Using credit cards to finance your business is possible if you use them wisely, however, it is very easy to fall foul of credit cards if you do not understand how credit cards work. In this article, we’ll take a look at some of the most common businesses make when it comes to credit cards.
1. Not having a business credit card: this is a common mistake many businesses make because they want to avoid debt as much as possible but they don’t realize that a business credit card can be a smart way to track and review expenses, while also earning rewards on necessary purchases. It’s also a smart way to build the company’s credit score. Businesses that don’t use credit cards miss out on these great opportunities.
2. Maxing out the business card: sometimes cash flow is a problem and it can be tempting to use your business credit card to get by. This is OK, but it can be dangerous if you spend the total amount of the card’s credit limit, especially if you don’t pay this off each month. This type of behavior can hurt your company’s credit score and the business might need to pay back higher interest rates as a result. Instead, try to only use about 70% of the business credit card’s limit and commit to paying the balance off each month. This will improve your credit score and you’ll avoid paying high-interest fees.
3. Doing a balance transfer, when you can easily pay off the debt: this is another common business finance problem when it comes to credit cards. While it may seem like a good deal to do a credit balance transfer, it’s best if you can go ahead and pay off the debt. With balance transfer offers, many cards require a 3% transfer fee. If you pay your balance off quickly, that’s great, but you could end up paying more in fees than you would have in interest.
4. Not paying off the debt before the balance transfer offer expires: this is another issue for businesses. They sometimes choose to go with a balance transfer offer to avoid repaying their current credit card balance. The problem arises if they fail to repay the debt before the offer expires. This only leads you into a debt cycle, which is very difficult to get out of. Instead, it’s best to repay the debt before the balance transfer offer expires. You’ll save money and pay off your debt at the same time.
5. Missing payments or making late payments: this can end up being a huge problem for a business. Along with an increase in interest rates, you’ll also face late fees and a possibly a drop in your company’s credit score. Instead of being late or missing payments, use your credit card company’s autopay for your monthly bill. If you don’t use this method, then make sure to create a reminder on your wall calendar or on your digital calendar for when the business credit card payment’s due.
6. Not choosing a low APR business credit card: when searching for the right business credit card, make sure to choose a card that offers a low annual percentage rate (APR). This is especially a good choice if you’ll be using the credit card for large purchases. You’ll save money on interest fees with a low APR credit card.
7. Not choosing a rewards card: rewards credit cards for business-related expenses is a great way to earn while you spend. Some rewards credit cards offer cash-back, while others offer rewards or points. Make sure to choose a rewards credit card that fits your business. If you do a lot of travelling, a travel rewards card might be a good option. If you do a lot of driving, purchasing of office supplies, then a cash-back card may be the best choice for your company.
These are some of the most common business financing issues that can cause problems when using credit cards. The wise use of your company’s cards can lead to many rewards, a higher credit score and more.