Business owners have the responsibility of monitoring finances and managing cash flow. This is very important especially during the first years of operation.
A small business credit card can be used to purchase essential business goods and services to avoid delays in paying vendors. Thus, credit cards are a great asset. Applying for a small business credit card is the best way to streamline expenses.
These cards enable business owners to separate personal expenses from those of the company. This allows them to track the company’s spending, which makes record-keeping a lot easier.
When you decide to embrace credit cards, keep in mind that there are costs associated with using a credit card processing company. How much you’re charged depends on several factors. They include:
- The transaction amount
- How the payment was processed
- The card processors pricing model
Some processing companies only charge a percentage of the sale. Others charge a flat rate and add on a percentage of the sale. Thus, when looking for card payment processing alternatives, ensure you’re provided with a sample. With it, you’ll get an idea of how much you’re expected to spend on the fees they charge for their services every month.
A credit card is a valuable tool for handling emergencies and unplanned expenses. You also get rewarded for making purchases and you get to earn rewards. However, you must ensure you have a good credit history to get the perfect credit score. Poor credit history can negatively impact your business growth.
Good credit history will increase your loan options when the need arises for a business loan. The other benefit is that it lowers the interest rates on loans, making it easier to access a mortgage.
If you happen to have a poor credit history, don’t worry about it because following an elaborate credit repair management process can fix the issue. But, keep in mind that credit repair is a step-by-step process that takes time.
Benefits of Credit Card Processing for Small Businesses
Small business credit cards can help you conserve cash when purchasing the supplies needed to keep the business running. According to research, more than 65 percent of small businesses use credit cards. This percentage is expected to increase over the coming years as credit cards are beneficial.
These credit cards come with many benefits and that’s what this article is about. To let you in on those benefits. Let’s get started with the discussion.
1. Establishing a Business Credit Score
To get a business credit card, an entrepreneur might be required to have a high personal credit score. Your business credit rating will be determined by your spending and payment habits. In case you decide to apply for a business loan in the future, your business credit score will enable banks to know what terms to offer you.
Remember to only apply for credit cards that will meet specific objectives. The reason is that having a lot of credit card inquiries can show up as negative information on your business’s report.
2. Separation of Personal and Business Expenses
A business credit card makes it easy to separate personal and business expenses. Having two different statements makes record-keeping and completion of annual tax returns convenient.
Some business credit cards provide online tools to help entrepreneurs track their expenses. This is easier and convenient compared to saving a year’s worth of receipts and invoices in a physical file. The cards have special export functions. This makes it simple to transfer information to other account software and QuickBooks.
In addition, it is highly recommended to separate personal and business finances. Aside from easier tax filing, having separate accounts protects your personal interests from business risks. In the event of business failure, your personal assets are less likely to be compromised.
3. Large Purchases
Increasing the average transaction size is one of the strategies to grow a business. You may not agree because, unlike cash transactions, you can’t see money being exchanged. But, customers tend to spend more when using credit cards compared to cash.
This could be because cash is a tangible piece of paper and there’s a value attached to it. Unlike credit cards, once cash is spent, there’s less of it in the wallet. Psychologically, it’s easy to convince yourself that you’re not spending a lot of money when swiping.
4. Fast Transfers and Improved Cash Flow
Some business people prefer checks or cash because they get to have more control once they’re paid. Cash transfers or checks happen on time. That’s what makes some entrepreneurs feel that they’re in control of their cash flow.
What they don’t notice is that credit card processors have made getting paid a lot faster. When using a credit card, for instance, funds reflect in your account in one or two days. You can then choose whether to immediately transfer the money.
You must know how awkward it is to deal with bounced checks if your business accepts check payments. All that can get mitigated by accepting credit cards. The cards allow you to know whether the customer has funds. You can then relax knowing the funds are on their way to your account.
5. Streamlining Employee’s Expenses
Compensating employees when they use personal cards for business expenditures is a hassle. However, using a business card helps to manage such processes.
Employees get to use the business card for company expenses. Entrepreneurs then receive one bill containing all expenditures including employees’ spending during the month.
Moreover, a lot of card issuers give free employee cards. These cards give entrepreneurs more control. They get to find out how much employees spend when using the business card. They also get to know how much employees spend while using personal credit cards. With that information, the employer can set limits and freeze the cards if necessary.
6. Earn Rewards
A lot of business credit cards have reward programs like cash back, points, or miles. Each of these rewards works differently.
As a cardholder, a cash-back reward will give back a percentage of your spending. With point or mile rewards, a cardholder receives more redemption options as compared to cash-back rewards.
Rewards get redeemed in different ways. They can get redeemed as gift cards, travel, statement credits, or merchandise.
7. Business Legitimization and Improved Productivity
Entrepreneurs do their best in establishing legitimate businesses in their industries. Having credit logos of well-respected brands helps to increase their credibility. It also inculcates a sense of trust in customers.
In terms of productivity, having to process checks, manage accounts and make trips to the bank is time-consuming and expensive. The fact that credit cards are automated makes work easier. Customers just need to punch the credit card number for the transaction to be approved or get rejected. This is a very quick and safe process that enhances productivity.
Conclusion
Using a credit card comes with many advantages as shown in the article. The best business credit card depends on several factors including:
- The amount of credit limit you need;
- The size of your business;
- Your priorities like travel and rewards.
Before applying for a specific card, take time and review its attributes. Find out about the annual fee, interest rate, online account access. You should also know about the spending limit and purchase protection.