Finally, configure your text or email accounts (or those of your accounting department) to receive a notification whenever an unusual or unauthorized transaction is made. And upon receipt of monthly statements, ensure that all purchases are vetted and duly authorized.
Opt for a rewards program adapted to your expenses
Many business credit cards are aimed at travelers and offer cash back on flights, car rentals, fuel, hotels and food. Others are better suited for sedentary employees and offer discounts on office supplies and internet or mobile phone bills. If your job requires frequent travel, it may be a good idea to opt for travel cards. Try to find one that also offers travel insurance, access to airline VIP lounges, and upgrade service on flights and car rentals.
Consider Passing Rewards and Benefits to Your Employees
If your small business accumulates a lot of points from credit card spending, you might consider redeeming them for a reward trip for one of your employees. This trip could be granted to him as a performance bonus or on the occasion of a convention or a training activity held in another city. Some cards offer different types of benefits, such as entertainment or merchandise that you could give to your employees to thank them for their services.
Before you even receive your new credit cards, you need to set clear spending limits. Some cards allow you to set an individual limit for each employee or sometimes even restrict certain types of expenses such as gas and hotels.
Don’t skimp on safety
Make sure that all employees to whom you issue a business credit card are informed of the security measures to be observed. Take steps to ensure that account numbers and PINs remain confidential. Encourage your employees to be extra careful when entering their data online. Ask them to check if the site is secure and avoid suspicious sites that might be targeted by hackers.
Read all terms carefully
Before applying for a credit card, make sure you fully understand all the terms of the offer. For example, some cash back rewards are only granted after a certain amount. In other cases, you must spend a minimum amount within a given time frame to qualify. The cash back rate sometimes varies depending on the type of spend made. So the great rate that caught your eye may only apply to fuel or hotel expenses. Also, some cards offer longer interest-free periods, such as two months rather than one to pay off your balance. Beware of cards with variable interest rates and check how your payment habits will affect the rate applied.