How Cash Back Business Credit Cards Work

By Megan Doyle | American Express^® Freelance Contributor
6 Min Read | April 26, 2021

Summary

What Is Cash Back?

Cash back is a type of business credit card reward that lets cardholders earn back a small percentage of each purchase made. Cash back accrues and can be redeemed in a variety of ways depending on the card and card issuer, but is usually offered as a statement credit.

How Cash Back Business Credit Cards Work

To earn cash back rewards, the credit card must be used for eligible business transactions. In other words, you can’t earn cash back if you don’t use the credit card. Here’s a breakdown of how cash back business credit cards work:

1. Make a purchase.Whenever a cash back business credit card is used to make an eligible purchase, the card issuer re-pays the cardholder a small portion of that transaction. It’s essentially like earning a small rebate every time the card is used. Business cash back percentages typically hover around 1.5% to 2%, and sometimes more depending on the card issuer.
   For example, a flat rate cash back business credit card might offer 2% on all eligible purchases, while a tiered card might offer 5% cash back at office supply stores, 2% cash back on dining and gas, and 1% cash back on all other purchases.


2. Build cash back. Unlike a discount which might be applied immediately, cash back isn’t available that way. Generally, cash back will accrue monthly and appear on the business credit card’s monthly statement until redeemed.


3. Redeem cash back. How to redeem business cash back depends on the card issuer. For example, some card issuers might automatically apply cash back to your monthly balance as a statement credit. This can be a straightforward way to consistently cut costs each month. Other card issuers let users save up cash back over time to be used toward statement credits or specific purchases, such as gift cards or travel.

An Example of How to Use Cash Back Business Credit Cards

Let’s say a business has a cash back business credit card with a 2% cash back rate. Every month, the company uses the cash back card to pay for regular purchases, including transportation costs, monthly lunches, phone and internet bills, and some supplies. Altogether, the company spends about $4,000 on the card each month. Since 2% of $4,000 is $80, the company earns back $80 a month that’s then automatically applied as a statement credit. This effectively lowers the company’s monthly bill by $80 – that’s $960 in yearly savings the company wouldn’t receive if they paid by debit card, cash, or check.

Note that other card issuers might let the business build up cash back rewards over time to be redeemed in other applicable ways.

Getting the Most Out of a Cash Back Business Credit Card

Cash back business credit cards are fairly straightforward. They tend to offer simplicity that points rewards cards don’t offer. For example, getting the most out of points cards requires spending time figuring out the most cost-effective way to redeem points, since not all redemption methods are equal in value. With cash back, a dollar is a dollar.

Still, there are some tips that can help businesses get the most out of business cash back credit cards:

Use a card that matches your business expenses. One of the biggest benefits to business cash back cards is getting rewarded for the purchases you’re already making. If your business doesn’t spend a lot more in any one or two specific spending categories, it’s a good idea to get a flat-rate card that will earn rewards on all purchases equally. But if you spend a lot in specific areas – perhaps transportation, or dining, utilities, supplies, etc. – it may be better to consider a card with bonus spending categories.

Use a cash back business credit card for all eligible purchases. The more you use a cash back business credit card, the more money you will earn back. Use a cash back credit card for all possible purchases – as long as you’re able to stay on top of payments.

Pay on time and in full. When statements aren’t paid in full, interest begins to accrue. Credit card annual percentage rates (APRs) can be high, meaning interest can accrue quickly. But you can avoid paying interest by paying off the statement in full on time.

Pay attention to the fine print. Business credit cards have many terms and conditions, and it’s in a cardholder’s best interest to carefully understand the details. Some key stipulations to consider include:

• Rewards caps. Some business cash back credit cards have spending caps, meaning you will only earn higher cash back percentages – usually 1.5% and above – up to a specific annual spending limit. For example, a card might offer 5% cash back on office supplies and internet service for the first $10,000 spent in a year, followed by 1% for the remainder of the year.
• Annual fee. Not all credit cards have annual fees. For the ones that do, annual fees typically range between $95 and $595 a year.
• Redemption methods. It’s worth considering a credit card that will let you redeem cash back in a way that aligns with your business needs. For example, if you’re looking to use cash back to pay for gift cards to give to employees, consider a card that allows that redemption style. Or, if you’d prefer a simple way of saving money on purchases, you may want to consider a business cash back credit card that automatically applies cash back as statement credits.
• Expiration dates. Most of the time, cash back rewards won’t have expiration dates, meaning they can be saved up over time (provided they’re not automatically applied as statement credits). Still, it’s always worth double checking the card’s terms and conditions to be sure.