Responsibly Managing Your Small Business Credit Card
27 Apr, 2017 / Comments: Comments Off on Responsibly Managing Your Small Business Credit Card / By William Mahnic
The use of small business credit cards has grown in the past few decades. They allow small business owners to cover their expenses. With proper use, a small business credit card can be a useful tool to help you grow your business. However, all too often, small business owners sink into debt as a result of poor credit card management. Learning how to manage your small business credit card responsibly is key to helping you reap the most benefits from it.
Mixing Expenses Can Be Devastating
If you are just starting out, combining both business and personal expenses on a credit card can be difficult to manage. Even if you received your small business credit card based on your personal credit history, you need to be careful. Charging personal expenses on your small business credit card (such as a home repair), and then missing payments or spending over your credit limit can not only hurt your business credit score but your personal score as well. Use your business card for business expenses only. This shows creditors (and the IRS!) that you are a serious business owner and it can open up opportunities for limit increases while improving your score.
Avoid Multiple Cards
It can be tempting to open multiple credit cards, especially when many of them offer low or even no interest rates for balance transfers. However, doing so can get you into trouble rather quickly. Signing up for too many credit cards can be damaging to your credit score. It can also make managing all of the separate accounts that much more challenging.
Get Rewards that Matter
Many small business credit cards offer great rewards, which can be specific to your industry or your interests. Research different cards before you decide which one to choose. Some will offer cash back rewards while others offer gas points or airline miles. These can be helpful if you travel a lot for your business. There are several different types of rewards, and you should be able to find something that best suits your needs.
Stay Away from Cash Advances
Just about every credit card, small business or otherwise, offers the option for cash advances, allowing you to take out a specific sum of money to pay for a large purchase right away. However, cash advances come at a price. They normally come with significantly higher interest rates. For some cards, this can be as much as three times higher than your regular interest rate. Taking out a cash advance, no matter how big or small, can make it tough to get your debts under control. It is best just to avoid cash advances altogether.
Monitor Cash Flow
Monitoring and managing your cash flow is an important part of maximizing your profits. Knowing what your cash flow is, from the start of the month to the end, and which days might bring in more money can be a great help. With this information, you can speak with your credit card company and negotiate a payment date that coincides with the days where you have more cash flow.
Along with monitoring cash flow, make sure you do not take on new debts “just because.” Even if you have a stable business, taking on new debts because you think they are a good idea could hurt you in the long run. Make sure that the new debts you incur will help to make your business more profitable, such as opening up a second location in a busier part of town, or hiring a few new employees.
Make Payments on Time
This may sound like common sense, but some small business owners tend to let credit card debts slide to the bottom of the list of priorities, which leads to penalties, more debt and damage to your credit score. Make payments on time, or at least within the grace period. If possible, pay off the balance within the grace period to avoid interest charges. Even if you need to carry a balance from month to month, on time payments will help you to avoid having expensive late fees tacked on to your debt total.
Knowing how to responsibly use your small business credit card is essential for the success of your business. Establishing good practices early is important. Armed with this information, you will be able to effectively manage your credit card and avoid sinking deep into debt.