Business credit cards can run a company efficiently and smoothly, which is true for entrepreneurs who run a business single-handedly, as well as business owners with their team members. It’s essential to keep business and personal expenses separate in order to keep track of your accounting and file your taxes efficiently.
Furthermore, the best business credit cards offer numerous perks and rewards for businesses that can amount to thousands of dollars yearly.
However, many things should be excluded from the list of expenses charged over your company credit card by all means. There are many reasons behind the latter, as your business credit card comes with an entirely different set of rules when compared to your personal credit card.
By keeping this in mind, you should know what you can and cannot charge to your business credit card as a business owner. In this article, we will enlist eight expenses you should never charge to your company credit card.
Though it is not an illegal act to charge your business credit card for personal expenditures, it is best if avoided. The CARD Act provides consumer credit cards with protections not available to business credit cards. As a result, private spending on a business card does not qualify for those protections.
Using your official credit card for personal expenses can harm your business credit score, violate card issue agreements, and even your own business spending policies.
Furthermore, a business card can complicate accounting and tax time if you use it for personal expenses. The majority of consumers have access to several credit cards, so there are better choices than mixing personal and business spending.
Entertaining Your Clients
Typically, there are a few clients in every business who need an extra push. It is true that attention and extra care work for many clients, but some are not pleased. However, there should be a limit to how far you can go to impress a customer.
Giving expensive gifts, meeting at high-end exotic locations, or even renting luxury cars- all such activities lie on the edge of doing business and bribing your client.
A business credit card is a good option if these expenses are within your company's expenditure policy and management approval. However, it is still not a wise option to overspend on entertaining your clients, that too, with a company credit card.
Gambling, Cryptocurrency, and Other Risky Expenses
More and more business cards have been reported to be charged for buying cryptocurrencies today. Banks are constantly tasked with a challenging mission involving gambling and cryptocurrency exchanges on suspicious platforms.
It may tempt you to charge your business credit card to invest instantly, but the liabilities that come with such risky expenditures are just not worth it.
These investments are bound to go up only sometimes, not every time. Moreover, if you calculate the transaction fees, taxes, and interest rates from your company's card, you will realize that you have lost more than gained.
Purchasing Pricey Items
If you want to pay all your hard-earned money to the banks in a jiffy, you can buy all those attractive, high-end, pricey items. This is exactly where your bank wants you to be – stuck between expensive purchases with your business credit cards.
There are usually high credit limits and attractive rewards on business credit cards, making them attractive. But if you own a small business that requires funding, wiping out your company’s credit card in one go is not a good idea. It also harms your business credit score and can land you in heavy debt.
Check out our article on “How to Build your Business Credit Properly to get MAX Funding”.
Strange, but yes. Payroll also falls into the list of things you should never charge to your company credit card. When expanding your business, the most significant and recurring high- volume expense is the payroll.
Hence, it is a clear sign that you are taking on high-interest rate risk and debt when you put it on your business credit card to the payroll. Using your credit card to pay your customers sends a strong message that something is not right.
If you seek investors to raise capital for your growing business, you should avoid using your business credit card over legal disputes. It is a clear red flag for investors if they learn you are using your company credit card to pay for legal expenses.
However, using your business credit card to pay your company’s legal consultant is perfectly fine. The issue only arises when you start using it for a reason mentioned above. Hence, looking for other alternative payment plans is much better than sending a negative impression to your stakeholders.
It is customary in a business to look for more capital and consider cash advances as the most convenient option. Though it may appear tempting, charging cash advances over your company’s credit card is not recommended.
The reason behind the latter is the APR on cash advances is much higher than the APR of your purchase. Moreover, cash advances charge a hefty fee and do not offer any grace period. It simply means the moment you take the cash out of the ATM; you already owe the bank more than you even took. Not worth it.
Business and Personal Travel
When running your company, you must be aware of the fine line between business and personal expenditure. Especially on a business trip, most people feel the urge to spend freely, charging the amount on their business credit cards.
All personal transactions will negatively impact your company’s credit score and will be highlighted in the office’s transaction history, thus harming the company’s goodwill.
There are no silver bullets inside business credit cards, even though they offer great perks and rewards. Sometimes, you might need quick cash, but it is better to learn all the options before charging your company credit card. Thus, to avoid trouble, you should keep track of your budget and spend it organized and transparently.