Recently the personal finance website WalletHub ask me to answer some questions related to business credit cards. Following are my responses.
How important are credit cards to small business owners?
Credits cards are extremely important to small business owners, for two reasons. First, many B2B companies no longer offer traditional trade accounts to their customers. Now, it is common for all but the largest customers to have to pay by credit card for B2B services. Second, for many small businesses, credit cards are one of the few ways a business can obtain debt financing. Most banks no longer make small business loans but instead will give the business a high credit limit ($50,000 to $100,000) credit card.
What are the best ways to use a business credit card?
Obviously, the best way to use a business credit card it to pay it off each month so as not to incur typical credit card high-interest rates. There are a couple of other good accounting ideas for business credit cards.
Have more than one card and use one card strictly for all the subscription type recurring billing charges, such as internet service providers, cell phones, and various other online services. Fraud on a card typically occurs when the card is being used at restaurants and other retailers. This way if your regular card is compromised, you won’t have to change the billing card on twenty or thirty recurring charges. Further, it makes it easier for your accountant to record credit card charges.
Connect your business credit card to your accounting software so you can download transactions. This will make accounting faster but remember you still need to double-check transactions for fraud and proper coding.
Why use a business credit card for business instead of a personal card?
Use a business credit card instead of a personal card because your personal credit card affects your credit score. It is not unusual for people who use personal credit cards for business to have poor credit scores because the credit agencies score high balances on personal credit cards negatively. However, be careful because some banks that claim to provide business credit cards, such as Capital One, still report your business credit card on your personal credit report. Only use business credit cards that are tied into your business EIN, not your personal social security number. Bank of American and US Bank both offer business credit cards that are not reported on your personal credit.
All things considered, are business credit cards better than personal credit cards?
Yes, business credit cards are much better than personal credit cards for business purposes, primarily because of the negative impact to your personal credit score if you use personal cards for business. Remember, even if a card is paid off each month, the statement balance will still be reported to the credit reporting agencies and that ending balance forms a big part of your credit score. I had one experience where a client stopped using his personal card and replaced it with a business card and his personal credit score increase by 50 points.
You can see the original post on Wallethub.com by going to: https://wallethub.com/credit-cards/business/#expert=Michael_Manahan