Which Business Credit Card Rewards Provide The Most Value?
Confused about the different types of business credit card rewards?
Let’s take a look at the three biggest categories of small business credit card rewards and some of their pros and cons. Note that any of these reward types may come with limitations on what you can earn during a given period. You’ll also want to take annual fees into account when making comparisons.
But for now, let’s concentrate on the fun stuff.
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The oldest reward incentive program is cash back. The formula is simple: a small percentage of each purchase you make with your card will be returned to you in the form of a check, account credit, or gift card.
The biggest advantages offered by cash back are simplicity and versatility. Depending on the program, you may still see different reward tiers with a cash back credit card, but it’s not unusual for them to offer a flat return on purchases (often somewhere around the 2 percent mark).
If you find that you don’t have the time, resources, or inclination to micromanage your spending, the simplified cashback reward system can take a lot of the burden off your back. Even better, you’ll face no real limitations on what you can spend your rewards on.
Cash back is a good choice for businesses with variable expenses or expenses that aren’t particularly clustered in one area.
If you guessed that the cons of cashback are an inversion of the pros, congratulations! The versatility of cash back comes at a price: a lower potential return on your purchases than you could get with a more limited return system.
To compare a cash back system to a rewards system, find out the cash value of each reward point. You’ll then need to itemize your monthly expenses and see how many points or how much cash you’d get back from your purchases. In many cases, you’ll find that you can get a larger return on your purchases with the right rewards card.
That doesn’t necessarily mean you should avoid cash back cards, but be aware of the trade-off.
Another factor to look out for? You may need to manually request reimbursement from your bank or set up the thresholds at which they’ll cut you a check (or credit, or gift card). This usually isn’t very burdensome, but if you end up wondering where your cash is, check your account.
A very popular category of business credit cards reimburses companies in airline “miles.” These miles can be cashed in for rewards, usually additional flights.
Airline miles are similar to other rewards programs, but they allow businesses to get a return on their flight expenses. For businesses that do a lot of flying, this can be an extremely efficient type of business reward card. Additionally, many cards will allow you to retroactively add recent flights to your mile total when you sign up. Some will allow you to earn miles with travel-related expenses or by making purchases at approved retailers.
Most airlines also allow you to upgrade your seating with flyer miles.
Airline miles are probably the most confusing type of reward to quantify and redeem. The first thing to realize is that the “miles” you accumulate don’t represent the number of free miles you can travel: they’re the miles you’ve accumulated through travel. So flying down the coast might earn you 1,000 or so miles, but those miles don’t become a free trip from New York to Miami. Instead, you’ll cash in, say, 20,000 miles or so for a flight.
Flyer miles often lock you into a particular airline, so choose one that goes to the places you want to be and offers a pleasant flying experience. You should also note that airlines usually only make a percentage of their seats available for flyer miles, and often don’t allow them to be spent around the holidays, so plan ahead before you book a flight with your airline miles.
Be aware that you may still be responsible for taxes and fees, and you need to book the flights directly through the airlines to get your points.
“Rewards,” in this context, is a catch-all for business credit cards programs that don’t fall into one of the previous categories. Many cater to specific types of spending–telecommunications, for example–while others reward more generalized spending.
Rewards cards compensate you in points. These points have a cash value (usually around a penny each) and can be redeemed for a limited selection of rewards.
Rewards programs are varied enough to suit a wide array of business spending. In practice, this usually means a tiered system for points. Restaurant expenditures might be compensated at three times the rate of general expenditures, for example. If you pick a card that matches your spending habits, you can earn points very efficiently.
The specificity of reward programs can be a straightjacket, especially for businesses that don’t have especially concentrated expenses. You may also find the limited selection of things on which you can spend your reward points uninspiring, or in rare cases, completely useless. Do your due diligence on the rewards card you’re considering to see if they are a good fit for your needs and habits.
Otherwise, you may want to consider a cash back card. See the process of comparing cash back and reward cards above.
While there’s no type of business credit card reward that is objectively the best, there probably is one that is best for your business and your habits.
Looking to compare specific cards? Check out our 2018 comparison guide.