Credit cards are easy, at-the-ready financing, but they aren’t always the right financial tool for your business needs. Before using a credit card to fund your business or pay for a capital investment, you probably want to consider the full, long-term cost. Here is a list of what you should know about credit cards for business use and how to evaluate the right kind of financing for your business needs.
When you should use your business credit card
- Short-term cash flow – Using your interest free days on your credit card can be an instant boost for cash flow. Often you can be waiting for your customers to pay you, before you can pay your bills. A late payment from a customer can result in a cash crunch for you and the threat of a critical bill, like the phone or power, being late or going unpaid. The interest free period on most credit cards can run as many as 55 days, which is usually enough time to keep current on your bills while you wait for your invoices to be paid.
- Know where the money goes – Using business credit cards can make it easier to keep track of your company’s spending. Putting all your business expenses on the company credit card will enable you to view all your monthly bills on your statement, eliminating the need to track them separately. Also, most banks provide a monthly expense report and enable you to import charges into your accounting software, allowing you to track expenses with ease..
- Reap the rewards – Many business credit cards also come with rewards programs. If you use your card for most expenses, you can end up building up quite a few rewards. Examples of rewards offered include business and supply discounts, as well as many travel and cash-back rewards.
- Control spending – Having all your spending in one place makes it easy to keep and eye on how much is being spent on business purchases. Additionally, some card providers offer cards with variable spending limits or notifications for purchases over a specified amount.
- Enjoy protection – All credit cards offer a bit of extra protection for purchases and typically business cards include even more protection benefits. These benefits can include extended warranties, travel accident coverage, and identity theft coverage.
- Making it easy – Using a credit card is a lot more convenient and widely accepted than using checks. Credit cards are accepted online and over the phone, ensuring you can always get the items your business needs.
When you shouldn’t use your business credit card
- Paying late – Besides those costly late charges, making delinquent payments can impact your credit score. If you find yourself in a situation where you are making late payments, it is time to reduce expenses or look for other ways to finance your cash-flow.
- Carrying a balance – While credit cards are great for those interest-free days between the charge and the payment, credit cards can get really costly really fast if you don’t pay off your balance every month. Be sure to only charge those expenses you expect to be able to pay when they are due and seek a business line of credit or business loan for large expenses.
- Mixing business with personal – Business credit cards are great tools for tracking your expenses and getting rewards for making purchases you have to make. Beware of using your business credit card for personal expenses as that negates the ease of tracking business expenses and can make it harder to sort out your deductions at tax time.
If you need equipment you can’t pay in-full in one credit card cycle or have other large investments you need to make in your business, there are other kinds of financing for those items that will cost you less in the long term. Newtek offers several different small business financing options, learn more to see if there is one that fits your needs.