Play Your Cards Right

Todd Dills | January 04, 2011

If used wisely, credit and debit cards are great tools. Know the benefits and pitfalls of both to help your business run more smoothly.

 

When owner-operator Mike Greenwell, leased to D&R Transport of Branson, Mo., had a heart attack that sidelined him for five months, he says, he took out a credit card for the first time. “I needed it to live on,” he says, until he could get back on the road. Since then, the debt he created has been a hardship.

As Greenwell and many other owner-operators have learned, a credit card can serve as a lifeline or financial drain, depending on how it is used. For some operators, a simple fuel card or other debit card works better, allowing no debt and thereby creating no interest expenses.

Almost two-thirds of owner-operators use a credit card for business, according to Overdrive research. If the account is in the operator’s business name, it is considered a business credit card. If it’s taken out in the operator’s personal name, more than likely it’s a standard consumer card. It’s up to the operator to use each accordingly for business or personal spending, which is best for accounting purposes and in the event of a tax audit.

An incorporated owner-operator business, says Angie Bruskotter of owner-operator financial services firm ATBS, should always use a business account for business charges and a personal account for non-business purchases.

“If you’re incorporated and you commingle business and personal funds,” she says, you risk losing the personal liability protection that is incorporation’s chief benefit.

But for the majority of owner-operators, as self-employed sole proprietors, the lines between business and personal lives are blurred, which is often reflected in the use of credit.

Mt. Pleasant, S.C.-based Paul Todorovich, today a company driver, never felt the need to incorporate his single-truck business when he was an owner-operator leased to Landstar and a member of America’s Road Team. Operating as a sole proprietor, he held two personal credit cards throughout most of the decades he ran.

“I never did get a separate credit card for my business,” he says. “And I know a lot of people talk about not commingling funds, but for me it was very simple. I’m single. It’s all coming out of and going into the same pocket.”

Fleet fuel cards for owner-operators leased to larger motor carriers, and trucking-specific fuel cards like those offered by Comdata for independents, provide accounting benefits and often a 6- to 7-cent-a-gallon price discount at truck stops. That’s because these cards are debit cards, so they qualify for the cash discount. The cards deduct fuel purchases from settlements or from independents’ accounts. One benefit of this is that it eliminates the risk of paying interest on borrowed money, as with credit cards.

An owner-operator leased to a large fleet also may get larger discounts depending on what the fleet has negotiated with the fuel stop.

If your credit score is 720 or better, instead of using fuel cards to buy fuel, you could qualify for a credit card with a generous benefits program. The benefits you gain can add up to more than the cash price discount of $1,200 to $1,400 a year available with a fuel card.