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Posts Tagged ‘Business Credit Cards’

Article by Amrita

‘Yes’ is the answer that’s comes out almost immediately. That is true at least for most businesses (especially small businesses). Before we delve deeper into how business credit cards are helpful, let’s try and understand what a business credit card is. Put simply, a business credit card is a credit card that is owned by a business and not an individual. To understand this better, you can simply draw an analogy between the business credit cards and business bank accounts, which are in the name of the business as well. Other than that, business credit cards work in pretty much the same fashion as the personal credit cards; with a few exceptions. These exceptions are in the form of flexibility in credit limit, low APRs and some other additional benefits that are available to business credit cards only. Even from just that, business credit cards seem a good proposition. However, business credit cards would be attractive even without those benefits because the main benefit lies elsewhere. The big-big benefit from a business credit card is realized in terms of business expense accounting. For most small businesses, business expense accounting is a big overhead. With business credit cards, this is handled very easily – you just have to ensure that you make all your business expenses on your business credit card and let the personal expenses be on the personal credit card i.e. segregation of business and personal expenses is all you need to do. So the bill for your business credit card will have all the business expenses on it and you wouldn’t need to collate all the various bills or sort out the items from your personal credit card bill. The key here is to make sure that you use your business credit card for all your business expenses (or as much as you can). Moreover, a lot of business credit card suppliers realize this need of small business and even organize the business credit card bills in a way that meets the accounting requirements of these businesses. So mostly, they will appropriately group the expenses on the business credit card bill so as to facilitate business expense accounting. In fact, some of the business credit card suppliers go to an extent of providing the bills in a format that can be downloaded and exported to an accounting system i.e. you don’t need to enter the data manually in your accounting system. In case the format is not suitable for your accounting system, you can hire a software professional to write a small quick program to convert it into a suitable format. Thus just one reason – ‘facilitation of business expense accounting’, is enough to support the case of small business credit cards.

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Business credit cards nowadays provide many regular people opportunities to start their own companies by allowing them to borrow the funds that they may need, while separating business expenses from that of personal charges. What a lot of business owners don’t realize, however, is that the advantage of having a business credit card does not simply end in having an outlet for loans. It actually provides so much more benefits that could help the company become more organized, grow and even earn more money.

Convenient Source of Funds

There are times, especially when one is just starting to put up a business, wherein the company may need money for capital or for other emergency expenses. Even if the business owner may not always readily have the funds at hand, having a credit account for the company can allow a convenient source of cash.

More Organized Financial Transactions and Record Keeping

When a lot of the company’s expenditures are done through credit, this helps the company in keeping track and organizing its expenditure. By having credit card companies automatically keep records of every transaction done through the account and having the business owner receive a monthly statement, the company’s work in monitoring expenses becomes less. This would especially benefit those businesses that often entail a lot of traveling and entertaining clients; as such situations may not always be practical to keep recording expenses. Most importantly, easier monitoring for accounting and tax transactions takes place.

Establishes Credibility

Using credit cards for the business can give the impression of a more reliable method of payment, and this may even make a small business seem more legitimate. The use of these business credits also helps establish a company’s business credit rating, which may assist in building a trust-worthy reputation for future investors as well as customers.

Gives Security

A certain degree of protection is given to business owners through purchasing items for the company with business credit cards, which payments through cash or other methods cannot offer. This is very important for companies that often involve traveling to foreign places because a lot of credit cards are recognized internationally. The same type of security is also important for businesses that may require much purchasing or selling of goods because payments done through credit cards can assure the other party that there will always be money coming.

Gives Businesses Time Allowance

The use of credit cards in businesses gives companies a lot of time allowance to pay for their purchases, especially when they need the goods in large quantities. Time is then given to the owner to pay for the purchases, instead of having to give immediate payment that may not always be readily available.

Consumer Benefits

Business credits also offer a lot of perks to consumers that may cater to the many different needs of the company. Some of these bonuses may include airline mileage or cash back that one can take advantage of in doing business transactions and even save the company a lot of money.

Business owners nowadays need to be practical and clever if they want their companies to stay afloat. Business credit cards provide companies a lot of opportunities that help in financial organization as well as save a lot of money.

By providing businesses a convenient source of funds, an easier record keeping, credibility, security, time allowance and a lot of other advantages, such credit cards truly benefit and help out the business owner in more ways than one.

Having the assistance of a credit card as you are starting on a new business venture may not be absolutely necessary, but it can surely help you a lot. It does not only give you a source for funds, but it also adds organization to your cash flow and in tracking expenses. Aside from this, most business credit cards offer many perks that can be of great benefit to your business.

But as tempting as these company credit cards may sound, remember that the common error of a lot of business owners is that they do not consider the disadvantages that these credit cards may include. Many have made huge mistakes in running their finances with such business credits that have often led to personal-liability. This is why you need to know about the disadvantages and learn what you can do to either handle or prevent them from ruining your business.

What are the Drawbacks of Business Credit Cards?

What a lot of small business owners do not realize is that when they are only initially starting out on a business and have not yet established a business credit score, their professional and personal finances can be blended. This is because most credit cards require a personal liability agreement from the business owner at least for the first few years when company is just starting out.

Therefore, the business owner can be held liable for any problems with the company’s credit account. For example, if your company fails to make payments on time then this could significantly dent your personal credit score despite the fact that this is not a personal transaction.

Other possible disadvantages that business credits may have include the large possibility for employees to abuse the use of company credits by charging personal purchases. Aside from this, fewer protections may come with it as compared to a personal credit card because the intended use of these credits are for company purposes and not personal. Higher interest rates are also usually charged by business credit cards as compared to personal credit cards.

What You Can Do To Control Mismanagement of Business Credits?

Despite the possible disadvantages that credit cards may bring, remember that these things can only happen if there is a mismanagement of your credit account. What you can do is set certain precautions so as to avoid such drawbacks from happening. Remember to register your company with a business credit bureau as they can help you establish a business credit score, which will later on help you forgo with the personal-liability agreement.

Also remember to manage your company’s financial transactions well. Build a favorable credit history by making the right payments and avoid making huge debts that your business cannot afford. More importantly, when you’re only starting out, remember that it cannot be avoided for you to be personally liable to debts therefore learn to use credits wisely. It would also be helpful to take extra precautions by placing minimal credit limits for employees and reporting abuse of your company’s credit account.

Remember that business credit cards can help your company a lot, but they are not flawless and therefore one has to be smart in using them. Remember to take the extra precautions and always be careful with your finances.

Through this, when you avail a credit card for your company, you can make it work for you and allow it to become a partner in making your business grow instead of giving you liabilities.