Cash Isn't Always King: 5 Reasons Why Your Business Should Be Using Credit Cards, Now

As a business owner, bookkeeping can be difficult and confusing. You may worry about cash flow or protecting your finances. It can be overwhelming, but it doesn’t have to be. Especially if you learn to let credit cards work in your favor.

Regardless of any preconceived notions, credit cards can be good for you. Here’s why.

1. Record keeping

Most credit cards allow you to download your statement details into your accounting software. Credit card statements help you track your expenses. Some cards provide year-end summaries that will make tax preparation easier and simplify year-end bookkeeping. Instead of struggling with accounting entries and bank statements, all of the information gets entered automatically. Your time prepping for taxes slices in half. Additionally, you can clearly see where your money is going each month.

2. Budgeting

If you cannot track your finances, how can you improve them? Credit cards help you track your spending. By downloading the details into your accounting software, you will see where you spend most of your hard earned dollars. You might even be surprised by a category that consumes more money than you thought it did.

Tracking your spending empowers you to set up a budget and stick to it. Cash, on the other hand, can be a nightmare to track. There is a reason why people say, “Cash burns a hole in your pocket.”

3. Protection

Credit cards provide fraud protection. Take it from someone who had their wallet stolen at 4:00 AM one morning. Before I woke up, the credit card company had already put a hold on my card and stopped any more activity. By noon all the money spent was removed from my balances. If this had been cash, it would be lost forever. There’s more. Many card companies also offer consumer protection. If you purchase a defective product, you are protected.  If the company you purchased the item from is unwilling to work with you, the credit card company will work to get you your money back.  

4. Rewards

Credit card companies incentivize you to use their cards by giving you rewards. Some cards offer a flat percentage that can range from .5% all the way to 2%. Others offer bonuses of up to 5% for using the card in certain categories, such as office supplies, gas, travel, and grocery. When deciding which credit card to get, it is best to find the right card for your personal spending habits.

On a personal card it is okay to receive cash back, but on a business card, those cash rewards become taxable. When thinking about which rewards are right for your business, get a card that allows you to redeem the rewards outside of your business. Items like personal travel or gift cards are perfect for that.

5. Short-Term Cash Flow

Credit cards run on a monthly billing cycle. The card payment is then due about 20-25 days after your billing cycle ends, giving you an additional 2-4 weeks to pay the card balance. What does this mean for you? Your money is not leaving your account for anywhere between 3-8 weeks from the date of the actual purchase. If you time it right, you can have interest-free cash flow for almost two months.   

Also, with a credit card you can use the revolving credit immediately, turning it into a buffer to solve short-term cash flow needs, like during a slow month or two.

The Rules

Using a credit card to your business’ advantage does not come without a few tips and suggestions. It is best to apply these three rules when using credit cards.

1. Treat your card like cash

Ideally, you will only use a credit card if you have the money to pay it off. By paying it off every month, you avoid paying interest.

2. Avoid unnecessary fees

With any credit card, it is good to be wary of fees. Paying too much in credit card fees will negate the benefits.

Believe it or not, some fees can be okay. For instance, if you can increase your rewards from 1.5% on a free card to 2% and it only costs you $60/year, the break even is $12,000. That means if you spend more than $12,000/year on that card it makes more sense to pay the fee.

Some cards charge annual usage fees upwards of $495/year. If you are a serious traveler and are putting hundreds of thousands on the card, then it probably makes sense. For everyone else, it probably doesn’t.

Fees you never want to pay:

? Cash advance fees

? Finance charge

? Late payment fee

? Over-the-limit fee

? Returned payment fee

? Balance transfer fees

? Foreign transaction fee (If you plan to travel a lot, find a card that lends itself to travelers and cuts out this fee.)

3. Remember, it’s a loan, not income

It can be enticing to let loose when it seems you have money to use. Beware of this trap. Credit cards come with attachments, and the money has to be paid back. So, if you have a spending problem, you probably shouldn’t use credit cards. Why? When you pay interest, all of these benefits are wiped out.

The idea is to save money and make the credit card work for you. If you are working to pay the card company, it defeats the whole purpose.

It pays to be smart with your credit card.