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Business Credit Cards
Business credit cards are popular among small business owners. Over 65% of small businesses use credit cards to manage expenses and grow the business. Business credit cards allow businesses owners to have a dedicated line of credit that can help with large purchases and everyday operating expenses.
Some of the key advantages to having a business credit card includes multiple cards for employees, detailed expense reporting for managing costs, keeping business credit separate from personal credit and higher credit limits than personal cards provide.
Multiple Cards for Employees
Business credit cards offer authorized users who can have their own cards. Some companies run this under one account but many companies will separate the cards with different numbers so businesses can manage individual employee expenses. This makes it easier to spot unauthorized purchases and track spending for each employee.
Being able to provide employees with a credit card for travel and a card to purchase business supplies provides a great convenience for a growing business. Employee’s accounts can be tracked so the company can manage both travel and operational expenses for the company.
It is important to note that business credit cards do not operate as tightly as personal cards with regard to charges. The business is responsible for all charges made by the employee, even if the charges are not specifically authorized by the business.
While lost or stolen cards with unauthorized charges are not the responsibility of the business getting fraud charges off the card is more difficult. When a business offers a credit card to an employee, if the employee misuses the card it is the businesses responsibility to collect the funds from the employee, not the banks. This means tracking spending for each employee or cardholder is especially important.
Detailed Expense Reports
For most business credit cards, charges can be broken down by both the card number, attached to an employee, as well as by category. Detailed spending reports are available on a monthly, quarterly and annual level. This feature allows businesses to better track spending and enable them to maximize tax deductions. Spending reports are used for budgeting, expense calculations as well as receipts for tax returns.
The IRS recognizes credit card statements with detailed spending reports as receipts. This saves small businesses from having to manage hundreds of receipts that can accumulate each month. This benefit can save businesses both time and money and provide cost savings through greater access to spending reports. Most cards companies create separate credit card numbers for employees, so individual employee expenses can be tracked as well as overall company spending.
Business and Personal Credit Separate
Personal credit is managed and maintained through three credit bureaus. This tracks access to credit, payment history and creates a credit score which indicates the individual’s credit worthiness. Businesses have a separate, but similar system called the D&B or Dunn and Bradstreet. This company tracks credit, business information like revenues employees and years in business. It also helps businesses establish credit that is in the businesses name rather than in the business owner’s name.
While most business loans require a personal guarantee from the business owners, business credit cards are reported on the D&B rather than the personal credit bureaus. This is an advantage for small business owners. When using personal cards for business expenses the business owner can appear overextended on credit and debt. This can create credit issues if the business owner wishes to purchase a home or car or any number of items that would require access to credit.
When the business credit card is used for business purposes, it provides a truer picture of how the business and individual are really doing. It separates the accounts which helps the business establish credit and the personal credit does not suffer from business expenses reported on the personal report. This can help to build both the business credit and the personal credit of the business owner. Most credit cards still pull the owner’s credit report and use that as a gauge for approval.
Higher Credit Limits
Many business cards come with annual fees, however, the credit limits are generally higher for businesses than for individuals. Businesses have higher cash flow needs than most consumers and this results in companies offering higher limits to meet those needs. Businesses also have higher monthly revenues and income which gives them the ability to pay the credit card off or down each month. A business credit card operates much like a personal credit card. If the balance is paid in full each month then there is no interest charged on the account. If the owner carries a balance from month to month interest accrues from the date of purchase. Many cards offer points and rewards programs that are similar to personal cards as well.
A business credit card is much easier to obtain than a business line of credit. The process is faster and the qualifications are easier. A credit card can be obtained based on the business and personal credit of the owner, often with no additional verifications. A business line of credit often requires tax returns, business plan and a series of financial reports as required by the bank. Ease of access and higher limits can help facilitate the purchases used for operating costs but may also assist with larger purchases.
Considerations
As with any available credit, responsible management of the credit card is the key. If the business chooses to get cards for employees this makes the task even more important. Employee theft can be a major problem and giving employees access to a credit card can lead to abuse if there are not systems in place to track each expense along with an approval process for expenses. If the cards are misused and high balances run up quickly, the interest and monthly payments can become a problem. When the credit cards are paid off each month the business credit cards can be a real asset to managing cash flow.
