Business owners are wise to establish business credit by building a full credit history based on the tax identifier. Separate credit accounts will avoid problems of high debt ratios on the personal accounts when most of the outstanding debt is business related.
Make sure you look thoroughly and compare business credit cards to find the best card for your company. When business credit cards must be selected from the myriad choices that exist, consider each of the following as part of the business credit policy:
Five Great Ways to Save Money and Increase Your Business Credit
1. Never Pay Credit Card Fees
From the time the credit account is opened, decide that fees will not be paid on the account for any reason. These are some examples of fees that can be avoided entirely:
• Refuse annual fees – Most credit card companies have ceased to charge annual fees for customers with active credit card accounts.
• Avoid cash advances – Fees as high as $50 can be charged for cash advances taken out against the credit card account. ATM fees are less expensive if cash is needed in an emergency situation.
• Use auto-pay options – Authorize automatic payments for monthly payments to prevent late payment fees. Some fees can exceed $50 for the very first late payment, and all privileges can be revoked until the payment is made.
2. Accumulate Bonus Points
Stay abreast of all the ways points can be accumulated on the credit account including preferred hotels, restaurants, rental car agencies, and any other places where discounts are awarded and points will accumulate.
• Cash rebate – Business credit cards that offer an annual rebate equivalent to a certain percentage of the purchases will translate into real savings.
• Air miles – Accumulating air miles can make the family vacation much less expensive when the miles are never allowed to expire before being traded for tickets. Some cards offer air miles that can be used on more than one airline, so compare the cards prior to opening an account.
• Gifts for points – While not the best exchange rate, some people enjoy getting a unique gift in exchange for the points that accumulated on the credit card account.
3. Pay Balance In Full
The best way to optimize the savings offered by credit card perks is to pay the entire outstanding balance when the bill is due every month. As soon as interest is paid on the account, most of the rebate is consumed in the interest payment.
• Monitor current monthly expenditures – On the fifteenth day of the cycle, check the outstanding balance on the credit account by looking online at the bank’s website. If the amount has already surpassed the monthly limit, stop all spending on the card until the bill arrives. Avoid all surprises when the bill arrives by monitoring account activity online.
• Set spending limits – Many business credit card accounts offer the ability to set an overall spending limit for the business and individual limits for each person with a credit card on the account.
• Business expenses only – Use business credit cards exclusively for business expenses and never combine the personal and business accounts. Have every employee agree that only business expenses will be charged on their company credit cards.
4. Interest-Rate Savvy
Even though the goal is to pay the entire credit card bill in full every month, the business owner should be aware of the following terms:
• Introductory rates – Credit cards are offered with an extremely low introductory interest rate for the first six to twelve months. If a credit balance will be carried during these introductory months, be aware of the exact day when the interest rate will change and pay off the balance prior to that date.
• Balance transfer rates – There are some instances where transferring a balance from a high interest rate credit card would lower the monthly payment amount, which can help with repaying the outstanding amount.
• Cash advance rates – Even though most cash advances are unnecessary, being aware of the fee charged can allow the cardholder to make a wise decision when faced with an immediate need for cash.
• Rate increases – Certain situations will cause the bank to raise the interest rate on a credit account. One late payment can allow the bank to raise the rate as much as 10 full percentage points.
5. Use Your Business Credit Sparingly
Even in very slow economic times, credit cards should be used when bills can be paid in full when the bill arrives. Using credit cards to sustain the life of a business will only delay the inevitable. Instead of using the credit card, address the following:
• Correct the cash flow – Evaluate every outstanding bill and eliminate all unnecessary expenses. Collect all outstanding accounts receivable balances.
• Reduce large expenses – Sell any assets that have an outstanding loan balance and are not used to generate business revenue. Reduce monthly services that are offered to employees until revenue increases.
• Save during busy times – When business is good, set aside as much money as possible to avoid using credit during lean times.
Credit is a powerful tool that can open doors of opportunity when used appropriately and responsibly. Business owners are wise to use every monitoring tool to ensure credit limits are not overrun. Unexpected bills can cause a ripple effect throughout the business budget and other bills lapse into overdue status if a credit card bill becomes unmanageable.
Financial institutions will evaluate the entire debt load to evaluate the business’s ability to repay a loan for capital expenditures. Your business credit rating is built in the same manner as a personal credit history; through responsible use of credit. Most bank loan officers are not willing to allow for personal expenses that are mixed with the business credit accounts. Maintain separate credit accounts for all business expenditures.
How have you used your business credit to grow your business?
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