Do you have a small business credit card? These incredibly useful business tools offer you a secure and convenient method of payment and can even come with valuable rewards and helpful benefits. But like any powerful tool, your credit cards can do serious damage to your business when misused. In fact, your small business credit card use could even be sabotaging your company in the long run. Here’s how to keep that from happening.
Keep your debt under control.
Beyond their function as a method of payment, credit cards can serve a role in financing your small business. When used as a short term method of finance, the interest charges can even be reasonable. But when you use your credit cards to finance long-term debt, then there can be several ramifications. First, there will be the cost of interest charges, which is higher than personal credit cards and typically ranges from 15-25% APR. Next, you’ll have a problem sustaining this debt as increased credit utilization will hurt your credit score, and your ability to get new credit.
To keep your debt under control, strive to avoid interest by paying off at least some of your credit card statement balances in full. Also, make sure that you are always paying more than the minimum payment each month for every account. It’s also important to prioritize your payments with the highest interest rate accounts being paid off first. Finally, you should seek other vehicles to finance long term business debt such a line of credit or a loan against some of your assets.
Consider credit card balance transfers.
When you have long term business debt in a credit card account with a high interest rate, performing a balance transfer to a credit card with a 0% APR rate can save your business a lot of money. Some small business credit cards offer interest free promotional financing for as little as six months and sometimes as much as 15 months. This allows you to avoid interest charges on your balance while you pay it off.
Make all of your business credit card payments on-time.
One of the most common ways that mismanaged credit cards can sabotage your small business is by hurting your credit score. When you fail to make your monthly credit card payments on-time, it can do serious damage to both your personal and business credit, as your payment history is the most important factor.
Thankfully, there are several ways to ensure that you never miss a payment. The easiest way is to set up automatic payments from your card issuer. Most card issuers allow you to specify if you wish to make the minimum payment, your entire statement balance or some other amount. Other tools at your disposal include text and email reminders of your statement closing as well as your payment due dates. Finally, you can enable automatic payments from your bank account to the card issuer.
Keep employee spending under control.
One of the important benefits of small business credit card is that it allows you to extend your purchasing power to your employees. But as the business owner and primary credit card account holder, you will ultimately be responsible for the repayment of all charges. Therefore, there are several steps that you need to take to ensure that your employees control their spending.
First, you should have a written policy for employee credit card use that specifies what kind of charges are and are not appropriate. You can even include the requirement to have charges above a certain amount preauthorized, while specifying the consequences of failing to follow the policy, such as a reprimand or dismissal. Also, your card issuer may allow you to set notifications or limitations on specific employees cards. It may notify when charges are made, or limit the amount of charges to a specific employee’s card. Finally, you can enable scheduled payments from you bank account, if you don’t want to rely on the card issuer’s system.
The bottom line.
Depending on how you use them, your small business credit cards can be a powerful asset or a dangerous liability. By taking a few steps to properly manage them, you can help ensure that your credit cards don’t sabotage your business.
This article was originally written on February 26, 2018 and updated on January 20, 2021.