8 expenses you should never put on business credit card
Company credit cards help organizations mitigate a number of payment-related issues. These cards are issued to employees to help cut down out-of-pocket expenses, consolidate expenses and make reimbursement easier. These cards are used to manage all kinds of expenses that a company might face. However, just because it is possible to put any expense required on these cards, it is safe not to do so. Business credit cards for small business must be used strategically for your organization to get the best out of them.
Business credit cards for small businesses can be used to purchase anything and everything you might require for running your business. These cards give employees a line of credit using which they can procure anything, from equipment to travel. This line of credit helps your employees mitigate situations where there is a lack of funds or where they have to incur out-of-pocket expenses.
Business credit cards for small businesses also offer a host of benefits, rewards, and cashbacks on usage. This can include rewards programs, perks in flyer miles, and cashbacks on purchases. For example, card providers like Volopay let you recover the money you spend as SaaS fees via cashbacks. Card providers also often have tie-ups with partner organizations. Any purchases made or services availed from these partners may also come at discounted rates.
Reimbursing employees using manual process is an extremely time-consuming and costly venture. With company credit cards at hand, this issue has become a thing of the past. Now, managing employee expenses and reimbursements has become prompt action where most of the heavy lifting is done by these cards and the software they are powered by; all you need to do is make the expense using your corporate credit card.
Corporate credit card providers like Volopay work very similar to how banks do, just with easier access and better features. Similarly, the protection these cards come with is at par with banking institutions, if not better. They offer significant protection on travel and purchases. For example, protection can come in the form of zero forex fees, purchase extended warranty protection on cellphones, auto rental damage collision waivers, and trip cancellation or interruption insurance.
One of the best features that business credit cards come with is accounting integration. Card management software can seamlessly sync and integrate itself with your pre-existing accounting software, like Xero or Quickbooks. Once integrated, you can use your card management dashboard to get a comprehensive overview of all your accounts payables, receivables, and any other transactions. With these tools, you can easily track spending and maintain complete control over your finances.
While personal credit is the credit score that is assigned to individuals, business credit scores are assigned to businesses based on their past credit activity. It helps inform investors and card issuers about how responsible the business has been in dealing with debt in the past.
Registration or incorporation on part of the organization is not a part of the mandatory business credit card requirements outlined for obtaining these cards. All businesses, regardless of type, can apply for corporate credit cards program. Unregistered or unincorporated business owners must note, however, that they will personally be liable for all business credit used.
Personal cardholders are offered protections in the form of zero liability in case of fraud, required notice of increasing interest rates, and a grace period of 21 days to pay back purchases. These protections technically do not always apply to business cards, even if some card providers do allow some protection. The two types of liabilities that apply to business cards are commercial liability and joint and several liabilities.
As we have already discussed, business credit cards also come with a wide range of rewards and benefits. The difference between the rewards that personal credit cards come with and those of business credit cards is that the latter provides perks that are often tailored specifically to aid businesses. For example, Volopay’s cashback system lets businesses recover SaaS fees. Before you choose a card you can compare these perks to see which one fits your organization best.
Business card applications not only require the same details as personal card applications, but they also require details related to the business. For example, name of business, EIN (if applicable), revenue, and industry.
This is simply because of the obvious fact that businesses need to spend more than an individual regularly. They have much larger monthly expenses as well as incomes and therefore are also allowed much higher credit limits.
Once you’ve onboarded with a suitable business card provider you can also issue corporate credit cards to your employees. While the number of cards you can issue will differ from provider to provider, most do allow a certain number of issues. How much you pay, if you have to, for each card issue will also differ.
Business card payments may not always work in the same way as it does with personal cards. Companies might not always have funds at their disposal. As a consequence, business credit payments may happen via different methods. The specifics of this mode of payment will, however, differ from case to case.
Using a business credit card to manage all your spending might seem lucrative. In fact, people often put personal expenses on business cards in order to boost their personal credit scores. However, this is not usually how credit scores work. You could, however, benefit from putting expenses on business cards instead of personal - it could keep your utilization ratio low.
The flip side of this is that company credit cards come with much higher interest rates. They also offer much less in terms of consumer protection. While some issuers have voluntarily introduced some protective measures, it is still not universal.
Another point to keep in mind is that most of these cards offer services that change when the card is used for purposes not related to business. An example of this is the Chase card that offers primary auto insurance coverage when a vehicle is rented for business purposes but downgrades the same package if the vehicle is rented for personal use.
So, while it might seem easy to do, putting all your spending on a business credit card is not always a good idea.
Using a credit card for business expenses as well as personal expenses can be highly detrimental. It can negatively impact your business credit score, violate card issuer agreements, and even your own company spending policies.
Entertainment costs can hugely vary from client to client. While your company spending policy can account for this and set limits it is not wise to overspend on client entertainment, especially with a business credit card.
Often on a business trip employees might feel the urge to spend on personal whims (e.g. fancy hotels, overstays, etc.). While this is not illegal it is also not a good idea. All such expenses will appear in spend histories and the employee’s goodwill is bound to get negatively impacted.
Charging cash advances on your corporate credit card is also not recommended. This is because APR on cash advances is almost always higher than the APR you get on your purchase. Cash advances also provide no grace period and come with a hefty fee.
Business credit card limits are set at a particularly high rate especially to lure companies into making expensive purchases. However, if you are a small business, using up your credit score too quickly on unnecessary, expensive purchases can negatively impact your credit score.
Cryptocurrency, gambling, and other expenses like these that come with considerable risk are also not a good expense to make using your corporate credit card. The liabilities that come with risky investments are just not worth it. The negative outcomes of such investments greatly outweigh the positive ones, especially when you factor in the impact it is going to have on your business and not just you.
A company that uses its corporate credit card to pay for its legal expenses is a clear red flag for investors. It sends a message to potential investors that the organization could be in a spot of distress.
Payroll also falls under the category of expensive purchases. It is a high-volume expense that is also recurring. Putting payroll under your business credit card expenses can bring interest rate risk and generate debt.
While there are no hard and fast company credit card rules that are legally mandatory for business owners to follow, there are some principles that are useful when followed. These rules or principles are meant to help you get the best out of your business credit card:
1. Never use your business credit cards to cover personal expenses. Using company cards for personal expenses spells a recipe for disaster. Use your business credit cards only to serve the purpose they were made for - to cover business expenses
2. Use the tools that company credit cards come with to monitor and track how your employees are using these cards. Keeping a check on employee expenses will help you highlight dubious activity before it gets too late. Establish proper controls for these cards and ensure all spending activity is always kept under a microscope.
3. Consider getting a card that does not have a fixed limit on spending. Business credit card limits can stifle company growth, try to get one that doesn’t come with a limit. A capless spend limit means you’ll have access to as many funds as is required, especially for emergencies.
4. Check the rewards, benefits, and perks before onboarding a card provider. Choose the provider whose offers suit your organization best.
5. Avoid canceling a company credit card if you think there’s something wrong with it. You can always just freeze or block it, this way you can recover any important data that might have been on that card. Closing a card abruptly can have a negative impact on your company's credit score.
6. If your card provider comes with welcome offers make sure to avail of them. While other offers usually come with some criterion attached, welcome offers usually don’t.
7. Utilize spending bonuses offered by your card provider. Aim to onboard a card provider that offers threshold-based spending bonuses that are ideal for your business spending pattern.
- Ensure your employees are accountable for the expenses they make, establish an accountability system before you get your cards.
- Do not hand out cards to all employees. Conduct a thorough check of which employees really require a company credit card before handing them out.
- Ensure that you have set limits on how much can be spent using your company cards, who can use them, and where they can be used.
- Use card management dashboards to keep track of all transactions. Keep a check and watch out for fraudulent activity.
- Lastly, make sure you are wise about how you use your cards. A Business credit card for small business comes with high spending limits and a number of features that can make it tempting to whip out the card everywhere. Use these cards only when you truly need credit.
In light of our observations, it is clear that business credit cards can be quite useful, but they must also be used wisely. To make the use of such cards easier opt for a card provider that is flexible and easy to work with.
Volopay is the perfect option as a card provider that is not only flexible but also tailored to your needs. Volopay corporate cards can be issued in both physical and virtual versions.
In fact, you can issue unlimited virtual cards to your employees completely free of charge; you can use this feature to give out on-time or burner cards to employees for them to use or just as gift cards or bonuses. You can also use such cards to set up recurring payments.
With these cards, you can maintain wallets with multiple currencies (e.g. USD, GBP, EUR, AUD, etc.), pay international vendors, and make forex conversions without the fear of wallet-burning forex rates. What’s more is that all expenses made via these cards are tracked, recorded, and reconciled all in real-time. You can also set customized spend parameters to ensure these cards are not misused.