I’m pretty sure most of you reading this will have a credit card for your personal purchases but have you thought about getting one purely for your business transactions?
If you’re disciplined enough, paying for your monthly operating costs on a business credit card – whether that’s stock from your wholesaler, a new microwave for the takeaway, or even your gas and electricity bills – can provide some really useful benefits to your businesses. Because as well as gaining an alternative line of credit, it’s a great way to build up cashback, reward points and other bonuses which could save you money in the long run.
A lot of companies will offer cashback on purchases you make using your credit card, usually between 1-3% of what you spend. Some credit cards will also offer bigger cashback allowances on purchases made through selected partners. This can be reinvested in your business to support your bottom line or, alternatively, some card providers allow you to redeem your cashback for rewards with companies like Apple or Currys PC World. Great if you need to buy a new gadget for the shop or you could pass them on to your staff as an added bonus.
Other credit cards offer reward points that can either be spent with selected partners or turned into vouchers for shopping with high street or online retailers. You can spend these yourself or use them as perks for your staff.
Other popular rewards are Air Miles or Avios Points, which are great if you are a frequent flyer or planning a holiday. Some card providers also build in perks that will directly benefit your business, for example, free travel insurance or discounts on diesel.
If you’re applying for a new credit card not only will you benefit from extended 0% interest rates but some lenders will try and entice you in by offering additional reward points or Air Miles if you spend a set amount within the first few months of opening an account. If you’ve got a large purchase in mind, this is an ideal way to accumulate points quickly.
If you are currently paying for your business expenses by cash, invoice or bank transfer, the payment will leave your account right away. Paying by credit card, however, can give you up to 59 days to make your payment, which means you can keep your money in your account for longer, giving you more control over your cash flow.
Paying by credit card automatically means you’re protected on most purchases between £100 and £30,000. You might also be protected for smaller purchases that are under £100 with chargeback, a scheme which gives you a chance of getting your money back via your credit car company if you bought faulty goods, a service wasn’t provided, or the company you bought something from went bust and your goods weren’t delivered.
A credit card can also save you a lot of headaches should any fraudulent purchases be made. Think about it, if someone buys something using your debit card, the cash comes out of your account automatically, but if they use your credit card it doesn’t directly affect your finances at all. Instead, it’s up to your credit card company to deal with it on your behalf. One less thing to worry about.
You do have to be strict with yourself if paying by credit card. You must pay off the credit card balance in full and on time (you can set up a direct debit to automatically do this if you think you might forget). If you don’t, you’ll be paying interest and the rates can be quite high. Be aware of late payment fees too. Fall foul to either of these and the rewards or cashback you receive will be far outweighed by the costs incurred. And, remember, late payments can damage your credit rating too.
Before signing up to a business credit card check to see if it entails an annual fee as most do and this can be anything from £20 up to several hundreds of pounds. As cheeky as it sounds, some business credit cards charge dormancy or inactivity fees – often a certain amount for every month or year you don’t use the card – so if you don’t need it, make sure you cancel it.
It’s also worth bearing in mind that when you apply for a business credit card, your personal credit history will be checked. And, while making payments on time and keeping to a relatively low level of debt can improve your credit rating, missing payments or accumulating large levels of debt can have a negative impact.
And, finally, it goes without saying, always keep your personal expenses and business expenses separate.