Savvy business people understand the importance of managing business finances effectively. One crucial aspect is knowing which transactions you should (and which transactions you shouldn’t) put on a business credit card. Here are five expenses and transactions to avoid putting on your business credit card account:
The Benefits of Business Cards
Small-to-medium-sized business credit cards are a great way for companies to improve cash flow and provide access to additional capital. And if your company plans to issue multiple cards to employees, the benefits can increase exponentially. That’s because many business cards provide access to lucrative rewards, such as cash back, points, or airline miles.
But business credit cards offer far more than rewards. They typically provide a suite of financial management and accounting software integrations, including for popular programs like Quickbooks. These expense management tools also include employee spending controls. These controls let account managers set spending limits on individual cards, so employees that need access to money can – and those who don’t can’t.
Transactions You Should Never Put On a Business Credit Card
While credit cards can be a valuable tool for managing expenses, certain transactions are better suited for alternative payment methods. Here are some of the most critical transactions to avoid placing on a business card:
Maintaining a clear separation between your personal and business finances is essential. Mixing personal expenses with business transactions can create confusion, complicate accounting processes, and may even cause issues during tax season. Avoid putting personal expenses and bills, such as groceries, vacations, or shopping, on your business card to maintain accurate financial records and streamline your bookkeeping.
While credit cards offer the convenience of cash advances, it’s generally best to avoid using your business credit card for this purpose. Cash advances often come with higher interest rates and additional fees, making them expensive. Additionally, using your credit card for cash withdrawals can negatively impact your credit utilization ratio, potentially damaging your credit score. Instead, explore alternative means of accessing cash for your business needs, such as a business line of credit or a small business loan.
Investing in “volatile assets” with credit can be financially risky and potentially lead to substantial losses. Using your business credit card for high-risk investments, such as speculative stocks or cryptocurrencies, is generally not advisable. Using personal funds or exploring dedicated investment vehicles for such endeavors is best, enabling better risk management and separating personal finances from business-related investments.
Using your business card for a balance transfer is fine – but not your personal debts. Balance transfers can be useful for consolidating debt or taking advantage of lower interest rates. However, it’s generally wise to avoid transferring personal debts onto your business credit card. Doing so can blur the line between your personal and business finances, making tracking and managing expenses harder.
Unapproved Employee Expenses
Allowing employees to use your business credit card can streamline expense management. Still, it’s essential to establish clear guidelines and approval processes. Ensure that employees know the types of transactions that are approved and not. Discourage unauthorized or personal expenses on the business credit card, promoting responsible spending practices and avoiding potential disputes or misuse.
Summing It Up
Effectively managing your business credit card transactions is vital for maintaining accurate financial records, simplifying accounting processes, and maximizing the benefits of your card. By avoiding personal expenses, cash advances, high-risk investments, balance transfers, payments to yourself, and unapproved employee expenses, you’ll be on the right track to financial efficiency and sound business practices. Remember, a business credit card should only be used for legitimate business expenses to separate your personal and professional finances.
Related Article: Who Owns Business Credit Card Rewards?
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