Small business credit cards can be incredibly valuable tools for your company. They offer businesses a secure and convenient method of payment while giving them an effective short-term financing instrument. At the same time, you have to be careful to use your credit cards responsibly, or its costs could outweigh the benefits. You should always be sure to monitor your business credit as you use credit cards to keep your business running (you can check your score free with Nav). When you’re using a small business credit card, be sure to avoid these six mistakes.
1. Financing long term debt
A credit card is an easy way for your company to finance purchases, but it will generally have a higher interest rate than other forms of financing. Therefore, you should only consider carrying a balance for your company’s short term needs. When you need long-term financing, look for a business line of credit or other types of small business loans.
2. Carrying a balance on a rewards card
Everyone likes to use a rewards card to earn earn valuable points, miles and cash back, but it doesn’t always make sense. Reward credit cards will have higher standard interest rates than similar cards that don’t offer rewards. So if you are using your small business credit card to finance your business purchases, then you should be using the card with the lowest available interest rate, which won’t be a rewards card. The additional interest costs of a rewards card will always outweigh the value of the rewards you earn.
3. Failing to earn rewards when you never carry a balance
Just as you shouldn’t carry a balance on a rewards card, you also should be sure to earn rewards when you are avoiding interest by paying your balance in full. If your small business credit card is merely used as a method of payment, then it makes sense to earn the most valuable rewards possible. This could be airline miles, hotel points or cash back rewards.
4. Not establishing written policies for employee use
One of the great benefits of a small business credit card is the ability to add employees as additional authorized cardholders. When you do this, you’re extending your company’s purchasing power to its employees, but the primary cardholder is always responsible for the repayment. You not only need to establish policies for the use of small business cards, you need to put it in writing and have your employees sign them to acknowledge that they’ve been read and understood. It should also specify the consequences for making unauthorized purchases. Finally, you only can enforce these policies by carefully scrutinizing the charges made to each employee’s card.
5. Not keeping track of rewards
There are many small business credit card users who know they are earning rewards, but don’t take the time to learn about their card’s rewards programs. This can lead to large stashes of points or miles that go unused for years. This is a mistake as airlines, hotels and credit card issuers are constantly changing the terms of their programs to make your rewards less valuable. Other times, reward card users will quickly redeem their points or miles for merchandise or gift cards rather than much more valuable options such as an award flight or a free night’s stay. By taking a little time to understand how your small business credit card rewards program works, you can redeem your points and miles for the most possible value.
6. Ignoring cardholder benefits
One of the biggest advantages of using a small business credit card can be the perks offered to all cardholders. But you can only use these benefits if you are aware of them. A commonly overlooked benefit is a hotel programs that offer business travelers room upgrades, free breakfasts and late checkouts. To use this benefit, you have to book your reservation through the card issuer’s program like the Visa Signature Luxury Hotel Collection, Mastercard Luxury Hotel & Resorts Portfolio, or American Express’s Fine Hotels and Resorts program. You could also be missing out on discounts from Visa Savings Edge or Mastercard Easy Savings. Finally, you’ll want to make sure you and your employee authorized cardholders are familiar with all of the travel insurance and purchase protection policies offered by your small business credit cards.
This article was originally written on May 15, 2018 and updated on May 21, 2018.
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