What You Need to Know About Business Credit Cards

There are many benefits to securing business credit cards but they should be approached with caution because while most are good deals, there are some that are not nearly as good and even in some cases are horrible. For small businesses especially, they can be a lifeline to help make it to pay day as well as a great way to turn using credit into a tool that empowers the small business. While seeking out a business credit card, understanding the pros and cons of business credit cards is vital to making sure that your business chooses one that is truly working for the business rather than against it.

Benefits of Business Credit Cards

There are many benefits to business credit cards. The single biggest reason why companies choose to use credit cards is that they make purchases easier. Rather than having to go through with the tedious process of purchase orders, a business credit card can be used, billed immediately and goods shipped from a wholesaler to a retail store quicker than when there are purchase orders involved. Business credit cards cut down on the paperwork necessary to secure goods and services as well simplifying the business and cutting the time the accountant or accountancy department will have to spend dealing with purchasing. All of the information for purchases will be on one bill that can easily be read as well as easily imported into spreadsheets or an accounting database.

Another big benefit of business credit cards is many of them give the purchaser some leverage over many vendors. Popular business cards have negotiated favorable pricing with key vendors in many market segments. Whether this is guaranteed pricing for a small business that matches what larger companies get from that same vendor or other deals, business cards are able to offer small businesses negotiating power with vendors of all types that they normally would not have the ability to have without the business credit card.

Finally, business credit cards offer the small business that use these cards financial protections that a purchase order and a check written would not have. If a vendor commits to delivering a specific product at a certain price and does not meet this obligation; either they up the price without telling the company or change out the product for a lesser one or some other type of dispute arises, the credit card company can come in and help arbitrate the situation. Other financial protections that credit cards offer over other methods of paying for items and services are that credit cards protect the small business against fraud. If someone gets a business’s account and routing number for checks, they can reproduce checks for the business and easily destroy a small business, even if the fraud is caught quickly. By using credit cards instead, the small business has much better protection from fraud. Getting the card number is more difficult but if someone does manage to get it, the credit card can stop payment immediately on current charges and ensure, immediately and with no cost to the business, that no future charges will go through.

Things to Watch for 

There is no doubt that there are a lot of benefits to getting business credit cards for any size business. However, not all companies are created equal when it comes to their offerings. Because the laws are different for credit cards compared to consumer credit cards, reading the “fine print” on credit card applications is even more vital for business credit cards than for consumer credit cards. The amount of protection, the amount that the business would have to absorb in case of fraud and many other terms will vary quite a bit more on business credit cards compared to their consumer-based cards.

One big place where business credit cards vary dramatically among themselves is the cost to be granted the business credit card in the first place. Each credit card issuer will have a set yearly membership or card fee of some sort put in place. These can vary, with some cards still being issued with no annual fee to cards that charge hundreds of dollars a year. Many will waive the fee for the first year; allowing the business to try the card out for that year before deciding if they feel it is worth whatever the fee may be.

While a few hundred dollars may sound excessive, a free card may actually be the worse deal for the small business. For companies that will be putting off payments past the month’s grace period, the interest rate difference between the high annual fee card and the free card will likely be enough different that the interest on even a few thousands of dollars of purchases will pay for the annual fee from that card. In general, checking the interest rate and shopping around for the card with the best interest rate is important. While most businesses use credit cards as a tool and they typically never carry a balance, knowing that the interest rate is low means that a really slow month can be floated until the next month without worrying about excessive interest rates.

While shopping interest rates, checking the card issuer’s detailed information is important to find out how and when the company can change the interest rate and if there are other fees the company can levy on the account. Some cards actually have a monthly fee if there is not a balance being carried over, for instance. The company is making money on each transaction; there is no need to make money off the card holder that is managing their money well too.

The final thing to check with any business credit card is to make sure that the business is covered in the event of fraud. With consumer cards, the laws are very specific when it comes to how much the consumer has to pay if someone commits identity theft. This is not the case with business credit cards where the rules are more relaxed. As such, making sure that the responsibility for the business is low and the issuing card company will work as hard as they would on a consumer account is the best way to protect the business.