All businesses have to buy things to keep their wheels turning. Credit cards can be a powerful tool to make those purchases easier, and provide a quick financing option to boot. But did you know that you can use your business credit cards for even more?
First and foremost, getting a credit card specifically for your business can help you separate your work and personal accounts. If you choose your credit cards carefully, the rewards you’ll earn can benefit your business big time. For example, if you choose a credit card with unlimited 2% cash back, guess what? Your business just got 2% cheaper to run, as long as you follow good credit card management principles. Also, if you have a business that requires employees to incur certain expenses, getting a card that allows you to add employees may be a good way to keep track of spending.
Learning to use credit card rewards for your company doesn’t have to be difficult. But it does require a bit of vigilance on your part. Don’t be tempted to carry a big balance, because you could cancel out the rewards with fees and interest. Here are our top tips for making sure you come out ahead in the bargain.
Choose Your Card(s) Carefully
Credit card rewards generally fall into two categories: cash back or travel rewards like miles or points. Cash back is less work, but you may get more value from miles or points that can be used to pay for flights and hotel stays.
Beyond that, you should consider whether your employees need to travel frequently and whether there is one airline or hotel chain that tends to work best for their regular routes.
If you're getting a business credit card to include employees, consider one that doesn't have restrictions on number of employee cards you can get and allows you some control on adjusting spending limits. For example, Wells Fargo Business Secured credit card allows up to 10 employee cards.
Many business credit cards offer more rewards for spending in certain categories, so it pays to choose a card that matches your company’s spending habits. Bonus categories may include:
- Office-supply stores
- Gas stations
If you have trouble remembering the categories, write it down on a sticky note and place it right on the card. Or, if you want something lower maintenance, opt for a card that offers a steady earnings rate on all purchases.
Redeem Your Miles for Travel
If you’ve got a travel rewards card, the value of miles or points can vary dramatically depending on how they’re redeemed. Our research shows that you’re often better off using your points for travel instead of gift cards or online shopping. For instance, a point may be worth 1 or 2 cents when redeemed for flights or hotel stays, but just a half a penny or less when used on other options.
Some cards even incentivize using points for travel offering more value if the travel is booked through their platform. For example, Bank of America's Business Advantage Travel Rewards World Mastercard credit card earns three points on every dollar spent on travel booked through the Bank of America Travel Center, compared to just one point per dollar spent on all other expenses.
Some cards don’t let you redeem points for cash or statement credits. So, if you have a hotel rewards card, for instance, make sure your employees are on the road enough that the card is worth earning points best used for more free hotel nights.
Think About Your Overhead
If there’s a cap on the rewards you can earn (such as 2% cash back on up to $50,000 in charges per calendar year), make sure your normal operating expenses aren’t higher than that, or find a card with unlimited rewards potential.
Or, if there are bonuses for spending a minimum amount in a year, add employees or business partners as authorized users so you can pool your charges. If you’re worried about your employees spending too much, you can usually set limits on how much they can charge.
Don’t Miss Out on Sign-Up Bonuses
We don’t recommend choosing your business credit card based on the sign-up bonus, but don’t forget about it either. These bonuses can net you even more rewards, usually for spending a certain amount of money in the first three months. For example, Ink Business Preferred credit card by Chase offers 100,000 points for spending $15,000 within three months of account opening.
Don’t choose a card with a sign-up spending threshold your company can’t comfortably reach, because that’s a recipe for disaster in the long term.
Pay Your Whole Balance on Time
While it’s handy that you can finance purchases so easily with a credit card, it can be a double-edged sword. If you let your business carry a balance from month to month, the interest you’ll owe can negate any rewards you earn.
Consider this. Let’s say you charge and carry a $10,000 balance on a card with a 15% APR that offers 1% cash back. At the end of the month, you’ll earn $100, but you’ll owe $125 in interest. By carrying a balance, you’re actually losing money each month, even though you are earning rewards.
Instead, set a simple rule for yourself: pay off your balance each month, and on time. That way, you won’t ever owe interest.
Deduct If You Have To
If you can’t avoid paying interest on your credit card, at least take heart that you can usually write it off on your taxes. Make sure to enter any interest you pay into your accounting program because these count as business expenses just like any other item you purchase.
Use the Perks
Many credit cards offer valuable perks, such as car rental insurance, roadside assistance, or travel insurance. Take a few minutes to skim through the fine print so you’re not missing out on anything. If your card offers an extended warranty or purchase protection, for example, this can protect valuable investments like laptops and other equipment.