Over the past few years, credit card companies and small business owners have become more dependent on each other to conduct business. About 12 percent of 6 billion mailed credit card offers target small businesses, while their owners account nearly as much of all Visa and MasterCard charges, according to industry studies.

But with the development of the economic downturn, both are now struggling to stay afloat. And as small business owners continue to rely heavily on credit cards, credit card companies risk losing billions in revenue.

“This is the riskiest loan a bank can make,” said Ken Clayton, American Bankers Association senior vice president for card policy, to Business Week. “They have to charge money to get a return on that risk. If this were a traditional loan that had collateral that backs it, it would be a lot easier to lock in rates.”

To make up for such losses, credit card companies have subjected small business owners, among others, to higher interest rates and more annual fees – changing terms that make conducting business “like trying to build a house with blocks that keep changing shape,” said National Small Business Association chair Marilyn Landis.

But then came preliminary drafts of the Credit Card Accountability Responsibility and Disclosure Act. With promises to bar over-limit fees and end double-cycle billing, among other new protections, it soon gained support from both the National Small Business Association and the National Federation of Independent Business.

However, what President Obama ended up signing into legislation on May 22 only protects personal credit card users. Out of the 74 percent of small business owners who hold credit cards, 39 percent of them applied based on personal credit, said Chris Walters, National Federation of Independent Business manager of legislative affairs.

But while those particular business owners are protected, those who applied based on business credit are not. Those with accounts under Discover Financial Services are also not covered under the legislation, since both personal and business credit are considered.

Attempts to pass protections by both House and Senate members have so far failed. One, by Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, proposed to extend protections to businesses with 50 or fewer employees.

These heads of the Senate Committee on Small Business and Entrepreneurship have vowed to look into “other legislative vehicles.” In the meantime, Congress also voted to conduct a survey on small business credit card use over the next 12 months. With that, the National Retail Federation has advised the government to study interchange fees — what Visa and Mastercard banks charge business owners per credit card transaction.

Readers, what do you want Congress to know about your credit card use? What are your thoughts on the legislation? Let us know in the comments.

Once millions of Americans began applying for and getting credit cards, the credit card companies began seeing dollar signs – and out of greed, destroyed something that was meant for good.

While the concept of having a credit card may be great, once you try to take advantage of a card with all the perks and extras, you may notice that it feels more like a ripoff than a good deal.

Fees

Many credit cards have lots of extra fees. You get charged for making a payment late. You get charged for going over your credit limit. You even get charged a fee for transferring money from your credit card to a bank account.

How can one little card have so many fees?

Some credit card companies claim they exist to help you rebuild your credit. Somehow they also think they are helping when you have pay $250 dollars just to get a bad credit credit card which has a very low credit line.

Interest

The Annual Percentage Rate (APR) is the next hidden evil in credit cards. If your credit score is high, then you get a low annual percentage rate. If you are like most Americans, your credit score is far from high – and you end up with an APR of 11 or 12 percent.

Unless you do the math, you may not realize just what that interest rate really means. Let’s say you go to the store and spend $100 dollars on a TV. The bill comes and you only send the minimum payment due.

Then next month, you’re charged interest on the balance. Once again, the credit card company will ask you to pay a minimum fee, and then charge you the interest again. At the rate they ask you to pay, you could be paying that $100 TV off for years.

Ignore the Ads

Many a financial advisor will advise that you spend with cash, to minimize the interest risks. The credit card companies are battling this. You may have seen a popular commercial on TV. Everyone is shopping and having a good time using their credit cards until someone pulls out cash to pay for their purchase.

All of a sudden, the music stops and life is pretty much on hold until they pull put their credit card and swipe it – and everyone goes back to having a good time.

What kind of picture is that sending to our young men and women getting out of school and going into the real world? The lesson they are learning is that you are not popular if you do not have a credit card.

This has turned us into a society where everyone is trying to have what everyone else – has even though they cannot afford it.

When you are reviewing your business credit rating, it is important to know that your business credit rating is a bit more volatile than your personal credit rating. If you have missed payments or have been late, particularly with large amounts of credit, your lenders will have a say in your credit report.

Not only does a good credit rating affect obtaining potential loans, it also can affect the vendors and the payment terms established. Therefore, it is crucial in all aspects of your business to pay your bills on time in order to maintain a good business credit rating. However, while it may take some time, there are a few steps to take to help you increase and/or restore your credit rating.

Keep on top of your credit reports. The first thing that you can implement is to review your credit rating on a regular basis. This will allow you to see where you are at, checking for errors or omissions. If you discover errors on your business credit report, it is important to follow the guidelines that the reporting agency has outlined. It may be worth a phone call to the institution that is reporting it incorrectly. Another thing to do is to remove expired accounts.

Pay your bills on time. This may seem basic, but your vendors and lenders have a huge impact on your credit report; therefore, paying them on time and for the amount that is due is important. Additionally, if you pay off your bills before the due date, you can request the suppliers to report this to the credit reporting agencies. This will have a positive impact on your credit rating and will help when you go to obtain further credit.

Keep your balances low. This may be harder when building your business at first, but as you continue to grow, if you can keep your unpaid balances on loans or invoices low, this will positively reflect your cash flow as well as show that you are financially disciplined. This will increase your credit rating over time.

Get a secured loan. When you decide to try and obtain a loan, going for a secured loan is a better option, particularly if you have collateral tied to your loan. The reason secured loans are a better option is that they will reduce the interest due, plus it will demonstrate to other lenders and vendors of your credit worthiness, not to mention strengthen your credit history.

Don’t max out your credit limit. There may come a time when you need to use it, and if you have maxed out your limit, that will have an adverse impact on your credit rating. What looks positive on your business credit rating is a lot of unused credit sitting waiting for you.

In essence, when you are trying to build up your business credit worthiness, ensure that you can pay your bills and on time, leave room for unused credit when you need it, obtain secured loans when needed, and check your credit report regularly to make sure that there are not any errors or omissions. Taking proactive steps to increase or correct your credit rating reflects positively with both lenders and vendors.

If you pay on time and in full at the end of each month: Business owners who use credit cards out of convenience, rather than a way to stretch out payment terms, will be in the best position to choose the most rewarding cards. Since interest rates aren’t a factor, go for the cards that offer the best reward perks. You’ll have your choice of getting things like cash back, airline miles, hotel stays, discounts from vendors, etc. Typically, rewards range from 1% to 5% of the amount spent. Do an online search and you’ll find that there are literally hundreds of business credit card offers to choose from.

If you carry a balance every month: Since interest rates do matter, you should focus solely on the fixed interest rate. If you have good credit, you should be able to find a business credit card that will offer you an interest rate less than 10% (some cards even go as low as 7%). However, if your credit isn’t shining, you may have to settle on an interest rate in the 15%-20% range. It’s important not to get lured by a "low introductory rate" – even though 3% to 5% sounds incredible, that low rate will only last for six months, and then you’ll be stuck with a sky-high interest rate for years. It’s best to look past the intro rate and focus on the rate that you’ll be using for the majority of the card’s life.

If you sometimes pay late: Of course, no one likes to pay a bill late, but in some cases it’s unavoidable. If you think a late payment may happen even once, then you’ll want to look for a card that offers a "no penalty on interest" feature as well as a low late fee (normal is in the $20 range).

If you want to transfer a balance: If you have an existing credit card balance that you’d like to transfer to your new card, it’s important to keep an eye out for cards with low transfer fees. There are some cards that will even offer you a 0% introductory rate on balance transfers for the first year.

The most important thing to remember in your search for the perfect business credit card is: be realistic about your payment habits. Remember, the lure of reward points and cash back comes with a higher interest rate. So unless you are 100% confident that you’ll be able to pay the balance in full every month, don’t put the bonus perks at the forefront of your decision making process.

Advantages for having a credit card for your small business

Perks – With so many companies offering credit cards, there’s a lot of competition for your business. Today, credit cards are offering cash back, airline miles, hotel stays, merchandise and a slew of other hard-to-resist goodies – all free just for using a credit card instead of a check.

Less check writing – If you’re used to whipping out your business checkbook for everything from office supplies to purchase orders, why not make your life simpler and just write one check every month – to pay your business’ credit card bill!

Keeps business and personal finances separate – If you don’t own a business credit card, chances are you’ll end up using your personal credit card (for things like business lunches) and then have to pay yourself back with a business check. Talk about a hassle!

Getting additional names on a single account – What’s great about small business credit cards is that you can give key employees their own card, but everything’s still tracked on a single account. So, if Greg usually pays the purchase orders and Amy’s the one who "wines and dines" potential new customers, you can get them each a credit card under the business account. Expenses are easy to keep track of and it saves the time and hassles of expense reports and check writing.

Widely accepted – Back in the day, purchase orders were paid by check. But today, manufacturers and distributors welcome credit cards, as it’s an instant and secured payment. And, the more places you use your business credit card, the faster you earn those delightful perks!

Builds credit – Having a small business credit card (and paying the bills on time) can give a new business the opportunity to build a stellar credit history. In the future, this could be helpful if you need business capital in the form of a bank loan or line of credit.

Easy Itemization – Keeping track of your business expenditures come tax time can be nothing short of a nightmarish scavenger hunt – sifting through receipts, scouring through expense reports, etc. Most credit card companies will provide credit card holders with a year-end summary, itemizing and categorizing all the past year’s transactions. Now that makes life easy!

Having a small business credit card can make keeping track of expenses easy – not to mention the convenience and the rewards perks! It’s no wonder why over two thirds of small businesses use business credit cards! So, keep that bulky checkbook in the desk drawer and start using a small business credit card – once you start, you’ll wonder why you were so hesitant to get one!

PCI stands for Payment Card Industry . The compliance standards were set up and not only apply to your business, but also the banks and credit card companies. The industry wants everyone who is in contact with credit cards to be responsible with the sensitive personal information that has been entrusted to them.

The importance of being PCI compliant can’t be over-emphasized. If you are found to not be PCI compliant, you can have your credit card processing privileges revoked.

Imagine how much business you would lose if you could not accept credit cards!

Network Security

In order to charge a credit card, the cardholder’s information has to go through a network to be processed. Wherever that information is sent and stored needs to be protected in order to meet PCI compliance standards. If you have an online business that runs through a web server, your website processing is generally covered by the server company – they promise security. You should check to make sure their security includes encryption of at least 128-bit SSL (secure socket layer) to meet the standards.

But what happens to the information when it reaches your home or office computer? Do you keep any of the customers’ information? Even if you just keep their names, you need to have that list of customers secure on your system.

You also need to make sure you have the proper firewalls and security programs in place to keep that information safe.

Cardholder Data in the Office

If you keep any of your customers’ card information on file in your computer or elsewhere in your place of business, you need to protect it in order to meet PCI compliance standards.

While many businesses do store customer credit card information to make things easier for repeat purchases, it is necessary to make sure that data is encrypted, so anyone who tries to steal the information will not be able to decipher it.

Train Your Staff

If you have employees, make sure they have been properly trained in the procedures to keep customers’ information safe.

You should have a company policy for dealing with sensitive information – and make sure all your employees are very clear on the protective procedures that must be followed.
Limit Staff Access

While you may have trained your employees in the right way to deal with credit cards, there are always some people that will take advantage of sensitive personal data. Unfortunately, you won’t know it’s one of your employees until it’s too late. The best way to avoid this is by limiting their access to sensitive information.

This information should only be allowed in the hands of those who need to have access to it. Even then, each person should have their own login ID to get into the system so you can monitor what they are looking at.

Keep Your Computers Protected

Every day, hackers are coming up with new ways to get into the computer systems of businesses around the world. While your business may not be the first target on their list, if your computer systems are easy to break into, they may consider you an easy target.

Make sure to keep your computer operating software and virus protection software up to date. Most companies offer regular maintenance updates to fix any loopholes that have been found in a system.

Once you have a cardholder security system in place, you need to make sure it’s working. Test your system regularly. You can even have security testing companies regularly check your set-up for any openings, and keep you one step ahead of the hackers.

"With great power comes great responsibility," a great man once said… that great man was none other than Spiderman’s Uncle Ben. My apologies for using the word "great" 4 (count ‘em) times in that sentence. Regardless, the statement is true and applies in business as much as anything else.

Many businesses will have a company credit card (or two or three or….) that is designed to be used for business related expenses. Now, what your business constitutes as a "business related expense" is clearly up to whomever is responsible for those cards. In general, employees should be able to use their best judgment when using the card but it would be wise to have in place a written policy on what acceptable use of the card is and what is not. Far too often employees get themselves into trouble by using the company card for personal expenses but the businesses get themselves in trouble by not clearly drawing the line. So by having the rules in place and easily accessible, you should be able to avoid any messy situations.

Here are some things to think about:

• Come up with a clear definition of "business related expense/purchase."
• Authorize only those who absolutely need to use it.
• Keep accurate records of expenditures by examining the monthly bills–if anything seems suspicious, address it immediately.
• If you allow things such as "business lunches" to count, and you find your employees are abusing this, place restrictions on the number of lunches per month or perhaps the types of restaurants these lunches can take place.

We’d all like to believe our employees are perfect little angels but the truth is that no matter how nice and honest they are, it is a part of human nature to push the limits and perhaps abuse privileges. So take a moment to make sure your company credit card is in good hands (or at least is protected from the bad ones) and you will save yourself a lot of time and money in the future.

However, there are alternatives to these more common options. Although there’s nothing wrong with either PayPal or credit card payments, you could save money, as well as make things simpler for your customers, by looking into using another payment method. For instance, PayPal payments require the buyer to have a PayPal account, and not everyone has one, or wants one. So what options are there?

Merchant Account
This is probably the most viable alternative to credit card or PayPal payments, and is also the most popular. Simply put, a merchant account allows you to have a direct link to your customers – for example, you can even take payments face-to-face or over the telephone. Better still, if your business is mobile in any way, you can even collect payments from your customers when dropping off their purchase at their own doorstep.

A merchant account can also safeguard your business when it comes to online purchase, thanks to the security measures they have in place. They can verify addresses and that the person making the purchase is who they say they are; and they can take care of any legal costs arising from disputed purchases or invoices. Although initially costly to set up ($300 is an average cost, with monthly charges on top), the long-term benefits make it worthwhile.

Alternatives to PayPal
If you don’t wish to use a merchant account, yet you’re not too keen on PayPal either, there are some other alternatives that you can use:

* Google Checkout. This accepts either credit cards or debit cards, and works similar to a merchant account in that they may carry out a credit check on the person signing up, to ensure less of a risk when it comes to purchases and payments. Once a purchase is made, payment is taken via Google Checkout. The benefit of Google Checkout is that you can have one single account, and there are no extra fees to use it. Also, if you advertise on Google, you can have the extra benefit of a special Google Checkout button on your ad, which makes it stand out to potential customers. http://checkout.google.com

* Bill Me Later. Much like a Buy Now-Pay Later option at any downtown retailer, this allows your customers to make a purchase, which they then receive an invoice for, to be paid within an agreed timescale. For your customers, it offers a convenient way to buy your products, and for businesses it still offers secure anti-fraud measures. http://www.billmelater.com

* PayByCash. This is an option that’s growing in popularity, especially for businesses. It allows anyone to buy a product or service online, since there is no need for a credit card – the customer simply clicks on the PayByCash link on your website, and sends payment later. You benefit as well, due to there bring no merchant account fees for the majority of business members. http://www.paybycash.com

It may be that using PayPal or credit cards for your current online customer transactions works well for you. However, by offering more than one way to pay, you’ll be opening up a far bigger customer base than you currently have, and that has to be worth your consideration.

You may have to pay court costs in order to try and get the money that you are owed, not to mention the cost to retain a lawyer. There is still the possibility that if you get a judgment for the monies that you’re due, the customer will simply ignore the judgment. While the judgment will go on their credit report, they can still ignore the fact that they owe you money.

When a customer is behind in payments or hasn’t made a payment, you’ll probably find that they are very difficult to contact, and that they make a lot of excuses. They may tell you that the payment is one the way, or provide you with a slew of other excuses that they think will get you off their back for the time being. This can be very frustrating and time consuming, resulting in even more cost to your business.

Here are some ways you can avoid these costs (and hassles) up front:

Require a credit check for your customers or clients. This way, you can tell whether or not your customers have had a judgment placed on their credit records in the past. If they have, they are probably more likely to accumulate debt from other places as well.

Get a signed agreement. Do yourself and your business a favor by making sure your customer signs some sort of written agreement before you provide them with any services or products. If you do not secure their signature on an agreement, you will not have a leg to stand on in court. This is not good, as you will lose the money that you are owed, and probably end up eating the court costs as well.

Charge a down payment or deposit. With large purchases or ongoing/lengthy work, you should make sure that you charge the customer some sort of up front payment or deposit. This will, at the very least, ensure that you are able to obtain a portion of the money for services rendered or products sold. Insert a clause into the contract that the customer does not get full ownership until the payment is made in full for the services or products.

When you are running a business, it is important to look after the business’s best interest. By allowing customers or clients to build bad debt, you are not looking after the best interest of the company. Following the tips above will most definitely save you money in the long run, and keep your business healthy and profitable.

The Uses
Purchasing power. Businesses that are experiencing tight cash flow can obtain the goods and services they need by charging items on a credit card. For instance, say you have outstanding receivables but need to purchase something immediately. You can charge it today with the expectation of being able to pay it off in full within a month or two at most when you collect the receivables. In this situation, since the cost of financing is modest because of the rapid pay off, the use of a credit card is wise.

Recordkeeping. Credit card companies may keep better records of the things you’ve charged than you do. Their statements are broken down into categories useful in your financial reports and tax returns (e.g., one category is travel and entertainment expenses). The statements run from January 1 through December 31, even though your billing period may be fixed at a mid-month date.
Idea: Request an annual statement if you do not receive one automatically–usually you have the option to view this online.

Managing employee plans. If you have certain employee plans, credit cards are an ideal way to track expenses. Use a company card for:
–Reimbursements from flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). Issue a card to employees with instructions that it be used only to pay reimbursable expenses. The IRS has approved this reimbursement method.
–Accountable plans for travel and entertainment costs. Issue a card to employees for charging business expenses, such as meals, gasoline and hotel stays, where appropriate. The credit card statement helps employees substantiate their travel expenses to you, as required for an accountable plan.

Obtaining rewards. Certain business credit cards may generate frequent flyer miles, gasoline credits and other cash-back rewards for card usage. For example, MasterCard now offers an eBay credit card where you can earn points that can be redeemed on eBay (www.mastercard.ebay.com). As long as you use cards for convenience and not for long-term financing, these rewards are icing on the cake. However, you’re overpaying for these rewards if you receive them while incurring monthly finance charges.

The Abuses
Substituting for conventional financing. The cost of borrowing through a credit card is substantially higher than borrowing through commercial loans and lines of credit. There is no interest ceiling on credit cards, which may charge as much as 30% (on an annualized basis) or more. In comparison, small-business loans can be one-third as costly or even less.

Idea: When buying equipment or merchandise, rather than simply charging the purchase to a business credit card, ask the seller about its financing options. You may be eligible for seller-financing at interest rates substantially below those for credit card borrowing, even if you might otherwise have difficulty qualifying for a conventional bank loan or line of credit.

SIDEBAR
Find the right card for you
There are dozens of business credit cards to choose from. They differ in many ways, including annual fees, monthly interest rates and credit limits. To research offers, compare cards feature-by-feature and even apply online, go to CreditsCards.com and click on "Business Credit Cards."