Credit cards are very powerful pieces of plastic and in the wrong hands can be detrimental to your business. The idea of being able to pay for something with no cash on hand is something not everyone has, which makes credit cards both convenient and dangerous. Credit cards may have tremendous purchasing power but they can instantly help companies rack up huge debts.
Good credit spending practices are essential to protect your business from being buried in debt. Some people say that credit cards are nothing but a headache but that couldn’t be farther from the truth. Credit cards can be lifesavers, especially if businesses need to use them in case of an emergency. Technology has further advanced credit card’s capabilities, as many merchants now offer credit card payment outside their stores as long as there’s mobile network coverage. If your business doesn’t have any available cash flow and you have an emergency whereby you need to access funds instantly, credit cards can be a viable fall back, as long as you know that your business will be able to cover the bill by the end of the month.
Here are some tips that businesses may want to keep in mind whenever they use their credit cards.
Always pay in full every month
As a general rule, businesses must never leave a balance hanging from a previous month’s statement. That’s because unpaid balances accumulate interest. Interest from a previous statement is not a good sign of using a credit card wisely.
Paying bills in full every month will also allow businesses to know their limitations, since they’d always need to have some cash in hand every month. A good gauge to know if businesses are using their credit card wisely is if they know how much they’ve spent on their credit purchases each month, and still have plenty of money left in the bank to cover wages, and any other outlays they have to pay including rental costs for office space and utility bills.
With a well thought out spending plan, businesses should never go over their credit limit.
Stay below the credit limit
Maxing out a credit card could have severe effects on a business’s finances. Having a maxed out credit card is not a healthy sign of credit usage, and will almost certainly bury a business in debt. In addition, if purchases exceed 70 – 75% of a card’s limit, a business’s credit report will suffer and therefore affect their credit score. A bad credit score will make credit card companies wary of extending credit limits in the future or even decide to close an account entirely. Living within one’s means, and staying below 50% of the credit limit, should be applied at all times.
If in case a big purchase needs to be made that would exceed a credit card’s limit, your business must inform the credit card company first. By applying for an overdraft protection, the credit score will not be affected.
A credit card’s annual fee can be negotiated
Most credit card companies charge their customers a small amount every year. However, if a business has a good credit rating and regularly uses their cards, they may waive this fee. Sometimes, the “points” that a card accumulates can be used to pay for the annual fee so it’s important to keep this in mind when the annual fee appears on the statement.
Remember, credit cards are tools that should work for businesses. It must never take over a business’s finances because of overspending, thus putting the company’s future in jeopardy. Having strict spending guidelines is a great way to keep credit card purchases in check for all business no matter how big or small.
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