Your Card, Please

Business credit cards can be helpful — but make sure you account for the hazards.

Your Card, Please

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If you've got even a single employee — or for that matter, if you run your business as a sole proprietor — you've probably at least considered getting a separate business credit card.

That probably sounds like a no-brainer. After all, it stands to reason that you should separate your business and your personal expenses, and a business-only credit card makes it easy to do that. And if you've got employees, issuing them credit cards for authorized expenses — such as a gas card to refill the company vehicles they drive, or a card they can use to pick up supplies directly from a vendor — may seem to be convenient at the very least.

But there are reasons to be careful when you decide to opt for a business credit card, especially if it's one that you issue to others in your business as opposed to just yourself. So if you're even considering taking this step, ask yourself these questions:

Do I want a business card — or just a dedicated card?

There's a difference between getting a card that's used only for your business and one that is marketed and regulated as a business credit card.

The 2009 CARD Act did a lot to improve consumer protection in the use of credit cards. It capped late fees, blocked arbitrary interest-rate hikes without warning, and also, for the first time, required card companies to apply consumers' payments first to the highest-interest debt instead of the lowest-interest debt.

But that law didn't extend those and other protections to the specific class of business or corporate credit cards. Banks that issue business or corporate cards can choose to follow the tougher consumer rules, but many don't, according to a survey last year by the Pew Charitable Trusts' Safe Credit Card project.

While there have been calls to expand the 2009 law to cover business cards, so far that hasn't happened. And until it does, the simplest answer is to use a second, ordinary consumer card, but only put business expenses on it, while reserving your personal credit card for personal expenses. That offers the big advantage of having a dedicated card – ease of record-keeping – without incurring the downside of less consumer protection.

>How will this affect my credit rating?

Regardless of whether the credit card for your business is marketed as a corporate card or simply a second personal card, you want to watch your use of it as carefully as you would your own card. Even if the business is separately incorporated, your use of the card – and your promptness at paying it – are going to have an impact on your personal credit report and rating.

So be sure you act prudently with it. Even if your business might be able to afford the debt, think twice before just racking up expenses on the card that will take you time to pay down. They're likely to lower your personal credit rating and credit score, too.

Because of the way a business card can affect a personal credit score, some financial advisors even suggest that employees turn down a company credit card and instead try to put work expenses on their personal cards, then get reimbursed by their employer. That's not going to help a business owner, though.

Do my employees need this?

The other side of the equation involves how handing a business credit card to your employee will play out.

If the employee's use of the card is infrequent, it may not be worth it – unused accounts can actually generate additional fees or even be closed by the issuer. On the other hand, if a particular employee has to incur frequent expenses in working for you, there is probably an advantage to having the individual use a card instead of always having to be reimbursed.

Can my employees be trusted?

It should be obvious that to issue a credit card to someone else for which you are ultimately responsible demands a lot of trust. So before you do that with your staff, think carefully: Are they responsible enough to use it wisely?

We all like to think we hire the smartest, most sensible people. And we're all wrong about that from time to time. So step back and evaluate your personnel to decide whether you're comfortable with the risk of putting that amount of financial power in someone else's hands.

What should the rules be?

Even when you decide your crew is universally trustworthy, it's still important to make some simple, sensible rules for credit card use. You can enumerate specifically permitted purchases — gas, supplies, perhaps meals or lodging when on the job out of town.

Or you can go the other way and categorize forbidden purchases — personal expenses, personal entertainment, movie channels on the hotel bill for an out-of-town business trip, whatever limits you want to set. Whichever approach is right for your particular business will depend on the specific details of your business circumstances.

Finally, make sure the rules include provisions for clear and prompt documentation of all expenses. And make sure they are followed consistently by everyone in your organization with access to a card. Making exceptions can be a slippery slope leading to big problems – like a wrongful discharge lawsuit from a worker whom you're forced to fire for making bad use of the company credit card.

How do I pick a card provider?

While you might prefer a low- or no-fee card issuer, that isn't always the cheapest alternative. Will your use of the card and your business cash flow mean that you'll have to carry a balance at least some time during the year? Then zero in on payment terms and interest rates. You may find that a modest fee on a lower-rate card will be better for you than a higher-rate card with no fee.

Also consider what perks are offered. Do travel points really help you or your business? Would straight cash back be better? Again, no one can decide these for you — it really depends on the distinctive nature of your business and, for that matter, your needs.

The bottom line

There's no question that a business credit card – whether it's a "business" card in name, or just in function – can make your life easier and your business easier to manage. But before you sign that application, think over these questions carefully, and answer them in the way you're most comfortable.

Then you'll be sure that the card is a useful tool, instead of a millstone.


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