Mathilde Lacombe

After a while, most business credit cards with rewards programs begin to sound alike. Each issuer promises a certain level of cash back or points, most offer some form of sign-up bonus, and each claims their program is the most valuable. Yet what many business owners inevitably learn is that they’re not all the same. Just because one business can thrive on a rewards card doesn’t mean another business won’t fail miserably using the same one. The question isn’t really if rewards cards are worthwhile. It’s if specific rewards cards are worthwhile for what your business does.

The Math That Matters

The majority of people only see the earning rate and stop there. If a card offers 2% cash back and another card offers 1%, the first is obviously more lucrative, right? Not necessarily. If most of the business’s spending happens to fall under 1% and it not only zeros out any potential earnings but actually creates losses from card use, this lucrative earning rate means nothing. Conversely, if someone spends $5,000 in monthly advertising and $3,000 on random supplies and general software and can utilize a card that offers 3% in advertising but only 1% on everything else, then the latter card works better since it’s more than a flat 2%.

Where it gets tricky is that category bonuses usually come with caps. If a card offers 5% on office supplies with a cap of $25,000 per year, well $25,000 would be hit within a matter of months for many businesses. Then the remainder of the year, that business would receive its base rate, typically around 1%. A business will get punished with poor earning potential the more it purchases in this situation. And with so many supplies needed for day-to-day operations, most businesses will end up at that cap by July and then the rest of the year – earning nothing like it expected.

When Cash is Better Than Points (and Why Points Might Not Be Worth It)

Cash back is straightforward; if you spend money, you get a percentage back, and it’s usually fulfilled as statement credit or transferred via direct deposit. There’s no confusion surrounding its value since one dollar back is worth one dollar back. Unfortunately, even with points, a card may say it offers 3x on any given purchase category; however, those points are worth half of a cent each when redeeming them – which means that 3x becomes only 1.5%, which is worse than the 2% cash back card.

It’s cards like this that don’t work for businesses unless there’s an owner who will directly benefit. Businesses that tend to work well with points are those that tend to work with owners using them for consistent travel-related purposes whereby providing cash back doesn’t do much good for gas mileage or airfare for trips every month. If a business can book through the card portal and have its airline/international fees covered through reward points–often worth 1.5 or 2 cents each–that owner must be using the card independently or spending elsewhere.

But most small business owners do not travel across the world monthly to maximize those points; instead, they use these cards to keep their businesses afloat and make payroll; to them, cash back that hits their account where they need it is worth more than waiting to spend points at some future date when most likely those projected scenarios never pan out.

The Annual Fee Conundrum

The problem lies when the average consumer compares a card that has an annual fee versus one that doesn’t. Assuming the additional rewards make the gamble worthwhile at a $95 annual fee – what happens if a business doesn’t spend enough to justify covering the cost? The math is easy when determined; average up the benefit of each category and divide it by difference in earnings per year for assessment; for example, if company A earns 1.5% of purely spending through x without an annual fee and company B earns 2% (but has a $95 annual fee), company B must yield around $19,000 a year (to break even) for this to work out – and anything above this number means it’s useful for them.

The challenge is that so many businesses don’t operate on percentages yearly or know their expectations when applying for a credit card; instead, they just hope it all works out! Taking an average from three or four months of expenses can save that heartache down the line!

What Your Business Actually Spends Money On

A restaurant spends differently than a consulting firm. A retail store has different expenses than that of a contractor. Thus, some cards are better used for tech companies – with heavy software subscriptions and online service spending–while others trump value when businesses are always traveling or shipping products consistently. When looking for the best rewards business credit card, a company should start by determining their top five expense-requiring categories and find a program that allows value in those sections rather than trying to appeal to the highest rate possible – but never spending enough in one area to justify such an option.

For example, a landscaping business spending several thousands of dollars through gas stations and hardware stores may do better with bonus rewards in those categories despite a lower general rate earned; conversely, a marketing agency spending mostly on software subscriptions and online advertising needs an entirely different structure.

The Sign-Up Bonus Illusion

Big numbers look great in advertisements – spend $5,000 in three months and get 50,000 points! Free money! But if you’re spending excessively more than usual just to hit that number – you’re not coming up ahead either; bonus options favor businesses intending to already purchase at those higher levels; buying inventory too soon or buying services ahead just to get the bonuses create complications within cash flow situations that aren’t worth operating until then.

Moreover, some bonuses have redemption restrictions – 50,000 points need to be redeemed for travel booked through their certain portal – and you’re now deprived of redeeming your cash – which expires within a year – or differently elsewhere.

How Redemption Works

Half of earning bonuses is being able to use them effectively – and when this fails – cards with better standards aren’t as valuable. If earning is different from use – there may be no comparison between what you earn and how you can use it/if you can – for example, various portal checks – even just redeeming points takes time amidst busy schedules.

The companies that need credit cards with rewards systems are those that can actually use what they’ve been offered. If there’s amazing travel access with bonuses but no one utilizes travel ever, then no value exists from this intersectionality; take a simpler program with slightly less earnings potential than one you’d never use!

Finally – for employee cards – many programs let you issue an additional card (all spending accrues rewards) but if employees aren’t breaking these down properly – or they’re utilizing these cards for personal use – the rewards aren’t worth it. In fact, you could be siphoned off from independent rewards for foolishness in losing potential returns should your employees fail to track how they used these cards properly which is more crucial than ever since adding multiple spenders only complicates things.

Why Rewards Aren’t Worth It

Not every company should have a rewards credit card; if spending is nominal – or most purchases go through vendors who charge processing fees per credit card transaction – you’re better off with minimal work than maxing out rewards; if a company spending $2,000 monthly only gets $30 in reimbursements despite time – and potential compounded interest – which isn’t worth it – better off having no rewards credit card as long as it has no annual fees and requirements.

If time could be spent elsewhere growing your company – then having an arbitrary check-in is convoluted at best – and sometimes there isn’t potential anywhere else; with caps on categories/rewards opportunities/earning potential – it’s easier to let your money speak on other ventures without stress!

Ultimately most small business owners find that the cards that are worth having are those whose redemptions come easy; when they match what the company buys most – and don’t complicate additional factors – we’re golden – but everything else is fluff!

Your Numbers Don’t Lie

Choosing your rewards card comes down to honesty about your numbers; look at three months’ worth of expenses – including categories; add up how much you’re spending where – and compare this total against what it’s earning potential will be compared to other standards!

Just because something looks good on paper doesn’t mean it appeals to your spending patterns – and something that seems boring may earn quietly more because it’s directly relatable! The best plans are the ones that will put the most back into your account through your business expenditures – not hypothetical standards projected through someone else’s numbers!

For most business owners – cards that are worthwhile are easy to redeem – and align closely with where the company spends most – don’t require hoops through which to jump – and everything else is marketing nonsense!