Credit Card Rewards: Types of Reward Programs

by Greg DePersio

2 min read

Business owners can realize benefits from using business credit cards, including better cash flow management, greater spending flexibility, and improved expense control. A credit card rewards program can have a direct impact on a business’s bottom line. With a credit card rewards program, businesses can generate hundreds or even thousands of dollars of cash back or savings on travel simply by using the card for everyday business purchases. However, because there are different types of rewards programs, businesses need to choose the credit card that benefits them the most.

Two Primary Types of Rewards Programs

There are two broad categories of business credit card rewards programs: points and cash back. Points programs award a certain number of points per dollar spent in various spending categories. Points can then be redeemed for purchases in certain categories such as travel-related expenses.Cash back programs award cash as a percentage of eligible purchases, such as 3% cash back on gas purchases. The cash back is typically paid as a statement credit. It can be used for purchasing merchandise, or it can be applied to the credit card bill.

Rewards to Match a Business’s Needs

Many rewards programs are designed to emphasize spending in certain expense categories, such as travel or business-related expenses. So, it is important for a business to use a credit card that is aligned with its spending pattern. A business should also consider rewards credit cards that allow for the rewards earned by employees to be combined with the primary cardholders’ rewards account.

Travel Rewards

A business that spends a lot on travel-related purchases can benefit from a travel rewards card that earns points for free flights, hotel stays, and car rentals. Rewards programs that emphasize travel rewards tend to offer the highest rewards redemption rates for air travel and hotel stays. Businesses can also benefit from additional perks offered through travel rewards credit cards that can add a lot of value for frequent travelers, including airport lounge access, free companion tickets, and complimentary baggage fees.

Rewards for Business-Related Expenses

A business that regularly spends money on business-related expenses – such as office supplies, cable, and phone services – can reap significant cash rewards from credit cards that relate to those spending categories. Business-related categories could also include restaurant dining and fuel purchases. Businesses that have a big outside sales staff can use their rewards to offset the cost of wining and dining prospects while on the road.

Watch for Spending Caps and Fees

Most rewards programs limit the amount of rewards a business can earn by including a spending cap on the primary spending categories. For example, a program that emphasizes business-related purchases might cap the spending eligible for rewards at $25,000 for the year. Spending up to $25,000 might earn 3% cash back and only 1% beyond that. Cards with higher spending caps or no spending caps tend to have higher annual fees or higher annual percentage rates. The use of a credit card primarily for the opportunity to earn rewards should be weighed against the costs. Most rewards credit cards have annual fees. A business has to determine whether it will earn enough in rewards to offset the fee. Also, rewards credit cards tend to have higher APRs. If a business carries a balance on its account, the interest charges could offset the benefit of the rewards.

References & Resources

Related Articles

Selecting the Best Credit Card for Your Business

Credit card selection may seem like a low-priority, low-consequence decision for a…

Read more

The Rewards of Customer Loyalty

Every business needs customers to survive, but what is even better than…

Read more

How to Grow Business Credit in Canada

If your small business is just starting out, then it probably has…

Read more