Effectively Managing Your Small Business Credit Cards

By Author: Todd Holliday
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Credit cards are one of the most convenient ways of transacting. Rather than managing a petty cash box, it makes sense to operate business expenses off a business credit card when possible. In fact, some credit card providers even help you manage your expenses by categorizing them for you on your statement. But like any credit product, cards must be properly managed if they are to add value to your business processes.

Selecting the Best Business Credit Card for Your Purposes

When you decide to get a credit card for your small business, the smart decisions start with selecting a card that will be right for your business. Before you start applying for a card, have a look at the monthly expenses you plan to put on the card. Then add to that amount an allowance for incidentals. That total should give you an indication of the credit limit to apply for. Even if the card companies offer you a much larger credit limit, it wouldn't be wise to accept it. Availability of credit generally tempts people to spend more than they normally would, so it could place your business at unnecessary risk. Small businesses are prone ...
... to cash-flow crises. Add to that high credit interest and you're heading for trouble. Some cards offer levels of prestige and may be linked to loyalty programs. Others allow for secondary cards which could be used for sales people. Try to establish what your business needs before applying for a card.

The Uses of Business Credit Cards for a Small Business

The most efficient way to use a credit card in a small business is for general expenses. Use your credit limit to pay your expenses and then to clear the account at the end of each month. It's the same as having an account at the grocer. These expenses could include items such as stationary, web or email subscriptions, advertising, or client entertainment. You can also use business credit cards for travel expenses. If you travel frequently then it may be wise to select a card that links you to a loyalty program that earns you additional frequent flyer miles. In this way, you can get added benefits and make your credit card work for you. If you have a corporate sales team that meets regularly with clients, you may want to provide them with business credit cards. Having corporate cards reflects a level of prestige that can encourage clients and give them confidence in doing business with you. To be prudent, only load the cards with sufficient funds for the sales people's travel and entertainment expenses each month. Also, let them know that you will be able to trace the expenditure and they will need to account for it. Most times a gentle reminder or forewarning will deter sales people who value their jobs from abusing the privilege of having a corporate card.

Common Pitfalls of Small Business Credit Cards and Solutions for Overcoming Them

The biggest temptation with credit cards is to overspend. The most effective way to manage your expenditure is to check your statements and account for them on a weekly basis, in much the same way as you would with a petty cash box. With electronic statements and online banking, this process can take you less than 15 minutes each week. In doing this, you will quickly be able to pick up any irregularities, know exactly how much you have already spent for the month, and know your available budget for the balance of the month. You will also know how much you need to pay off at the end of the month. It isn't rocket science, but it does require diligent effort on your part.

Business cards are useful for bridging short-term cash-flow problems. However, the key word in that sentence is short-term. If you regularly fall short of funds to pay your weekly wages then it is not a short-term cash-flow crisis. Your business strategies need a more thorough overhaul. Using a credit card in this instance is not a solution. Unless you know for certain that you have cash coming in within a few days, don't use a credit card to pay for basic operational expenses. You will end up paying even more in finance and interest charges. You will also land yourself in even more trouble if you are not able to repay the outstanding amount. What starts out as one week of falling short often ends up as six or seven weeks of the same. Before you know it, you could have accumulated a tidy sum of debt which you are then unable to repay. As a small business owner, you've probably invested most of your livelihood in your business. Don't risk it but landing on the bank's bad side. It could have serious consequences.

The last pitfall is paying only the minimum balance. Card companies make it sound so easy, especially when you see on your statement for $1,000 that you only have to pay $100 this month. What they don't tell you is that a $100 will not leave you with just $900 to repay. The $100 usually only covers the interest amount and a miniscule amount of the capital. Banks don't really want you to repay the amount in full as they make their money off the interest they earn on the outstanding balance. Try to clear as much of the bill as possible each month and you will achieve optimum management of your business credit card.
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