A business credit card can be a powerful financial tool for your company, offering flexibility, rewards, and the ability to build business credit. However, business credit cards require responsible use and careful management.
If you do not yet have a credit card for your business, check out our previous article to learn how to open a business credit card.
Checklist
By the end of this article, you should know what to do to check off the following boxes.
Write down this list in a notebook, as you work through this article and take actionable steps, check these items off:
- Establish clear policies
- Decide who can use the card and for what purposes
- Set spending limits for categories (travel, office supplies, etc.)
- Create a process for submitting and reviewing expense reports
- Connect your card to your accounting system
- Add employees who need a card
- Set individual spending limits for each user
- Make payments on time and in full (if possible) each month
- Review employee expense reports
- Add vendor lines of credit or business loans to your profile
- Set up two-factor authentication
- Train employees on proper use and security practices
- Establish protocols for lost or stolen cards
- Know the process for reporting and replacing cards
- Keep a record of card numbers and issuer contacts
Using Your Business Credit Card Responsibly
Separate Business and Personal Expenses
Use your business credit card exclusively for business-related purchases. This practice:
- Simplifies accounting and tax preparation
- Maintains the legal separation between you and your business
- Helps build your business credit profile
Commingling personal and business expenses, can lead to complications in accounting, tax preparation, and legal matters.
Pay on Time and in Full
Timely payments are crucial for:
- Building a positive business credit history
- Avoiding late fees and penalty APRs
- Maximizing the interest-free grace period on purchases
If possible, pay your balance in full each month to avoid interest charges.
Monitor Employee Spending
If you’ve issued cards to employees:
- Set clear policies on acceptable use
- Regularly review expense reports to make sure all cardholders are using the card properly
- Address any misuse promptly and consistently
Regularly Review Your Credit Card Strategy
As your business grows and evolves:
- Periodically reassess whether your current card still meets your needs
- Compare your card’s features with new offerings in the market
- Consider adding or switching cards if your spending patterns change significantly
Integrate with Accounting Systems
- Connect your card to your accounting software for automatic transaction importing
- Set up expense categories that align with your chart of accounts
Don’t have an accounting software yet? Try Xero free for 30 days!
Building Business Credit with Your Card
Report Your Card Use to Business Credit Bureaus
- Check if your issuer automatically reports to business credit bureaus
- If not, request reporting or consider switching to a card that does report
Maintain a Low Credit Utilization Ratio
- Aim to keep your balance below 30% of your credit limit
- Consider making multiple payments per month if you have high monthly expenses
Use Other Forms of Business Credit
To build a robust credit profile:
- Combine credit card use with other types of business credit
- Consider vendor lines of credit or small business loans
- Ensure all credit accounts are reported to business credit bureaus
Protecting Your Business Credit Card
Implement Business Card Security Measures
Safeguard your account by:
- Using strong, unique passwords for online accounts
- Enabling two-factor authentication when available
- Regularly monitoring your account for unauthorized charges
Have a Plan for Lost or Stolen Cards
Be prepared by:
- Knowing your issuer’s process for reporting and replacing cards
- Keeping a record of your card numbers and issuer contact information
- Acting quickly if you suspect fraud or unauthorized use
Avoiding Common Pitfalls
Don’t Rely Too Heavily on Credit
- Use your card as a tool, not a crutch for poor cash flow management
- Avoid maxing out your credit limit regularly
Beware of Personal Liability
- Understand if you’re personally liable for the card’s balance
- Consider how this might affect your personal credit
Watch Out for Fees
- Be aware of all potential fees (annual fees, late payment fees, foreign transaction fees)
- Factor these into your decision when choosing and using a card
Final Thoughts
A business credit card can be an invaluable asset for your company when used wisely. By following these best practices, you can maximize the benefits of your card while building a strong credit profile for your business.
Have questions about managing your business credit card or need personalized advice? Don’t hesitate to reach out to us with any questions!
