Get Smart About Business Credit Cards: Tips From A Pro

The first thrill about starting a new enterprise is seeing the name of your
creation on a business card. You want to hand them out to everyone you see —
friends, family, the kid who bags your groceries. Soon after you've
registered your trade name, the credit card offers start cluttering your
mailbox. It's flattering at first. You imagine going out to dinner, grabbing
the check, and saying, "it's okay, it's on the company." So you fill out one
or two "pre-approved" applications and, like your business card, can't wait
to use this little symbol of acknowledgement. A corporate card tells people
you've arrived.
You're a legitimate business.

But it can also spell trouble.

The purpose of a business credit card is to have the convenience of charging
legitimate business expenses. You avoid using a personal credit card and
submitting receipts for reimbursement. You have the ability of making online
and telephone purchases to expedite shipment. The revolving account helps
you plan your cash flow. The statements provide a detailed accounting
record.

Used wisely, a business credit card provides these important benefits and is
essential to building your corporate credit profile. Demonstrating
reasonable usage and maintaining a good payment history not only allows you
to gain more credit, but also helps you negotiate better interest rates on
loans, lines of credit, and other revolving accounts. In fact, using a
credit card properly is better than paying cash because lenders want to see
a credit profile with positive activity. One small business owner had been
vigilant about paying cash for all his purchases to avoid having monthly
bills. He had had some personal credit issues in the past and was determined
to avoid a recurrence. He felt great about keeping his costs under control.
When the owner applied for a business loan at the local bank, he was advised
that the black marks on his profile were minor. The biggest problem was that
he had no recent credit history. So, he got a credit card, budgeted a
monthly allowance for the payment, and made small purchases to establish
reports on his credit profile.

A business credit account is clearly valuable for a lot of functions. What
it isn't is a license to spend without regard to the consequences. Just
because you're not writing a check doesn't mean you haven't spent corporate
cash. By following some basic guidelines, you can manage your corporate
credit card account so you reap the rewards instead of paying the price.

* Get credit from your own bank. Once you establish a business banking
relationship with a local financial institution, continue to grow that
relationship by applying for your business credit card at the same place.
The more business you do with this bank, the more they get to know you. The
comfort level increases the likelihood that they will consider your request
for funding when the time arises. Show loyalty to them and it will be repaid
in kind.

* Read the fine print. Many credit card companies shout out low introductory
rates. The key word here is "introductory." After the honeymoon period is
over, the rate can shoot up above the interest you're paying on your current
card. There might be hidden fees that can rack up the bottom line on your
monthly statement. Look for an annual fee, the first sign that this card is
going to cost you money. If you have to pay for the privilege of having the
card, chances are you don't need it.
There are various other features that you do want: overdraft protection,
24-hour customer service, and detailed account reports for your business. In
the long run, these services are far more important business benefits than
frequent flyer miles or discounts on rental cars that are often accompanied
by numerous restrictions of their own.

* Find a card and stick with it. With all the offers of lower interest rates
and appealing incentives, you might be tempted to switch your account from
one issuer to another. Unless you are dissatisfied with your credit card
company, stay put. Card hopping shows up on your credit profile and will
likely be unimpressive to a prospective lender. Use your valuable time to
manage your business instead of pitting one credit card company against
another.

* Do not mix business with pleasure. A business credit card is intended for
business purchases only. In the event of an IRS audit —†and they do occur
via random selection — questionable expenses will raise suspicion.

* You don't need a deck of cards. You shouldn't require more than one or two
major credit cards for your business. The more credit cards you accumulate,
the higher your debt potential.
You charge a hundred dollars at the office supply store, then charge
computer equipment with another account, and maybe pay for gas, meals, and a
nice little antique table for your conference room on your corporate bank
card. There's still room on each card, so you're okay. But when the monthly
bills come, the totals come as a surprise. You can only make a minimum
payment so the finance charges will start to kick in. By keeping track of
the expenses as you make them you won't heap up a debt that puts a
stranglehold on your accounts payables.
Whenever you take that card out of your wallet, ask yourself if the purchase
is necessary and valid for the company.

* A credit card is not a loan. The account should not be viewed as a source
of funding when cash flow is tight. The interest rates and transaction fees
are too high! Avoid taking advantage of the cash advance option. If you are
resorting to borrowing from your credit card, chances are you're not going
to be able to pay the bill when it comes due.

* Limit the number of users. A company credit card is as much a
demonstration of trust as it is a convenience for the user. The bookkeeping
for multiple cards can be a nightmare, however.
Before applying for a card, make sure you can get itemized reports for each
card so your frustrated bookkeeper doesn't have to chase down people to
identify charges. To avoid excesses, specify to the employee how much and
what type of charges will be acceptable. Review the monthly statements to
verify that the cards are being use appropriately.

A business credit card is an essential tool to manage your finances and get
the items you need on a timely basis. In order to take full advantage of the
benefits, choose your credit card company wisely, making sure you understand
the services and the limitations. Be clear about how the card will be used.
Credit cards follow a basic law of physics: for every action (a
purchase) there is an equal and opposite reaction (a bill). By getting
proactive about the company credit card, you can keep your finances in
balance, boost your credit profile, and enjoy a terrific convenience.

About The Author: C.G. Parker is a former IRS Agent and now dedicates her
time to teaching and helping Small Businesses Succeed by understanding
Business Credit, Business Credit Cards and financial stability
(http://www.small-business-credit.org)