Nowadays, it is almost impossible to function without the use of credit cards to make payments or meet daily expenses. Having a credit card means you can make deferred payments, that is, payments at a later date. You can buy the products or services now and simply pay later along with a percentage of interest. This helps a business to meet their expenses as they fall due and to buy supplies. Sometimes it takes times for the sales to realize into cash and when the sales are on credit, it takes some time for the business to receive their required cash amounts. As such, in order to pay for their expenses and buy business supplies, credit cards are the ideal choice for most businesses. Petty cash however, always comes in handy as there should always be some amount of cash in hand at all times, for unforeseen circumstances.
Business Credit Cards vs Personal Credit Cards
Credit cards are both, personal credit cards as well as business credit cards. Most the business owners usually have both a personal credit card, as well as a business credit card. There are times however, when they only have a personal one and they have to make do with that card only. There is no problem in that, as long as they are able to distinguish between their personal expenses from the business expenses for better accountability. Both of these cards work in a similar way, as a credit line is extended for both. If you are a small business owner you have the option of using your personal credit card to pay for your business expenses and for purchasing the supplies. However, when the business owner decides to grow their business and hire more employees or when they feel they require higher credit lines or loans, having a business credit card would be a far better and a more practical option to use. Even if the business is not growing any time soon, still having a separate business credit card to pay for the business expenses is always a better choice.
Applying for a Business Card
Once you have decided that you want to keep your business card separate from your personal credit card, and then you should consider choosing the best one for you and applying for it. There are many factors that any credit card company would look at such as, your personal credit rating, the amount of debt that you have, your bill payment track records as well as your credit worthiness. In order to give a business card to small business owner, their personal credit information as well as their business credit data would be taken into consideration. Most of the companies look for responsible amount of debt, having a track record of making timely payments as well as having good credit scores for personal and business.
The Top Reasons Why Business Owners Use Credit Cards:
- It helps to pay back the debts
- It provides a great cash flow management technique
- It provides rewards and bonuses
- It provides miles, travel benefits
- It provides convenience
- It keeps a track on their expenses and payments, as compared to using cash
Benefits of Using a Business Credit Card
The great benefit of using a business card to pay for your business expenses or office supplies is that it earns reward points for the business. Using a business credit card also provide higher credit line in the future and also helps the business owners to succeed in the business. There are a variety of other reasons such as:
- Helps to track employee spending
Majority of the times, there is usually an employee who is responsible for making payments, like small bills or for making purchasing of supplies for the business. Getting an approval for such expenses can really be time consuming and would waste a lot of time especially if the owner would be busy in meetings and getting the approval might delay making the payments. As such, a better way of keeping a track on the spending of the business expenses by the employee is to issue that particular employee a credit card in their name which can be linked to the business account. This way, that employee can make the payments on behalf of the business easily and without wasting time, effort and money. This also helps to keep track of the exact amount spent and this way you will know that your employee is not spending anything extra. In case the employee is misusing or exploiting his credit card rights, you will be able to know beforehand and be able to stop it before it gets out of hand.
- It reduces the time balancing the transactions
Once you are using the business cards to manage your expenses and the purchases of your office supplies for all the monthly payments, your business would be able to benefit from saving time that would have been wasted balancing your checkbook. Instead of having many transactions which were to be registered every month, all you would have to do is simply write one check to the credit card company every month. Many of the credit card companies even have online banking options, where you can simply transfer the funds from your account to the credit card account. This makes the process faster and it also helps to reduce the chances of errors as the number of transactions would fall down significantly and there will be fewer transactions to account for. Moreover, if you are in the habit of making full payment to your credit card as soon as the bill arrives each month, then you would have the benefit of not making any interest on the amount you have used, as long as you pay within the grace period offered by the bank.
- Credit card statements
Most of the credit card companies send the statement or the bills of your spending each month or every 3-6 months, depending on your requirement. You may also receive half yearly or quarterly reports if you ask the credit card company. This helps to categorize and monitor your monthly spending at a glance. Moreover, these reports helps to make the tax time quite easy as all your spending will be in front of you, in a single place and you would not have to search files or boxes or stacks of papers for the spending records and you would have everything you need in a single print out. Furthermore, some of the credit card companies even give you the option of categorizing your spending, for example, if you need a list of payments that you have made to a specific vendor over the last 6 months, you can simply ask them or enter the details online and print a report out for yourself.
- Other benefits
Another great benefit of using credit cards, as mentioned earlier is the chance of earning rewards through the credit card spending. There are many different types of business credit cards that are available and you can choose the one that suits your needs the most. For example, if you travel frequently, you can go for a card that offers miles or hotel stays or car or hotel rental discounts, etc. If you do not travel much, in that case you can go for the card that offers other perks, like discounts at different stores or cash back rewards, etc. There is something appealing for everyone and you can choose something that you like!
- Helps to improve productivity
Using a business card for your spending can actually help to boost your business productivity as it would save you plenty of time that you would have spent balancing your account or managing your financials. For small businesses owners, switching to a business card can simply eliminate the need of doing manual book keeping at all.
- Business credit limits are higher
Majority of the applicants have higher chances of getting a better credit limit with their business credit card as opposed to what they would get had they been using their personal credit card. This is usually because businesses are able to make and spend more money on a monthly basis, as compared to what individuals do. The higher limits on business credit cards as such give a business more credit line and greater room to make more purchases and make payments.
- Business cards can affect your personal credit also
Most of the times your business cards are made on your personal guarantee, which means you are personally liable for any debts that the business will incur and you will have to make the payments if the business is unable to do so. As such, your personal credit score would be considered when you are applying for the business card.
How does business card help to build business credit?
Using a business card to make your payments and meeting your expenses and paying for your office supplies each month, means there are quite a lot of transactions. This helps in building credit for business and business owners quite easily. While a personal credit card would not be able to do this for you, a business credit card can. This however requires that you always pay on time. Just like your personal credit card can help to determine your ability to take loans or get better rates of interest, the same way, a business credit can impacts your eligibility for qualifying for credit lines, business loans and for negotiating better credit terms from vendors for possible leases or equipment financing, etc. Moreover, if you are using a business card over time, a positive credit history can also impact how much you would have to pay for business insurance as well. In all of this however, you must be very careful not to miss any payments as it can negatively impact your credit standing on both personal as well as on business levels. Using business cards for your business expenses helps to build your business credit score, according to the credit reporting bureaus.
Having said that, building your credit as a business owner for yourself and for your business will take some time of course and using a specially designated business credit card is one way to start!
Using a business card is always the ideal choice for making your business expense payments and paying for your supplies. Petty cash is always a good choice to keep in hand but it cannot be used on a daily basis to meet regular expenses and payment for suppliers. Like mentioned above, it has many benefits in terms of keeping track of your payments, having a record of your expenses, earning rewards on the credit cards as well as building a credit line for the business. In case a small business owner does not have his business card approved, he can wait again and build up his personal credit score and personal credit line and apply again for the business card. Many credit card companies have different requirements from one another so the best idea is to do the shopping right and find out what are the companies offering and what their requirements are. Whether you use your personal or your business card to meet your monthly expenses, the bottom line is to make sure you are making timely payments or else, you would have more to lose than to gain.