How much would it help your business cash flow if you received automatic discount on everything you buy? That's what happens when you use the right business credit cards that earn cash back. Here's how these programs work, along with strategies that will help you get the most cash back from your card.
How Cash Back Business Credit Cards Work
With cash back business credit cards, every time you make a purchase you earn a small amount of money. The card will list its reward rate, like 2 percent of every transaction. When you buy something, this gets added to the cash back balance on your account.
You can then transfer that money to your bank account, use it as a credit against your card balance or have a check sent to you in the mail. When you're spending thousands of dollars a month for your business, figuring out how to save even a small extra percentage can make a big difference.
For example, let's say you spend $50,000 per month and have a 2 percent cash back business credit card. You'd earn $1,000 per month just for running your purchases through the card. Sixty-one percent of small-business owners regularly struggle with cash flow, according to “The State of Small Business Cash Flow" Report", published by Intuit QuickBooks in 2019 and conducted with Wakefield Research. (The study interviewed 3,000 small-business owners from the U.S, the U.K., Australia, Canada and India.) A simple solution like cash back credit cards can help these business owners make ends meet.
How Category Bonuses Work
Besides a flat cash back rate, you could also find business credit cards with bonus categories. In these programs, you earn a higher amount of cash back for spending in the different categories. Some use a set combination where the categories are always the same, like 3 percent cash back on travel, 2 percent on office supplies and 1 percent on everything else.
There are also business credit cards that use a rotating bonus category system. For example, in one quarter, they pay a higher rate on gas, then the next quarter the bonus category is advertising, etc. Managing bonus categories takes a little more work, but if you can line them up with your biggest expenses, you can earn even more cash back.
Know Your Budget, Then Select Your Card
Figuring out what is the best business credit card for cash back depends on how you spend. That's why you need to know your budget before selecting your card. Some cards set a limit on how much you can earn, like they reduce the cash back rate after you've spent more than $50,000 in a year. If you plan on running a large amount of spending through your cash back card, consider an unlimited cash back program that won't restrict your rewards.
Beyond that, your card's bonus categories would ideally match your top expenses. If you never take flights or go to conferences, chances are you won't get much out of a 3% travel cash back rate. Look at where you spend the most money and find a reward rate that fits those needs.
If you have a few major types of expenses, another strategy could be to take out multiple business credit cards that have higher rewards for each one, like one for travel and another for office supplies. With multiple options, you can figure out what is the best cash back business credit card for each type of purchase.
Run All Possible Spending Through Your Card
Once you commit to a cash back credit card, look to run as many expenses through it as possible. Monthly bills, customer invoices, even your office rent are all charges that you can potentially cover through your card. Just think, you're saving 1% or more on these purchases versus sending a check.
Figuring out what is the best business credit card for cash back depends on how you spend. That's why you need to know your budget before selecting your card.
Offer Employee Cards
If your employees spend on behalf of your business and you reimburse them, another option would be to give them cash back cards under your account. Employee business credit cards would not only make it easier to track their expenses, they'll also help you earn even more cash back.
Weigh Against an Annual Fee
Some cash back credit cards charge an annual fee. In exchange, they may pay a higher rewards rate and offer other perks, like a signup bonus. Before paying a fee, estimate how much you'd earn in cash back based on your expected spending to see whether you'd come out ahead.
Keep Track of Program Rules and Changes
As you research your cash back business credit card comparison, be sure to understand the fine print and see what kind of limitations there are on each program. For example, do they set a limit on the amount of rewards, like a high cash back rate that only applies on the first $50,000 per year of spending? This is something to know before committing.
Credit card companies can also adjust their benefit programs over time. Keep checking your statement to make sure that the best card you pick today is still the best card in the future.
Finding ways to save money does not have to be complicated. By taking advantage of these strategies and using the best cash back business credit cards, you can help improve your cash flow.
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