Common mistakes to avoid when using a business credit card

When you’re running a business, a credit card can often be a handy companion. It helps smooth out cash flow, you can usually earn rewards on your spending, and tracking expenses is straightforward. But you still need to be careful with how you use it, otherwise you could end up accumulating debt that is difficult to manage. 

With that in mind, let’s take a look at some common pitfalls business owners face when using credit cards, and how you can sidestep them.

Ignoring rewards

Many business owners sign up for a credit card without giving much thought to the rewards program. But this can mean potentially leaving money on the table.

Whether it’s cashback, travel miles or points, these perks can add up to significant savings for your business. Take some time to understand your card’s rewards structure and use it strategically.

Look at Funding Circle’s Cashback card. It offers the chance to earn up to £2,000 cashback with 2% on all your spending for the first six months, then 1% uncapped cashback after that.

Whether you’re buying inventory, paying for services or covering travel expenses, that cashback can add up to significant savings for your business and give your company more financial power.

Carrying a balance (and watching interest pile up)

Sometimes cash flow is tight, and carrying a balance on your credit card seems like a quick fix. But beware, as interest rates on business credit cards are often higher than other forms of financing.

Aim to pay off your balance in full each month. If you find yourself constantly unable to do so, it might be time to look at other options. A business loan or a line of credit like FlexiPay could be a solution. You only pay a fee on purchases. Plus, you can choose how to repay, between 1, 3, 6, 9 or 12 months so it fits your business needs. 

Letting employee spending get out of hand

Giving employees access to a company credit card can be helpful for streamlining expenses. Without clear guidelines, however, it can quickly turn into a financial headache.

Set clear policies on what constitutes an acceptable business expense. Consider setting spending limits appropriate to each employee’s role. And be sure to review statements regularly. This makes it much easier to address any issues early on.

Forgetting about your credit score

It’s easy to forget that your business credit card usage can affect both your business and personal credit scores. Late payments or high credit utilisation can impact your scores, potentially making it harder to secure financing in the future.

Stay on top of your payments and try to keep your credit utilisation on the lower side if possible. Being consistent with payments helps keep your credit score in check—and potentially improve it—meaning it should be easier when it comes to future applications, like business loans or personal mortgages. 

Choosing the wrong card for your business

Not all business credit cards are created equal. Using one that doesn’t align with your spending patterns won’t give you the results you desire—it might do the job to some extent, but it’s far from efficient.

Take the time to shop around and compare different cards. Consider factors like:

• Your typical monthly spend
• The categories where you spend most
• Whether you’re willing to pay an annual fee for premium benefits

For instance, if your business rarely requires travel, a card that focuses its rewards on flights and hotels probably isn’t the best fit. 

On the other hand, if you want to earn cashback for everyday expenses, something like Funding Circle’s Cashback card might just be the right fit. 

Neglecting to review statements and terms

When you’re juggling a myriad of tasks as a business owner, it’s tempting to glance at your credit card statement every now and then before filing it away. This can be a costly mistake however.

Make it a habit to review your statements each month. Look out for any unexpected charges or fees. And stay informed about any changes to your card’s terms or rewards structure.

Regularly reviewing your card can help you catch any issues early while making sure you’re still getting the most value from your card. 

If, for example, you had Funding Circle’s Cashback card or FlexiPay, you can use our app to manage your card, whether it’s checking the balance, seeing your cashback rewards or transferring funds to another account with FlexiPay. 

Relying too heavily on credit

While a business credit card can provide valuable flexibility, over-relying on credit might be a sign of underlying cash flow issues.

If you find yourself constantly reaching the limit of your card or unable to pay the balance, it could be time to take a closer look at your business finances. Consider creating a detailed budget, exploring ways to increase revenue or cut costs or speaking with a financial advisor about healthier ways to manage your business finances.

Summing up: Using business credit cards the right way

A business credit card can be helpful when used responsibly. Avoiding these common mistakes means you can give your card a better chance of working for your business, not against it. Whether it’s best-in-market cashback or total payment flexibility, using a business credit card wisely can streamline your operations and keep everything running smoothly.

28/08/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.