What are Business credit cards and why you need them!

Understanding Business Credit Cards

Business credit cards are no different from your regular cards except that they help you with your business finances and not personal. They are an easy answer to financing your short-term business needs. And, because they are more easily available than a business loan or a line of credit, they are able to support businesses that are just starting out or even expanding.

Advantages of Business Credit Cards

1. Ready credit: As credit cards come with a defined credit limit, you have round-the-clock access to funds. They act as a financial cushion when your business is going through a slow-growth phase or you are short on cash.
2. Relaxed eligibility criterion: When applying for loans, you have to show your P&L sheet for the previous years or your business plan (if just starting out) for the banks to decide on your application. Very often what you end up receiving is a line of credit with a very high interest rate. To avoid such situations, it’s better to get a SBI credit card online for your business to help you get started.
3. Convenient to make transactions: Whether you are making payments online or offline, a credit card is handy everywhere. You don’t need to carry cash or your checkbook (unless a humongous amount!) to pay off vendors, suppliers, or to buy office supplies.
4. Helpful in maintaining books: If you are one of those who finds it difficult to keep a track of expenses, a business credit card is a must! With the card’s monthly statements, you will be able to keep your books in line. It will become easier for you to track, categorize and manage expenses. This will be further useful during times of audit and when monitoring employee spending.
5. Attractive rewards and other benefits: In this aspect, business credit cards are similar to your personal credit cards. You get a variety of shopping and dining rewards, along with air miles and cashback incentives. So, you get to save a little while going about making your daily spends.
6. Support in building credit history: Credit cards get a big thumbs up when it comes to helping build credit history. If you have been paying off your dues on time, not sticking to minimum due and have been spending within the credit limit, chances are you are on track to a positive credit report. A strong and positive credit history will be of significant help when you apply for a credit card or a loan in future.

Using it Right

Like personal credit cards, business cards too require judicious handling. The following tips will help you in using your credit card both efficiently and effectively:

1. Allocate card responsibly: Have clear rules with regard to who gets the credit card. Don’t just randomly decide but have a selection process with such criteria as seniority and designation. While it may seem like a good idea to give every employee a credit card, especially if you have a small business, it can lead to a financial crisis. Having multiple people using and managing credit cards would mean lack of visibility on expenses. Therefore, choosing the right people is important.
2.  Create a process: Once you cross the first hurdle of whom to assign credit cards, the next step is setting a process. Outline the necessary steps – right from approval for spends to submission of receipts. Keep a strict control; if you find someone being lax on submitting invoices or not taking the approvals beforehand, withdraw their credit card privileges. Ensure that this is a “no exception” policy so that everyone takes credit card usage seriously.
3. Set spend limits: If you are assigning credit cards to multiple employees, then it’s important to set credit limits as well. When deciding the credit limit, you would have to take into account multiple factors, such as function and seniority. To elaborate, someone in digital marketing would need a credit card to pay for the online multiple campaigns, while someone in procurement would need it to pay off suppliers. Accordingly, the credit limit would vary with the employee in procurement perhaps requiring a higher limit than his counterpart.
4. Decide card usage: Another aspect to keep in mind when dealing with business credit cards is deciding their permissible uses. While credit cards allow ready access to cash, not all expenses need to be paid off using them. Which is why you would need to draw the line -- when is it okay to use the card and when it isn’t? When making huge payments, do the maths: Will it be wiser to take a separate credit as the interest rate might be lower than that of a credit card? If you feel you can’t make the payment in full it may not be an intelligent idea to swipe your card as non-payment will invite higher interest and penalty. Also, making several big-budget expenses using your card might leave you cash-strapped and your credit limit maxed out. So, cap the expenditure your team is allowed to make, both collectively and individually.

Using a personal credit card for business expenses

While a lot of small businesses prefer using their personal credit cards for making business spends, it is not always advisable. Keeping your business expenses separate from personal is a better route to adopt.By keeping one card for both categories, bookkeeping becomes difficult. Think about it, your monthly card statement will display payments made towards office supplies and grocery bills. While this may seem manageable for a short term, in the long run things will become messy. Better to start by keeping the two expense fields separate.

Another benefit of having separate cards is that it ensures default on one card does not impact the credit rating of another. For instance, if you are failing to keep up with your personal credit card dues, don’t let that impact your business’s credit standing. This is a very important point as you don’t want your business or your personal credit rating being impacted because of the underperformance of other.

The final word

As unsecured forms of credit, business credit cards come in handy with the day-to-day functioning of business. The important point is that you use the credit card wisely. From helping you streamline the transaction process to even curbing costs, business credit cards can be very useful. Don’t be scared of them, compare before applying for credit card online, use them right and be rewarded handsomely.