How to Responsibly Use Credit Cards for Your Business

Wednesday, February 11 at 05:25 AM
Category: Business Banking

Once you've obtained a business line of credit, or small business credit cards, it's important to manage them just as carefully as you do your personal credit (by paying bills on time, not using it for cash advances unless necessary and limiting card hopping).

The biggest things you need to be aware of as a business are to avoid co-mingling, file monthly reports, get rewards that matter to you, manage your cash flow effectively and take on debt only if it will help to drive incremental revenue.
Avoid Co-Mingling
Mixing personal and business expenses, particularly for a start-up, can be one of the toughest things to manage. But you need to use common sense, even if you've received your business line of credit via your personal credit history. Any mistakes, missed payments, purchases exceeding your credit limit or simple mismanagement can be damaging to not only your business rating but your personal credit score. In other words, don't charge your plumbing repairs to your small business card. By using your small business card for pure business expenses, you are showing the IRS and creditors you are serious about your business, which will help you to obtain more credit and improve your rating.

Regular Monthly Reports
"So many companies completely forego monthly financial statements," says Jeff Van Winkle, a board member for the National Small Business Association who works with Clark Hill, a law firm that provides legal services to many small- to mid-sized businesses. "You need to establish where your company is at financially each month so you know whether or not you have enough capital to pay all of your debts, including your credit."

Get Rewards That Matter to You
One of the best benefits for small businesses is that small business credit cards often offer great rewards, which can be very specific to your industry and interests. By researching cards individually or comparing various creditors, you can determine which card will give you the most money back or reward you for your purchases. "If you spend a lot of time in the car driving with your company, you might want a card that includes gas rewards," Van Winkle says. "Really, there are so many options out there that you can't afford not to do your research."

Manage Your Cash Flow
One of the major differences between business owners who continually stay in the black and those who don't is their focus on cash flow management. Ask any successful business owner and they will often confirm the easiest way to maximize profit is to manage your cash flow.

"First off, look at your business plan and your monthly budget," says Harzog. "When you know what your cash flow is going to be from the beginning to the end of the month, specifically which days might be higher than others, that can be a huge benefit to you. You can then negotiate with your creditor your balance due date so it coincides with the flow projection."

Better cash flow management will assist you in meeting payroll demands, reducing your dependence on quick collections and taking advantage of opportunities to increase funds, such as offering discounts to vendors or clients for faster payment.

Take on Debt Only If It Increases Revenue
Hiring new staff, moving to a new and more profitable location, or buying equipment upgrades are good reasons to take on considerable debt. But if your business is set up solidly and you begin making purchases solely because you "think" it's a good idea, you are bound to make it more difficult for the revenue to grow.

Effectively managing your business credit will help you succeed as a company and help ensure your business is as reputable to creditors as it is to customers and vendors.

Information courtesy of Visa and Inc.*

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.

Article edited by Blog Admin 10/26/15.

Tags: Arvest Biz, Business Banking
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