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Credit cards and your business: how proper use can benefit you!

Published On
19 August 2023
Business tips & insights
credit cards piled on top of each other.

In today’s fast-paced and technologically-driven business landscape, the plastic in our wallets holds more power than ever before. Credit cards have become an indispensable tool for small businesses, revolutionizing the way entrepreneurs manage finances, make purchases, and navigate the complexities of cash flow. However, with great power comes great responsibility, and understanding the nuances of credit card usage is crucial for small business owners seeking financial success and sustainability.

Here at Sole, we aim to equip small business owners with the knowledge and tools necessary to navigate the credit card landscape with confidence. Whether you are a startup entrepreneur seeking the best credit card options or an established business owner looking to refine your financial strategies, our guide has something for everyone.

Read on for a list of reasons why proper credit card use can be crucial to business success, and how to get the most out of the cards you choose.

Sole and AMEX working together to help you manage your cash flows: https://soleapp.com.au/american-express/

Building Business Credit:

Responsible credit card usage can help establish and build a positive credit history for the business. A strong credit history is essential for obtaining favourable terms on loans, leases, and other financial products, which can be critical for the growth and expansion of a small business.A credit card provides a revolving line of credit that allows businesses to make purchases and repay them over time. Regularly using the credit card and making on-time payments will start to establish a positive credit history for the business. Furthermore, credit utilisation refers to the percentage of the credit card’s available limit that a business is currently using. Keeping credit utilisation low (typically below 30%) indicates responsible credit management and positively impacts the credit score.

Cash Flow Management:

Credit cards offer a convenient way to manage cash flow and bridge gaps in working capital, and allow businesses to make essential purchases and cover expenses when cash on hand might be limited. They provide businesses with a short-term line of credit, which can be especially useful during periods of fluctuating revenue or unexpected expenses. Furthermore, with credit cards, businesses can access funds almost instantly. This rapid access can be critical for seizing time-sensitive opportunities, making urgent purchases, or dealing with unforeseen expenses.

Separation of Personal and Business Expenses:

Using a dedicated business credit card helps to separate personal and business expenses, simplifying accounting and reducing the chances of mixing personal finances with business finances. This separation is essential for accurate bookkeeping, tax reporting, and legal liability purposes.

Rewards and Perks:

Often, business credit cards offer rewards programs tailored to business needs, such as cashback, travel rewards, or discounts on business-related expenses. Properly using these rewards can save money and contribute to the business’s financial well-being. Many credit cards offer cash back rewards on purchases. Businesses can earn a percentage of their spending back as cash, which can be a valuable way to reduce overall expenses or reinvest the cash back into the business. Furthermore, some credit cards offer travel rewards, such as airline miles or hotel points, for every dollar spent. These rewards can be used to offset travel expenses, making business trips more cost-effective.

Fraud Protection:

Credit card companies typically employ sophisticated fraud monitoring systems that analyze transactions in real-time. If they detect suspicious or unusual activity, they can send alerts to both the cardholder and the business. This early warning system allows businesses to take immediate action if fraudulent activity is suspected. Additionally, credit card companies typically investigate and handle fraud claims, providing an added layer of security compared to using debit cards or cash. Additionally, many credit card issuers offer a zero liability policy, meaning that the business will not be held responsible for any unauthorised transactions made with their credit card account. This protects businesses from financial losses resulting from fraudulent charges.

Purchase protection is a benefit provided by many credit cards that offers coverage for damaged or stolen items purchased with the card. If a business purchases goods or equipment using the credit card and those items are damaged or stolen within a specified period (usually within 90 days of purchase), the credit card issuer may reimburse the business for the cost of the item, up to a certain limit. This can be especially useful for expensive purchases or items critical to the business’s operations. Some credit cards offer an extension of the manufacturer’s warranty for products purchased with the card. This means that if a product comes with a standard one-year warranty, for example, the credit card may extend that warranty by an additional year. If the product experiences issues or defects during the extended warranty period, the credit card issuer may cover the cost of repair or replacement, subject to the terms and conditions of the warranty extension.

Financial Tracking and Reporting:

Credit card statements provide a detailed record of business expenses, simplifying financial tracking and reporting. This can save time and effort when reconciling accounts and preparing financial statements for tax purposes.

However, it’s important to note that while credit cards can be advantageous, they should be used responsibly to avoid accumulating excessive debt. Proper credit card management involves paying bills on time, keeping credit utilization low, and avoiding unnecessary or extravagant expenses. Overextending credit card usage can lead to high-interest charges and potential financial difficulties for the business. Therefore, using credit cards wisely and in conjunction with a well-thought-out financial strategy is essential for small business owners.

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