What Are the Benefits of Using a Business Credit Card?

People personally use credit cards more today than ever before, but it wasn’t always that way.

Table of Contents

• When did credit cards get started?

• What are business credit cards?

• Why are business credit cards helpful?

• What are the negatives of business credit cards?

• When it comes to business credit cards, do what is right for you.

• Frequently Asked Questions (FAQs)

When did credit cards get started?

Bank of America is typically credited for making the very first “consumer credit card” available for public use in 1958. Others dispute this fact and assert that the Diners Club Card predated it in 1950. Real persnickety historians go back even further to 1946 and cite John Biggins, a Brooklyn, New York, banker as being first. Biggins came up with the idea of the Charg-It card. His banking customers could use the Charg-It card at a few select merchants to buy things on credit.

From the late ’50s and into the ’60s, credit cards continued to emerge and grow. In 1958 American Express morphed from being solely a travel check company into starting a credit card of their own. About 8 years later, Mastercard followed. And then later on in 1985 the mail order and department store giant Sears, Roebuck & Co. issued its Discover card.

While people were at first skeptical of the intangibility of using credit cards for transactions compared to the feeling of hard cash and checks, confidence, and convenience continued to rise. More and more people converted, adapted, and eventually preferred using credit cards.  As of today, credit cards and/or debit cards are most often the preferred methods of payment.

What are business credit cards?

Business credit cards perform the same functions as personal credit cards but are issued to business entities or companies. These cards tend to carry higher credit limits, offer special reward point programs, and come with software features to track usage. Certain selected individuals within these companies may be authorized to carry, use, and charge with these. Business credit cards can have individual user names printed on them and feature personalized images.

Why are business credit cards helpful?

Business credit cards make transactions easier.

Businesses that use credit cards can streamline transactions. For example, the whole process of check writing can be eliminated. There is no need to have checks printed. Keeping duplicate checks or dealing with people who fail to write and post entries in check ledgers goes away. There are no more backend checking processes to handle. And the inter-office “Easter egg hunt” about “Who has the checkbook?” disappears!

Business credit cards keep you from having to carry cash.

A business credit card does away with or reduces the need to keep cash on hand and on-premises. Handling cash in a non-retail business can be a real headache. Whether it is in a tin box for petty cash or in sizable amounts in a safe for payments, having cash around leads to temptation for theft and exposes a lot of people to errors in handling it.

Business credit cards reduce theft.

Business credit cards are relatively secure. People have to get authorized to use them. When there is unauthorized activity, or even unusual use or transactions, alerts can be generated and sent “in real-time.” Receipts for transactions are computerized and statements come out monthly. Transactions can even be viewed instantly online. It is easier to steal from businesses via cash and checks than via credit cards. In the case of credit cards, when there are losses due to unauthorized usage or fraud, those lost funds can often be recaptured and returned. Some credit card companies even offer guarantees.

Business credit cards accurately track expenses.

Credit card statements and reports allow for easy tracking of who spent how much for what and when. Software can sort and archive all sorts of helpful data. Whether filing taxes, managing expenses, or moderating the habits of wayward personnel, having the robust electronic data of business credit card systems is truly a boon.

Business credit cards allow you to monitor expenses and even cap use by certain categories or people.

You gain superior control over expenses that used to be unwieldy and bothersome before. With business cards, you get to track things as often as you like and customize and sort the data to look at things differently. If an employee is abusing a certain category or spending threshold, you can instantly deal with it.

Business credit cards can temporarily improve cash flow. Most businesses carefully watch their cash flow.

Using business credit cards to pay expenses allows companies to float money for thirty days. Meaning, something can be purchased today and then paid for approximately thirty days later when the credit card bill arrives. This can be helpful because it lets a business spend more while awaiting delayed payments or in need of a little more time.

Business credit cards help keep personal and business finances separate.

When business and personal records get mixed up together, it makes budgeting or filing taxes real headaches. Keeping personal and business expenses separated makes financial lives much simpler. Additionally, unless you have personally signed to guarantee a business credit card, balances owed on it are not reflected on your personal financial reporting.

Business credit cards bolster a business’s credit rating.

Business credit cards can make a real improvement in your business’s credit rating. The card demonstrates that you make timely payments. It establishes verifiable credit that helps position you with vendors and future possibilities for extended credit or business loans.

Business credit cards allow you to take advantage of free rewards, warranties, rebates, and discounts.

Business cards often come with a lot of benefits. For example, you might get free access to rest lounges at major airports. Some business cards accrue reward points that you can put toward travel, car rental, or hotel rooms. Some offer travel insurance, free purchase protection plans on products, discounts on certain products and services, and even cash rebates.

What are the negatives of business credit cards?

Business credit cards do not legally have the same high level of consumer protection as personal credit cards.

Business credit cards by law do not have to offer the CARD Act of 2009 protections but know that they often do so voluntarily.

Business credit cards have higher annual percentages of interest rates.

Interest rates for business credit cards will of course vary depending on the company, but in general, business credit cards have higher interest rates than personal credit cards. Interest rates vary almost daily, and different credit card companies have different business goals. Some have a model based upon loaning to those who pay in full monthly and seldom, if ever, carry-over balances. Others prefer customers who carry ongoing balances.

Business credit cards check your personal credit history.

Besides delving into your personal financial history and profile, companies extending business credit often want your personal guarantee. So, while the credit card is for business, your personal assets become exposed to attachment.

When it comes to business credit cards, do what is best for you.

In general, think of a business credit card just like you would think of a personal credit card. If you chose to have a personal credit card, does a business credit card make the same sense? Do the benefits outweigh any negatives? Does a business credit card move you toward goals or does it get in the way? When in doubt, contact one of our trusted commercial bankers at Lexicon Bank. After all, our business is all about your business.

Frequently Asked Questions (FAQs)

What happens if I accidentally use a business credit card for a personal purchase?

If this happens, which frankly it often does when someone grabs the wrong card, it’s easy to fix. Simply note the error and adjust it off the business. You might have to report the error to the business’s accountant and then reimburse them for the payment. Most big companies have already put a way to handle this in place, just ask.

Do I need to have a business license or EIN to get a business credit card?

In most cases, yes, you will need an EIN to apply for a business credit card. Each company is different so be sure to get specific information. Some companies want EINs even for sole proprietorships regardless of having set it up under a social security number. Some want state or city-issued business licenses, and others do not.

How many business credit card accounts do I need?

The answer is, “Depends.”

• It depends on how much revolving credit you want to carry.

• It depends on if you want to use multiple accounts to compartmentalize your spending. The approach to compartmentalizing expenditures hinges on your preference, whether you opt for internal departmental categorization with distinct and dedicated accounts for each, or choose an alternative method.

• It depends upon how you conduct your finances because in some cases your business will reflect that pattern.

• It depends on many other different factors that may vary from business to business.

For a general answer, two business credit card accounts might be optimal. Use one as the main and constant account and have another one actively in place in case something goes wrong with the first account.

Do business credit cards affect taxes?

Typically, business credit cards do not affect taxes. They should make it easier for you to track tax-deductible purchases and you will be able to deduct any credit card interest paid.