5 Common Business Credit Card Mistakes and How to Avoid Them

{{CODE999999}}

During a busy day of running errands, I pulled out my credit card several times to make purchases. As I went to pay my credit card bill, it was only later that I discovered I had used my business credit card to make several personal purchases.

It was an honest mistake: I have a business credit card and a personal credit card from the same issuer, and except for the addition of my business name on one card, they look almost exactly alike.

To ensure I didn’t mix them up again, I bought an inexpensive sleeve for my business card and wrote “biz” in big letters on the front.

Credit cards are a popular financing option. Whether you’re just starting a business, growing an existing business, or freelancing, you rely on credit card financing for most purchases.

Some credit card mistakes, like mine, are reasonably harmless. I fixed this mistake, and no serious damage was done. Others can be quite costly.

Here are five business credit card mistakes you should avoid:

1. Mixing business and personal expenses

A business credit card makes it easy to keep track of business purchases. But if you’re using your card for personal purchases too, you could face a headache come tax time, especially if you’re not keeping careful track of receipts.

In addition, you may lose out on your ability to deduct interest or the annual fee if you’re not using your card exclusively for business purchases. (Check with your tax advisor.)

If your business is incorporated, mixing business and personal purchases may make it harder to maintain the legal protections of your business entity.

Solution: Use your business credit card for business purchases and a personal credit card for personal purchases.

{{CODE888888}}

2. Financing the wrong purchases

Your credit card isn’t just a convenient and safe payment method; it likely also offers a line of credit that allows you to finance purchases over time. Using your credit card this way is convenient and won’t require a new credit application or open your request up to scrutiny by a lender.

With some card issuers offering 0% introductory APRs for as long as 12-18 months on business credit card purchases and/or cash advances, credit cards may provide an inexpensive way to preserve cash flow in your business.

However, credit cards are best used for short-term financing needs. Otherwise, you may find your business saddled with expensive debt once the low introductory rate expires. Making the minimum payment compounds this problem by allowing you to stretch out payments for years or even decades.

Solution: For large purchases or those that require longer-term financing, consider other types of small business financing, such as equipment financing, term loans, or even an SBA loan.

3. Missing out on rewards

Business credit card rewards can add up quickly. But if you haven’t thought about your rewards lately, you may not get the right ones.

A perfect example right now is travel rewards. Maybe you’re paying a high annual fee for a premium airline miles card, but you’ve canceled in-person business trips for the near future. Or perhaps your fuel costs have increased, and a gas card with bonus cash back could save you money.

Finally, if you are considering switching to a new card, consider that many issuers offer welcome offers with additional points, miles, or cash back if you meet specific spending thresholds within the first few months of card ownership. Welcome offers (also called “limited-time offers”) can make choosing and applying for a new card truly rewarding.

Solution: Review your credit card rewards program annually to ensure you’re taking advantage of your cards’ perks and to think about whether it’s time for a change.

4. Paying late

You should always try to pay your credit card bill on time. Doing so protects your credit scores and helps you avoid late fees, while also helping you to manage and settle credit card debt, if necessary.

But with business credit cards, paying on time is even more critical. That’s because you won’t likely get the same wiggle room you do with personal credit cards. For businesses looking to manage their cash flow more effectively, a buy now pay later option could be a strategic move.

The Credit CARD Act doesn’t cover business credit cards like personal ones. Miss a payment by even an hour, and your issuer likely can (and will) raise your interest rate to the “default” or “penalty” rate. That new rate can apply to existing balances as well as new purchases.

Solution: Set up automatic payments for at least the minimum amount. As long as the minimum is paid on time, you won’t suffer the consequences of a missed payment.

5. Falling victim to fraud

Credit cards, including business cards, offer some of the best fraud protection of any payment method. You can dispute unauthorized purchases and purchases where the goods or services were not delivered as agreed. Those protections enshrined in the Truth In Lending Act extend to consumer and business credit cards.

But you can still get stuck with fraudulent purchases. How? Here are two examples:

* You aren’t paying attention. If you are paying your credit card bill without reviewing individual charges, you may pay for a purchase you didn’t make or approve.
* You give a card to an employee or contractor who makes an unauthorized purchase. If you’ve authorized them to use your card, you’re responsible for all the charges they make.

Solution: Review each credit card statement carefully. Set up spending controls on cards you give to others. Use virtual card numbers for recurring transactions, if available. And set up alerts to notify you immediately of transactions out of a typical spending pattern.

Business credit cards are a smart way for your business to pay for purchases and manage the ups and downs of cash flow. Just use them carefully to maximize perks and reduce risk to come out ahead.