Business card for personal use: Is that possible?

One of the most important things business owners can do for their finances is separate personal and business expenses. Letting your personal and business expenses blur can cause problems in your personal and business life. One of the easiest ways to do this is to use separate payment cards: one for personal use, and one for business use.

That being said, you may find yourself in the position of considering using—or having accidentally used—your business card (debit card, instant card, or credit card) to make a personal expense.

In this blog, we will discuss the legality and reality of doing just that. We’ll go over the consequences and potential benefits, as well as what to do if your employees use one of your business cards for a personal expense.

The first thing you need to know is that it’s perfectly legal to use your business credit card for personal expenses. So if you accidentally use the wrong card to pay for your groceries, relax. You won’t be in any trouble.

However, you could incur certain inconvenient consequences. It might be in the contract from your card issuer that you’re not allowed to use your business credit card for personal use, which would mean you’re breaking your contract and could suffer a fine.

While it isn’t illegal, there are consequences for using your business credit card outside of its original purpose. This has to do with breaking contract with your card issuer, as mentioned above.

Probably the most common consequence of using your business card in this way, if the terms are laid out in your contract that you only use this card for business purposes, the issuing company may be within their right to close your account.

Likely, if you do it once by accident, your card issuer won’t notice or care. However, if they notice a pattern in your spending across one or several months that differs from your usual business spending, they may raise it as an issue.

Check the terms and conditions of your contract before signing up or making any payments with your business card. This way, you’ll know what you’re in for if it happens.

Being personally liable could be a lot more financially devastating than it probably sounds. There are degrees to which personal liability will affect your business and your personal life.

If your business runs into any legal trouble, including but not limited to:

• Copyright issues
• Employee lawsuits
• Payroll errors
• Taxation compliance issues
• Disputes over debt collection

…among other issues, you could be taken to court to represent your business. If you’ve been dipping into the company money with your business credit card, this will almost certainly be brought up in court and used against you. You’ll be held accountable because, as mentioned above, it was likely in your contract agreement that you do not use your business card for personal expenses.

Card issuers usually don’t apply the same consumer protection laws to business credit cards, as they do to personal use credit cards. Protections for consumer credit cards include:

• Interest rate increase protection
• Interest charges against debt
• Protection against interest rate increases on existing balances

With fewer protections, it’s more difficult to dispute charges when something comes up, which takes time away you could dedicate to your business.

Mixing personal and business expenses is at risk of doubly impacting your financial situation. On the one hand, the benefits and gains you receive on spending with a business credit card won’t be equal to the ones you’d receive making purchases with a personal credit card.

You’re also at risk of further complications if you make personal expenses on your business credit card and fail to pay them off. All late payments have consequences, however, the contractual agreement for your business credit card may be stricter than one you would sign for your personal credit card. And this will affect your business credit score, which in turn affects your personal credit score by damaging your overall financial reputation.

Bad credit for your business can result in the following difficulties:

• Unfavorable terms when opening new accounts
• High-interest rates on credit cards
• Business loans with unmanageable repayment terms

These kinds of conditions make it difficult not only to start a business, but also continuing to maintain it.

Expense tracking is crucial for any business. Making this task as clear and simple as possible is good business management. This is why separating business and personal expenses is ideal for good expense tracking: keeping things in their own categories reduces the possibility of things getting overly complicated.

If you’re making business expenses on your personal card and vice versa, things can get messy fast. The software you use to organize your business expenses will count personal ones, giving you false reports of your finances and requiring you to manually take them out.

Personal spending on your business card could also affect the likelihood of your being approved for a loan. This is simply because you’ll be trying to justify to creditors expenses unrelated to your business, which will raise eyebrows as to the legitimacy of your business.

Personal expenses aren’t tax deductible, so including them in your tax return is going to cause problems. Without separating your income, you’re leaving in expenses you’ll have to sort through and exclude during tax time.

This kind of thing becomes especially challenging when you’re including holidays in your personal expenses, mixed with business trips.

Given the potentially dire financial consequences of using your business card for personal use, it would be ill-advised to try and find any benefits. The financial and contractual risks threaten both your business and personal life, so avoid doing this at all costs.

It’s an easy mistake to make, and not an unlikely situation to find yourself in as a business owner. You might mix up the cards when pulling one out or make a hasty purchase without looking at the card you’ve used. Or, you might make an online purchase with the saved details of your business credit card, when you meant to use your personal one.

If this happens, flag the purchase immediately as a personal expense to exclude it from your bookkeeping. Next, you should pay it off as soon as you can, so you don’t run into any further issues with your available credit.

We also have an article on how to cancel a pending transaction which might save you in this circumstance.

Misuse of a corporate card  or virtual card for employees can cause serious damage to the company, so it’s crucial to tackle this issue as soon as it happens. Otherwise, lending options can be affected, repayment plans can change, and investor interest can disappear.

The tricky thing is proving intentional misuse by an employee. If the spending was accidental, the employee will likely own up and you can solve the problem according to your processes. Identifying intentional misuse and fraud however, look for these sorts of occurrences:

• Unusual payments on the same card
• Frequent small withdrawals
• Maximizing the daily limit every day
• Suspicious vendor purchases
• Frequent misunderstandings of the company policy

If you’re quite sure what you’re witnessing is fraudulent use of a company credit card, it might be worth taking the matter to the police. If not for your own sake, for any future companies or persons whom the employee might target next.

Below, we’ll get into some ways you can prevent this kind of expense fraud from happening in the future.

You’re not going to breach contract or get in trouble with your card issuer for using a personal credit card for business expenses. That doesn’t mean, however, that it’s a good idea. Because you’re still mixing your personal and business expenses, you risk poor financial management and confused bookkeeping.

Many of the problems you’ll face here are inverse to the ones we’ve discussed above:

• Trouble expense tracking: determining which purchases are tax deductible and which aren’t is much more difficult when you don’t have a clear separation between your expense categories.

• Less protection: without a business credit card such as the Qonto One Card, Plus Card, or X Card, you’re going to have a harder time defending your purchases in a legal setting.

• No business credit: personal cards build personal credit, and business cards build business credit. Your business is going to benefit much more from purchases with a business credit card.

To avoid all of the above scenarios, the best thing to do is set precautions at the beginning to prevent business card misuse from ever happening. With the many business credit card advantages on offer, it’s best to handle yours as safely as possible. There are three major precautions you can take that should reduce the chance of misuse by you and your employees.

A clear, simple, and straightforward expense policy is your best preventative measure against accidental or intentional card misuse. When setting up your expense policy, make sure to do the following:

• Keep it short: staff are more likely to glaze over a long expense policy document, possibly missing crucial details. Boil yours down to the most crucial details, and possibly work with a copywriter to put it together if you’re having trouble writing it succinctly.
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• Define clearly: make sure nothing that could be purchased for work purposes falls out of any of the defined categories you’ve set out in your policy.
• Treat your employees fairly: giving special privileges or bigger expense allowances to some of your staff members than others risks resentment and claims of being treated unfairly. If everyone is treated equally, there’s no reason for attempted fraud.

Spend control is key to good spend management. Whichever software you use should have a function to control spending and set limits for yourself on work trips, and for employees. Ideally, you’ll be able to set individual limits for certain employees and change them if the need arises.

You should also enable real-time spend notifications, so that you can observe the spending as it happens.

Pre-defined payment categories mean more regulated spending across the board. Your employees will know beforehand what they can purchase and how much they can spend. This will reduce unnecessary communication prior to, during, and after work trips where expenses are lodged.

Common categories include:

• Accommodation
• Transport
• Materials
• Meals
• Licenses and permits
• Employee loans

With each category, you might want to assign a limit or percentage, to give the employee a total understanding of how each category fits into the spend policy.