A plethora of cash management options, credit and debit card programs exist that purport to offer support, flexibility, funding and a “friend” to be there when you need it. Most providers of these services and products offer some sort of solution that can be an asset to you as a business owner. The question, just as it was for Goldilocks, is, which solution fits your business “just right?”
Answering that question requires some thought and research, both on the products and solutions being offered, as well as on your own operations and goals. The following considerations will help you start your evaluation.
Will I Qualify?
This most basic of questions needs to be asked before you embark on the credit and card application journey. Too many applications for credit in a short period of time can hurt your credit rating, potentially both personally and for your business, so make them sparingly and do so if you believe you have a good chance at qualifying.
Does My Business Have a Credit Rating?
An inquiry to Dun & Bradstreet or a call to the corporate division of a major card provider will likely give that answer, which will determine whether you will be applying for the card solution with your business’ credit leading the charge, or your personal credit as the business’ owner. In some cases, the two can be considered jointly.
As a rule of thumb, if your business has existed for more than three years and has over $5 million in annual revenue, it has a chance of being approved on corporate credit. If your business is under that size or age, it is likely you will have to take the risk of attaching your personal credit. In either case, make sure your credit score and history are good. If they are not, focus on building them as your first priority.
Keep in mind, even if you must personally guarantee a business card, ensure that it reports to your business’ EIN as well as your own SSN, so as to build that business credit history.
Fees vs. Features
There are many card programs out there designed for “enterprise applications” that offer a wealth of management tools and reporting options. Some allow you to issue cards with customized limits for employees or spending restrictions by category. Many have robust reporting features that allow you to track spending trends by category, which can benefit budgeting and cash management. Additionally, some card programs come with travel services, concierge programs, rental car services and exclusive benefits including preferred access to event tickets, restaurants and hotels.
Generally, the more comprehensive the features a card program carries, the higher the annual fee. Don’t pay for what you don’t need. If you are large-scale business and need a large-scale infrastructure, a large fee is justified. If your needs are smaller scale, look for solutions that have smaller fees.
Depending on your business’ size and how much you spend, card reward points can add up significantly and potentially save you thousands, tens of thousands, or even hundreds of thousands in expenses each year. To take greatest advantage of them regardless of your business size, research the reward programs you are considering to make sure they fit your business on both ends: accrual (where you spend) and the redemption (where you redeem).
Different card providers offer different rates of rewards accrual depending on what you purchase, and those rates are based on the provider’s partnerships. Some offer extra rewards for travel-related purchases, while others offer more for gas, and many partner with particular retailers to offer additional rewards for purchases from those stores. Whatever the setup is, make sure it fits your purchasing pattern. In other words, don’t subscribe to a travel-focused card if you and your employees don’t travel, and if you have a favorite vendor and a card program offer 2x rewards for shopping there, strongly consider that option.
Credit Card vs. Charge Card
Traditionally, the chief benefit of having a business card was simply cash management, record keeping and potentially the ability to defer payments or carry a balance. In other words, funding flexibility. All card programs offer some cash flow advantage in two ways, the ability to effect purchases without a check or cash and the ability to defer payments on those purchases by at least 20 days, sometimes longer.
Some cards are true credit cards that allow you to carry a balance from month to month in exchange for interest payments (most Visa and Mastercards). A charge card provider expects you to pay the balance in full each month (the majority of Amex cards). Either offers you the advantage of being able to defer payments by a month, but the choice comes down to how much flexibility you think you need.
Typically the rewards programs on charge cards are more advantageous, they feature higher spending limits and the total cost of them is lower because you’ll not be paying interest, but they offer less flexibility. A credit card program can still offer rewards, though they won’t be as generous as those with a charge card, and they allow a lot more flexibility through the ability to carry a balance. The cost, of course, is interest.
If you have not selected a card program for your business yet you should do so. You are most certainly missing out on operational efficiencies and substantial rewards or cash back. Evaluate the criteria listed above to figure out what fits and choose the card that’s “just right” for your business.
About the Author
Josh Fiorini has a wealth of experience in manufacturing, business management, and finance both within and without the firearms industry. He was the CEO of PTR Industries, Inc., for seven years, and spent the first decade of his career in finance holding positions as an equity analyst and portfolio manager before starting his own hedge fund which led him to the firearms industry. This experience, along with a deep background in manufacturing, banking and private equity, has made him a sought-after contributor on numerous boards and discussion groups on political and economic issues. Currently, Fiorini invests his time and resources into non-profit initiatives and acts as a contributor and management consultant to various firms in the firearms industry. His activities have been reported in such publications as The Wall Street Journal, The New York Times and USA Today.
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