How to effectively use a business credit card

Your business credit card can be a useful tool to call upon when cash flow is low or if you are looking to make a large purchase and don't have that much cash readily available. However, relying on a credit card to meet obligations can often be a risky practice. In order to get the best use out of your credit card it's important you understand the risks and what is required to make appropriate use of your card.

Don't over commit

There are a host of different credit cards available on today's market, each one offering a different reward system with its use. Signing up for multiple cards can not only have a negative impact on your credit rating it can also be extremely challenging to manage.

Try not to fall into the allure of reward points and ensure your main focus is set on achieving your business goals. Even when picking a card for your business you should focus more on the terms and conditions to decide what fits you best rather than the actual rewards available.

Keep personal transactions off your business credit card

As an SME owner it's easy to be tempted into using your credit card to make personal transactions. Many owners feel that it is within their rights as they own and operate the business anyway. However, your business credit card is not your personal spending tool and it's unprofessional to mix transactions.

It's also important to note that mixing transactions can affect your tax return as separating personal purchases with business investments at the end of the financial year will be a headache for any accountant. 

If you're struggling to manage your personal credit card, we have some tips to help you stay on top.

Use your interest free period as a form of cash flow

If you offer credit terms in your business you may find that you have slow periods throughout the year were you are left waiting for payments. However, chances are you have obligations of your own to meet, such as power bills and supplier payments, and need those paid before your customers credit terms expire. Due to the reasonable interest free period offered ontoday's credit cards, they can be a great tool to utilise as a short term cash flow option.

It's important to be careful though as things could get messy if your customer is late with their payment and you exceed your interest free period.

Avoid late payments

This seems like an obvious piece of advice, but delaying payment can cause a host of problems for your business. One of the biggest risks when using a credit card is the inflated interest rates that come with it, so if you do fall behind it can be extremely challenging to recover.

Only make purchases on your business credit card if you are absolutely sure you have payments coming through within the interest free period and you can reallocate resources in the instance payment isn't delivered on time.

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