Using business credit cards wisely requires balance
Set spending limits, recognize personal vs. business use
By Jeremy M. Simon | Published: August 25, 2006
Business credit cards can be a powerful tool for small businesses when used effectively. As such, it is important that business owners strike a balance when business credit cards are used to pay for business expenses.
One place owners need to strike a balance in the use of business credit cards is when it comes to employee spending. When too few employees are allowed to use company credit cards, it can create a bottleneck situation. Items that need to be purchased may not get bought, causing projects to become stalled.
However, when too many employees have access to business credit cards, there is the possibility of exceeding expense limits and disputes over which purchases were for the business and which were for personal use. With plastic in multiple hands, spending can easily get out of control.
Management can strike a balance by lowering employee limits on business credit cards. Also, having a manager handle the purchase of larger-ticket items can help rein in spending. Despite the potential for personal spending on company plastic, business credit cards can help entrepreneurs keep their own personal and business spending separate. Additionally, business credit cards provide convenience, access to working capital, expense tracking, and an opportunity to establish a credit rating -- which can be particularly valuable for young companies.
Even with all the benefits business credit cards allow, their downside it identical to that of personal credit cards. That is, the danger of spending money cardholders don't have. While there is the temptation to buy what you could not otherwise afford, experts warn that it can be harmful to start accumulating debt on business credit cards when purchases are not in the budget and cash is not available within the next 30-day cycle. Also, experts state that business owners who find themselves juggling multiple credit cards could be getting a sign that something is unhealthy in the financial management of their business.
Business credit cards represent a huge market for credit card companies, giving them significant reason to tailor their credit cards to the needs of entrepreneurs.
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