Spend Wisely: How to Get the Most Out of Your Business Credit Cards

How to use business credit cards wisely

Optimal business credit card usage is about achieving short-term goals. Ned Murchison, director of small business lending at First Bank, emphasized three key tenets of wise business card usage.

“First, select the credit card that best fits your business needs, both for overall terms and benefits (cash back, rewards, etc.),” Murchison advised. “Next, make sure to pay off credit card balances in full each month, and, finally, aim to keep card utilization rate below 30 percent of [the] limit — this will help with credit score and performance metrics tied to higher credit limits, better rate, etc.”

Here is some additional advice about smart business credit card usage.

Obtain business credit cards for the right reasons

Starting with the correct mindset is vital for wise business credit card usage. Understand that business credit cards are a tool for:

• Building business credit
• Establishing a good business credit score
• Managing cash flow while awaiting payments
• Financing major purchases (within the introductory period)

In contrast, they’re not a way to cover excessive or unnecessary expenses, mask underlying financial problems, or operate beyond your means.

Choose a business credit card with beneficial rewards

It is essential to select the right business credit card for your needs. Interest rates, annual fees and credit limits are crucial considerations. But, membership rewards and perks can add significant value to your business. In fact, membership rewards are typically one of the first things that may attract you to a business credit card.

Rewards may include:

• Cashback spending incentives
• Hotel and airline discounts and freebies
• Partnerships that extend discounts from specific merchants
• Shipping and advertising discounts
• Unique, business-specific bonus categories
• Purchase and fraud protection
• Price protection (save your receipts and get the difference in price if it drops after you buy a product)
• Elite status for additional upgrades and discounts

Jack Prenter, CEO and personal finance expert at Dollarwise, stressed the importance of matching your business needs and expenses to cards with redemption options that truly benefit you. “For example, most premium rewards cards offer their highest value when you transfer your points to their airline partners and spend them on business or first-class flights,” Prenter explained. “That can produce an incredible return per dollar spent — but only if your business actually requires travel. If you never need flights, a flight-centric rewards card is basically wasted potential.”x

In other words, choose a credit card with features that can help your business reach its short-term goals. You want to get the best value for the least possible cost.

Handle employee credit card usage carefully

Many business owners extend business credit card privileges to some employees. If so, following best practices and ensuring responsible spending is essential. Consider the following tips:

• Set individual spending limits for employees: Assign specific spending limits to card-holding employees based on their roles and requirements. Your goal is to prevent unauthorized purchases and credit card fraud while ensuring all expenditures are within your budget.
• Use employee credit cards for expense tracking and reporting: Employee credit card usage is a great way to streamline employee expense reimbursement. Instead of sifting through receipts and lengthy expense reports, use your card provider’s reporting tools to track real-time spending.
• Earn rewards on employee spending: When employees use company-issued cards, their transactions contribute to your business’s rewards program. These rewards — such as cashback, travel perks or discounts — can offset costs or be reinvested into the business.
• Establish clear usage policies: Create and communicate clear guidelines for appropriate card use. Specify what expenses are allowed (e.g., travel, client meals, office supplies) and which are prohibited. Require employees to provide receipts and a brief explanation of each transaction for accountability.
• Monitor usage regularly: Review employee card transactions often to detect misuse or unusual spending patterns. Many business credit cards can generate detailed spending reports, so you can monitor expenses and address issues swiftly.

Utilize credit card statements for taxes and financial tracking

Business credit card statements can be incredibly helpful for day-to-day financial tracking and annual tax preparation.

Use routine statements to do the following:

• Track and categorize expenses: Most business credit cards generate detailed monthly statements. They break down spending by categories, such as travel, office supplies or advertising. Regularly reviewing these statements can help you monitor spending patterns and identify areas to reduce business expenses or reallocate resources. Joseph Camberato, CEO of NationalBusinessCapital.com, emphasized the importance of meticulous expenditure tracking. “Set up alerts on an app or through your email to notify you every time a purchase is made,” Camberato advised. “This helps with fraud prevention just as much as it helps with tracking.”
• Review financial performance weekly: Analyze your financial statements regularly to track your revenue and expenses. Look for trends, such as periods of higher revenue, to inform budgeting and forecasting decisions.

Use end-of-the-year statements to do the following:

• Generate annual expense summaries: Many business credit cards allow you to generate comprehensive annual statements with categorized expenses. These summaries can simplify tax preparation by giving you an organized breakdown of deductible expenses.
• Ensure all eligible fees are deducted: Some business credit card fees are tax-deductible, including annual membership fees or transaction charges. Include all eligible fees in your tax filing to maximize your deductions.

Avoid paying interest

Ideally, you should only use your business credit cards if you can do so without carrying a balance from month to month. Credit card interest charges can accumulate quickly and become financially burdensome — benefiting only the credit card issuer.

Unlike traditional loans, credit card interest rates fluctuate based on the market. This means you can easily negate future gains by paying higher fees — even if you think you’re beating the system.

To keep credit cards as a helpful tool rather than a costly burden, it’s crucial to monitor your spending and avoid accruing debt. If you anticipate carrying a balance on a large purchase, consider one of the best business loans instead; loans often come with lower, fixed interest rates.

If carrying a balance becomes unavoidable, actively monitor your cash flow. Also, make additional payments whenever possible to reduce interest costs and pay down debt faster.

Watch for introductory offers

Credit cards attract new users with all sorts of promises. Some advertise zero interest, while others entice applicants by offering thousands of points for new sign-ups. However, these offers often come with strings attached, so it’s essential to read the fine print carefully.

Using earned rewards like miles or points usually requires you to meet a spending threshold within a certain time frame. Some offers require only a small amount of spending — like $3,000 — while others demand $20,000 or more.

A promotion can also end abruptly, leaving you blindsided. Say your business floats thousands of dollars on a card. You could face a substantial bill when the introductory offer ends, costing you even more than the initial offer.

Avoid commingling personal and business expenses

It can be tempting to make personal purchases on your business credit card or business purchases on your personal credit card. However, this makes it difficult to keep track of your expenses and profits come tax season. It can also negatively affect your credit score if you miss a payment.

Hop cautiously — or not at all

Credit card hopping is when you move from one card to another to take advantage of perks or rewards, such as cashback or zero-interest-rate periods. Many cards feature introductory offers, and opening a new account can allow you to benefit from them.

However, you’ll need to research a card thoroughly before committing. Take note of annual fees, transfer fees and any conditions tied to the rewards. Consider whether it’s truly worth making the change. For example, if you’re switching to earn rewards points you won’t actually use or to get a lower introductory interest rate even though you consistently pay off your balance before it accrues interest, there’s little benefit.

Opening new lines of credit can also lower your credit score, so getting new cards too often is unwise. If you plan to apply for a large loan soon, avoid credit card hopping to ensure your score remains as high as possible.

Pros and cons of business credit cards

Business credit cards offer numerous advantages, but misusing these beneficial tools can quickly turn them into burdens. Weigh the following pros and cons of business credit cards before applying for one:

Pros of business credit cards

Prenter noted that while debt is always a risk, credit cards with rewards are the only payment method that actually pays you back for your spending. “If you pay by bank transfer or check, you get nothing in return,” Prenter explained. “However, by putting those same expenses on a credit card — assuming you can pay off the balance before interest kicks in — you’re effectively earning money on purchases you already have to make. It’s like adding extra profit directly to your bottom line, provided you manage debt responsibly.”

Additional upsides to business credit cards include:

• Easier expense management: Business credit cards simplify separating business and personal expenses.
• Faster access to funding: Obtaining a business credit card is quicker and easier than applying for a business loan.
• Cash flow management: Credit cards help smooth cash flow, especially when awaiting client payments.
• Exclusive perks: Business credit cards offer unique benefits that personal cards typically don’t.

Cons of business credit cards

Despite their benefits, it’s essential to be aware of the downsides:

• Higher interest rates: Business credit cards often have higher interest rates than personal cards.
• Risk of misuse: Employee abuse can occur if credit card permissions are extended without clear policies.
• Impact on personal credit: Your personal credit may be affected by business credit card usage.
• Overspending: Credit cards can encourage overspending if not managed carefully.