Why your company should use a business credit card

Business credit cards help smaller companies separate business from personal spending and simplify the reconciliation and accounting for business expenses. This type of credit card can be a real boon to businesses with fluctuating cash flows.

Like personal credit cards, business credit cards allow business expenses incurred in one month to be repaid over an extended term, if required. This feature also distinguishes business credit cards differ from corporate charge cards used by larger companies which must be fully–paid by the due date.

Business credit cards minimize the need for:

•    purchase orders
•    cheque authorization and issue
•    staff having to carry cash with them or to use their personal credit card when making purchases for the business

Business credit cards are issued to the company which then has the responsibility to pay for all purchases, fees and charges. An aggregate limit is usually set for all credit cards issued to the company with limits set for individual cards.

The key areas of difference between the various business credit cards lie in the application and annual fees charged, the per-annum interest rate, and the expenditure analysis supplied with the monthly statement.

Fees:

Application Fees can range from zero to $600.  Annual fees can be zero to over $1,000.   Zero or low fees are normally associated with cards that are issued as part of a larger secured financing package.

As with all credit card facilities, you need to be aware of the penalty fees that apply if a minimum payment is not received by the due date.  These fees can build up so it is essential that your internal processes ensure that payment is always timely.

Interest Rates:

The interest rate charged on business credit cards vary depending on the presence and nature of security for the outstanding balance.  Most business credit cards issued to private companies normally require director’s guarantees as support for the facility.  Where a business credit card is issued as part of a wider package of financial facilities, securities held by their bank or financier would cover any outstanding credit card balances.  Credit cards secured by residential property attract the lowest interest rates.

NAB credit cards, for example, currently carry a rate of 14% on its purchasing / corporate card and its business card.  Their Business Access Card will attract a lower interest rate when covered by security and is more akin to business overdraft rates which work on a base rate plus a margin for risk.

Since the credit risk to the card issuer lies with the ability of the company to pay its debts as they fall due – even with directors guarantees, unsecured business credit cards are only granted to companies with a good credit score.  The financial strength of the company also determines the aggregate and individual limit on their business credit cards – can range from a few thousand to $50,000.  Your credit card application will therefore need to contain relevant financial information that allows the prospective business credit card issuer to assess your credit score.

Where an interest-free period on purchases does not apply or has been waived, the trade-off is normally a lower interest rate.  The typical interest-free period on most business credit cards is up to 55 days like personal credit cards.  However, you can often reduce your interest cost when you choose a product which waives the interest-free-day period on new purchases.  Monthly statements are automatically debited or swept to another credit bank account on an agreed date.

Reporting:

If you anticipate regular use of the business credit card, make sure the chosen card offers regular itemized statements that also meet Tax Office reporting requirements.  Check that the itemized reports can be downloaded into spreadsheets and into popular accounting programs like Quicken and MYOB.  If online access is provided, you will be able to manage you business expenses 24 hours a day like the rest of your online banking.

Which Business Credit Card is best for your business?

Companies that pay usually pay the full balance on their business credit cards by the due date ought to focus on the cost to set up a business credit card facility, the cost of each card issued, the number of interest-free days on purchases, the form of the expenditure analysis – and, possibly, any relevant rewards program associated with the card.

Where the outstanding balance is only partially paid, the interest cost and any activity-related fees become critical.

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