How to manage a business credit card

business.gov.au explains that paying by credit card creates a debt with the card provider. In a business's books that debt is a liability, and business.gov.au's balance sheet template places credit cards payable among the current liabilities.

Each card account gets its own liability account in your books. Its balance should show what the business owes the provider on any given day, which only works if purchases are recorded when they happen. Checking that account against each statement is covered in our guide to reconciling a credit card. This guide covers running the card day to day.

Card problems usually start with an unclear arrangement. Before anyone is given a card, write down and share:

• who holds a card, and who approves new cards
• what each card may be used for, and anything it must never be used for
• a spending limit for each cardholder, which may be lower than the account's overall limit
• how soon after each purchase the receipt and a note of its purpose must be sent in
• that personal purchases go on personal cards
• what happens to the card when someone leaves the business or changes role.

Ask each cardholder to sign that they have read the rules, and keep the signed copy with the card records.

A statement line gives the date, the amount and a merchant name, and little else. The ATO says a record generally needs the date, the amount, a description of the transaction and its purpose. The receipt describes what was bought, and only the cardholder can say why.

• Ask cardholders to photograph each receipt at the point of sale and send it in with a word or two on the purpose, such as a job name or a client.
• Check the receipts received against the card account each week and chase the gaps while purchases are recent.
• If a receipt is lost, ask the supplier for a copy before the end of the month.

Where one purchase is partly business and partly personal, ask the cardholder to note which part is which.

Each purchase is recorded twice: in the account that describes it, such as fuel, stock or software subscriptions, and as an increase in what is owed on the card. A refund reverses the purchase and lowers the amount owed. Card fees and interest are costs of the business, recorded when they appear on the statement.

The repayment moves money from the bank to the card provider. It lowers both the bank balance and what is owed on the card, and it isn't an expense, because each purchase it pays for was already recorded when the card was used.

If a sole trader or partner puts a personal purchase on the business card, record it as drawings. If it happens in a company, record it in the account your accountant advises.

A card's credit limit is its authorised borrowing limit. The balance can still go over it, for example when fees or interest are added, and further purchases may be declined. Check the provider's balance and pending transactions as well as your books before paying a supplier who needs payment on the spot.

If purchases are recorded as they happen, the card account in your books shows the balance between statements. Where several cardholders share one account limit, total their spending each week, not just at the statement date.

Put each card's payment due date on the list of due dates you keep, and the expected repayment in your cash flow forecast. business.gov.au's glossary describes interest as the cost of borrowing money, and an unpaid card balance is borrowing like any other. The card's terms set when interest starts to apply.

business.gov.au counts relying on credit among the signs that cash flow may be under pressure. A card balance that carries over and grows from month to month is worth looking at alongside your forecast.

• Reconcile each card account to its statement.
• Look at spending by cardholder and by account, and ask about anything outside the rules.
• Check recurring charges, such as subscriptions, are still wanted.
• Confirm the list of cardholders is current and that cards from people who have left are cancelled.
• File the statement with its receipts and the reconciliation. business.gov.au includes bank records among the records to keep.