Managing your business expenses with credit cards

Find out all you need to know about using credit cards for company and employee expenses and the best credit cards for your business costs.

How do I use business credit cards for expenses?

Credit cards are a great choice for managing business expenses. They provide transparency, convenience, security and offer a readily available form of cash flow.

You can issue a credit card to every employee that needs one for business purposes and manage them centrally. It’s usually better to issue employees with separate accounts with their own cards, rather than joint accounts.

A joint account has multiple cardholders on one account. If anything goes wrong with the account (such as fraud on one card) every other card on the account gets shut down because the account is compromised. However, if all staff have a separate account with their own card, fraud on one means only that one is shut down, while others are unimpeded.

With multiple cards, the business can also specify different spending limits. That means the head of sales, who needs to travel, stay in hotels and pay for client entertainment, has a higher credit limit than an admin worker who simply needs to top-up office supplies.

Credit card limits will likely be considered debt if you are applying for other finance sometime in the future. If your business has multiple cards totalling £60,000 in limits, that is £60,000 of potential debt. Be aware lenders will consider this if you ever apply for other types of borrowing.

What are the benefits of using business credit cards for expenses?

One of the big benefits of using a credit card for business expenses is that it centralises and simplifies the management and processing of transactions. So rather than having to deal with mountains of receipts and claims on a monthly or quarterly basis, a business can issue as many cards as needed to staff and oversee all expenses through a single online dashboard.

A second benefit is that the business doesn't have to hand over actual cash to its staff. No petty cash vouchers or receipts to deal with means less administrative overhead for the finance department. It also means greater peace of mind. Lost credit cards can be replaced at no cost. Lost cash is money down the drain.

Another advantage of using business cards, rather than bank transfers, cheque or cash, is that under certain circumstances, you can be reimbursed for fraudulent charges. Say you ordered machinery parts and what was delivered was not as described, or nothing was delivered at all, then you can usually get the charge reversed. A dispute regarding the quality of the goods or services is not usually grounds for a reversal.

Finally, business credit cards are useful for cash flow. You have access to funds within your credit limit at any time. However, business cards should always be paid off in full and on time to avoid incurring interest, which is usually higher than other types of borrowing.

What can I expense to a business credit card?

You can use a business credit card to pay for most business expenses.

One of most common types of business expense is travel. Before you travel you should find out the fees for foreign exchange transactions on the card. Some cards don't charge at all.

Other common uses for business expenses include vehicle fuel, car rental and hotel accommodation. If you use your card for vehicle rental or for a hotel stay, bear in mind that you may need a larger limit to allow for pre-authorisations. This means the organisation puts a hold on part of your credit limit to cover additional costs such as damage to the car or use of the hotel minibar. You may, for example, have £500 of your limit held by the hotel. However, once the actual payment is processed after check out, this would change to the actual charge for the room.

It can take a couple of days to process the charge and the real charge amount to be posted to your account. With this in mind, business expense cards should be for a higher limit than the actual cost of the goods and services you need to charge.

Suppliers usually prefer to invoice for goods and services, rather than accept cards.

What’s the best credit card to use for business expenses?

Businesses have a lot of choice for credit cards. Shop around and find the best deal for you. Many websites offer comparison services to help you choose.

Consider what is of most benefit to your business. If travel is a big deal for your organisation, then consider a card that charges zero for foreign transactions. If you regularly need to buy expensive equipment you might want to go for a card with a high limit and lower interest rates.

Many business credit cards offer rewards such as frequent flyer miles, travel insurance or cashback. Make sure the benefits outweigh the sometimes-high fees.

Can a personal credit card be used for business expenses?

You should avoid using a personal credit card for business expenses, and likewise business credit cards should not be used for personal expenses.

Using a business credit card for personal expenses muddies the waters for accounting purposes; furthermore, the credit limit on personal cards may be too low to be effective for business purposes.

In addition, any personal finance issues you may be experiencing may affect your business finances. Always keep a clear delineation between business and personal finances.

What are the costs of business credit cards for expenses?

Credit card interest rates tend to be much higher than other types of borrowing. All credit cards carry a cost to the business; research them thoroughly. Consider the annual percentage rate (APR), which will include the interest rate as well as any fees payable. Check whether additional fees apply for late payment or exceeding the credit limit.

Most business credit cards have an annual fee, although some suppliers waive this fee temporarily for new cardholders.

Useful links:

How a business credit card could work for you

Which business reward credit card is right for you?

How your credit score can impact your business finance