Using business credit cards wisely: Tips for effective management

Using your business credit cards responsibly is an important aspect of business financial management. That includes choosing the right cards during the business credit card application process and maximizing your card’s benefits. These and other responsible credit card practices can help you streamline cash flow.

Understanding business credit cards

Business credit cards are issued to companies, not individuals. Ideally, you’ll want your card under your EIN rather than your Social Security number, but the credit card issuer may check your personal credit if you’re the primary account holder. Your corporate credit card policies should state whether additional cardholders or users will be allowed on the account.

Credit cards can provide your company with business tax benefits. Since the card will only be used for business expenses, all business credit card fees, finance charges, and interest are tax-deductible. You can use credit card accounting integration and expense tracking to keep on top of those deductions.  

Business cards also typically have higher spending limits than personal credit cards. Some might offer miles or cashback business credit card rewards programs, which can be valuable financial tools for businesses looking to save on travel expenses. The next section will explore how to compare these features and programs.

Choosing the right business credit card

So what should you focus on when choosing a business credit card? One important aspect should be a rewards programs, which can be a valuable credit card cash flow management tool. Along with security measures, rewards should be one of your first concerns when comparing business credit cards.  

Rank rewards programs based on your business priorities. Air miles don’t benefit your company if no one in the company travels. The same rule applies to cards that offer discounts on hotels and rental cars. Cashback credit cards, on the other hand, are universally useful. Everyone likes to see a few dollars coming back when they make a purchase.

You might think interest rates and fees should be your top focus when choosing a new business credit card. While these shouldn’t be ignored, they’re both tax deductible—which makes them lower priority. Also, if you’re able to pay the full card balance every month, you can avoid paying the high annual percentage rate (APR).

However, you should consider how interest rates and fees might contribute to (or detract from) building your business credit. If interest rates are high, you’ll want to pay the full balance every month. If fees are high, they may limit your cash flow. Your business credit rating will suffer if you struggle financially, so keep costs down as much as possible.

Benefits of using business credit cards

When used properly, business credit cards can have a variety of benefits. It’s all about understanding how to use debt to improve cash flow. For instance, paying a monthly subscription with a credit card keeps those funds in your business checking account until you pay the monthly credit card bill. That delay helps improve your liquidity—and lets you keep earning interest on your business checking balance if your account offers high annual percentage yield (APY).

Another example is using your credit card rewards. Buying a plane ticket or renting a hotel room with the points or miles on your card eliminates the need for the business to pay, and doing that frequently can create significant savings. Managing corporate credit this way increases your profitability, making your investors and shareholders happy.   

Finally, remember that many people don’t carry cash, and paper checks are becoming less common. Using a business credit card is more secure and welcome at most locations, including with vendors that look for online bill pay. The credit card fraud prevention techniques that modern financial institutions use make credit cards one of the safest ways to do business.

4 strategies for effective credit card management

There are some best practices to follow if you’re managing credit card usage within your company.

Pay your bills on time, as late payments incur a fee, and be cautious about issuing cards to your employees. Most banks and credit card providers allow you to create virtual card numbers your people can use for specific purchases. Only you and your partners should have physical business credit cards.

1. Pay off your entire balance every month.
2. Keep your spending under 30% of the card’s limit.
3. Use the card only if you have cash in the bank to cover the purchase.
4. Avoid applying for multiple business credit cards at the same time.

Maintaining a healthy credit score

Businesses have credit scores, issued by Experian, Equifax, Dun & Bradstreet, and FICO® Small Business Scoring Service (SBSS). The first three are considered the three “major” business credit bureaus, which score businesses on a scale of 0 to 100. FICO® uses a scale of 0 to 300, which is popular with SBA lenders.

Properly managing your business credit card is a good way to build and maintain a healthy business credit score, but there are other things you can do to supplement this score. For example, responsibly taking out a business loan or line of credit and making consistent, on-time repayments can help strengthen your business credit. You can also grow and scale your company, as the business credit bureaus look at the number of employees and challenges in your industry when calculating credit scores.

Integrating credit cards with business accounting

Accounting platforms like QuickBooks Online have integration options with the banks and financial institutions that issue credit cards. These integrations have gotten simpler in recent years with the introduction of application programming interfaces (APIs) and the growth of aggregation companies like Plaid and Intuit. Take advantage of these features to help streamline your business banking.

An integration with QuickBooks can make reconciliation and tax preparation much simpler. Adding an expense management platform to the integration can help you track credit card transactions for deductible expenses. You can also increase security by doing this if your software has a real-time dashboard and spending controls.

Avoiding common pitfalls

There are some mistakes to avoid when managing your company’s credit card spending. The biggest one is mixing your personal and business expenses. The first time you justify that is when you open the door to make it an ongoing bad habit. Set up controls and limits to prevent yourself or your employees from making that mistake.

Other mistakes might be unintentional, but they can still have far-reaching effects. For example, entering your business credit card number into an unsecured online form could put you at risk of having your credit card number stolen. Always look at the URL display to ensure you’re on a safe site. It’s best not to do business with unfamiliar or unsecured entities—and stay vigilant to protect your business from phishing scams.

Conclusion

Effectively managing your business credit card starts with a decision. Choose the card that best fits your needs, whether that’s a travel rewards card, a cashback card, or a low-interest balance transfer card. These are all good options, but only one is right for your business. Make that choice first before submitting any applications.

Once you have your business credit card, manage it carefully. Only use it when you have the money in the bank to cover your purchase, protect it from situations where your credit card number can be stolen, pay your bills on time, and keep track of your spending by connecting to your accounting and expense management software. If you follow these steps, you should be able to successfully use your business credit card to better your business.