Explore How a Business Credit Card Works

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(Newswire.net — November 23, 2022) — Most businesses have employees incurring expenses during work, and such common purchases have to be effectively managed. Business credit cards also referred to as purchasing cards, are a great tool for improving a business’ control over expenses, as well as lowering costs and streamlining payment procedures. Before you read further to know how credit cards work, it is essential that you know what a business credit card is.

Know what are business credit cards

A business or corporate credit card is made especially for business owners and is known for providing distinctive benefits tailored to businesses. Business cards generally have greater rewards, higher credit limits, and tools to help you control spending.

Most SMEs have to pay their fixed costs, like rent and utilities, as well as other business expenses, like travel and food expenses, incurred during a meeting with a client to discuss new projects or a dealer or distributor to talk about new products. You can use your business credit card to make payments or purchases to help you deal with fluctuations in cash flow.

Most business credit cards are designed to offer tools to track and manage business expenses. When it comes to perks and rewards, these credit cards offer greater value, for companies spend more than individuals do.

How do Business Credit Cards work?

Business credit cards function similarly to personal credit cards, with the exception that they typically have better rewards programs and higher spending limits. They come with business-oriented tools for categorizing and monitoring expenses incurred by the company and its employees during the period. You can always download and quickly import expense data into your company’s accounting software.

Financial institutions, including banks, offer different types of business credit cards. For instance, RHB has a Corporate Card and Purchasing Card tailored for SMEs and corporate customers. These credit cards may have different annual percentage rates (APRs), which can be higher or lower based on a business’s creditworthiness.

Each company credit card is crafted to have a unique reward program for businesses having different spending needs. Possibly, some may invest heavily in marketing, sales, and advertising, while others may invest more in travel or office supplies. 

For instance, a card that enables you to keep track of your spending uses a cash management platform and offers a strong credit line will help you get the most out of your shopping experience. Moreover, it also offers impressive cash back and ready cash flow.

Before you select and apply for the best business credit card, it is better to have a clear understanding of your company’s spending requirements. For instance, a startup business may choose a better cash-back option to use statement credits to reduce the monthly bill.

An entrepreneur with more experience or one who travels frequently for business may want a card that quickly accumulates travel rewards or gives discounts on hotels and flight tickets when booking. Consider a business credit card that provides a higher cash-back option on gas purchases if a significant portion of that travel involves driving. Further, business travel that involves driving will ask for a card that offers better cashback offers on petrol purchases.

Some key reasons to get a business credit card

A business credit card, similar to a personal credit card, gives you the same access to a line of credit. You need funds for your daily business operations. A corporate credit card will be useful in several ways such as:

  • Managing cash flow

When expenses are due and the payments are yet to receive, a business experiences cash-flow gaps. In such a situation, a business credit card that offers a charge-free period can be used to make payments before receiving money. This can help businesses maintain good relationships with suppliers even when they run out of money without paying interest on the working capital borrowed in the interim, provided the balance is settled before the interest-free period ends. 

SMEs who frequently experience problems with cash flow management may want to choose credit cards with better interest-free periods. Further, you can also use this purchasing card to spread out major business expenses while controlling finance costs. For instance, RHB gives you 50-day charge-free credit for purchases of raw materials and office supplies, which helps manage cash flow.

  • Tracking and managing business expenses

The online tools that come with business credit cards will help SMEs view card statements showing all the payments and balances. Using interest-free credit to its fullest potential and managing cash flow more effectively can help companies decide when to make card payments to free up cash for other uses.

  • Using rewards like cash back

The rewards point that a corporate credit card offers to help a business cover various expenses related to business travel, accommodation, and entertainment. There are some cards that offer cash back for business purchases.

  • Improving audit management

With a purchasing card, you can have better audit management through the consolidation of transaction data and accelerating the reconciliation process.

In short, knowing how credit cards work will help you optimize their use in business using extended interest-free periods and cash-back offers and managing expenses.