There are all kinds of reasons why a dedicated business credit card makes sense, from separating company and personal expenses, to reward schemes, free purchase and travel insurance, credibility and more. Find out how a dedicated company credit card as well as other kinds of cards can help your business.
You own your own business or you’re planning to start one. One of the biggest issues most business owners find challenging to deal with is the budgeting and management of expenses on a daily basis.
Taking charge of your expenses and business spending can be a great opportunity to impact your bottom line. One of the ways you can help manage your spending is with a business credit card. These have the added value of features and benefits specifically designed for your company such as 24/7 service, travel insurance and special reporting packages.
Separating your business and personal expenses is also important to ensure your personal credit is protected in case your business runs into trouble. For this reason, once your company qualifies for a business card, you may consider applying for one.
Business credit cards also provide a certain amount of creditability to your business and have ever since they were first introduced. When it comes to winning clients and placing orders, a business credit card account makes your company look bigger, more creditable and more confident. This may lead to more business and earn the trust of your customers and suppliers.
Differences between personal and business cards
A business credit card is issued in the name of the business, not you personally. This means that your credit card is underwritten under the businesses name. If, for any reason, your business cannot pay off the balance, your business and even your personal assets may be liable for liquidation. If you don’t want your credit card to be secured in the businesses name, you’re going to have to show the bank that you are financially creditworthy. Lots of cash at hand, assets and net accounts receivable from prior years are examples to boost your standing.
Depending on your credit provider, you can request detailed annual or monthly statements so you can track and manage all your purchases/expenses. These statements are invaluable especially during tax season. Also, depending on the bank you’re with, you may be able to receive finance and insurance discounts.
Many banks don’t allow balance transfers from business credit cards. If you plan to undertake a balance transfer, confirm whether it’s allowed with your financial provider first.
Benefits of business cards
Personal credit cards and business cards may look similar, but are different. Make sure you always shop around for the credit card with the best benefits and features that fit your business needs. Here are some of the features and benefits to consider:
Security and purchase protection
Protecting your business is important. Business cards can provide that level of protection. Most business credit cards provide purchase cover insurance to cover your business on any major purchases put on your card. This provides your business peace of mind. This feature is especially useful when conducting business on the internet or overseas.
Reporting and record-keeping
Using a business credit card simplifies separating business and personal expenses. Most business credit cards make it easy for you to categorise and track credit card expenditures because you receive special quarterly and annual statements that break down expenses by category and per employee. This is particularly helpful when you’re organizing your records for filing tax returns.
Employee cards
As a business owner, you can apply for cards for your employees (each with an individual credit limit that you can set). This makes purchasing easier and also helps you keep clear records. You won’t have to wade through one big, blended billing statement to calculate project costs. Having expenses broken down by employee will help you manage expenses more closely and more importantly, ensure they are on budget. Lastly, you can maximise your earning of rewards based on employee spend on the program.
Loyalty programs
Loyalty programs, or the rewards a credit card company gives to its business customers, may be more generous than those for personal card holders. Some business credit cards give you air miles for purchases and/or points you can use for other rewards. Unlike consumer cards, businesses are still able to redeem rewards for certain airlines which gives you flexibility to use your points how you see fit. Other benefits, such as car and flight insurance and discounts on travel, are also available on business cards. Some programs provide you access to business articles, concierge services and information online, as well as pay-by-phone and pay-online options.
24/7 service
A good business card gives you 24/7 service both online and via live phone support staff every day of the year. This is really helpful for reviewing your budget and planning purchases.
Understanding business credit limits
Credit limits are the maximum amounts you can charge on your business credit card. As a business owner, you want a credit card that provides access to a credit line dedicated to your business. Most cards provide credit limits of up to $50,000 AUS but can be increased depending on the business creditworthiness and history with the bank.
You may find that you’re offered a business credit limit above what you anticipated, or you may be offered less than you’d hoped for. Your credit line is based on your personal and/or business credit ratings and creditworthiness. It is important that you manage your personal or business credit profile to ensure you have adequate access to capital to run your business.
How it impacts your credit
If you are the primary cardholder for your company, and the business credit card account is opened in your name, the status of your account may have an effect on your personal credit rating. As the business owner, if you are jointly liable or if you guarantee the business credit card account, you have given your word and backed up your credit with your own personal assets. By making payments on time, you build your business credit rating, which can bolster your personal credit rating.
Beyond credit cards
Credit cards are what people think of first when paying business expenses. However, there are several other types of “cards” that can also be used to charge business expenses, each with a distinct set of features. They are debit cards, charge cards and cards issued by individual merchants. When used in conjunction with conventional credit cards, they provide additional flexibility and options for handling day-to-day business expenses.
Debit Cards
For business owners, the debit card offers several attractive benefits and can be an ideal way to pay for monthly business expenses. The money comes directly out of your business transaction account so you don’t have to worry about interest charges or spending more than you can afford. Your charges are deducted from your checking account as soon as you make them. This can be helpful in keeping your company on budget and your balance sheet free of credit card debt. There are usually no annual fees, as debit cards normally come free with your checking account. Finally, debit cards generally offer the same reporting benefits as credit cards. In fact, your charges appear directly on your bank statement. Some debit cards may even provide reward benefits.
Charge Cards
Another alternative to credit cards is charge cards. Charge cards do not provide extended credit terms. Balances typically must be paid in full each month. Charge cards have distinct features that may prove attractive to business owners. Since the bill must be paid in full, there are no interest charges incurred.
Charge cards have no pre-set spending limit. The limit is determined by the credit history and your ability to pay. On the other hand, credit cards often have a spending limit that cannot be exceeded. It is important to remember that having no pre-set spending limit does not mean there is no spending limit.
Charge cards must be paid in full every month, which keeps credit balances from appearing on your balance sheet. Finally, most charge cards offer quarterly reports that make it easier for you to track and budget your expenses.
If there is one major downside to charge cards, it is that most charge annual fees. Some of the cards also charge extra fees for their loyalty programs. In addition, because balances must be paid in full each month, charge cards do not offer the payment flexibility provided by conventional credit cards.
Store Credit Cards
Another way to pay for company purchases is with a credit card issued by an individual merchant. Store credit cards work similarly to regular credit cards, but are issued by one specific store or vendor. When compared with conventional credit cards, debit cards and charge cards, they offer a unique set of features.
Store charge cards can generally only be used at the store or vendor that issued them. Assuming the card is issued by a vendor or store that primarily provides business-related goods and services, this ensures that all of the expenses charged to the card will be business-related. This eliminates any need to sort out which expenses are business-related and which are personal when it’s time to update your books.
In some instances, store credit cards may be easier to obtain than a bank-issued card because stores want you to purchase their goods, and therefore encourage customers to take out a charge card. In addition, most merchant charge cards do not have annual fees and may offer special benefits. For example, the first time you use your store card, some merchants may provide you with a discount on the total purchase. However, if you carry a balance, you should carefully review the card’s APR to make sure it is not higher than that of other credit card issuers. Finally, if you get a card from an office supply store, using this card for all office supplies makes it easier for you to track and budget these expenses.
Choosing the right business credit card for your business may seem challenging but it’s time worth investing in getting the right product for your business. Managing your expenses is an important exercise of any prudent business and building up the credit history for your business will help when you go for that larger business loans to invest in growth, acquisition or increasing your business access to capital.
–James Balagot is head of business products for Citibank (www.citibank.com.au).
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