It takes a lot of money to run a business. From the cost of goods sold to operating and overhead costs, there are a lot of expenses to keep a business operational.
But all of this money being spent is more than an obligation, it’s an opportunity.
Many business credit cards and payment options offer cash back rewards that let you earn based on what you spend. What exactly are these programs, and how do they work? Read on to figure out how cash back rewards can help you earn money simply by spending it on what you’re already buying.
What is cash back?
Cash back is a rewards system available on some payment methods that returns a percentage of your spending as money. For every eligible dollar you spend, you get a small percentage of it back in your account.
This operates as an incentive system offered by payment providers. Its purpose is to make you choose their offering as your preferred payment method.
You’ll typically find cash back programs offered on debit or credit cards, but you may also find them in spend management platforms, retail loyalty programs, or app rewards.
Compared to something like points systems or travel rewards, cash back is the most straightforward of loyalty programs: one dollar of cash back is worth one dollar. This simplicity makes it one of the easiest loyalty programs to master, as you don’t need to worry about what to redeem points on.
Different types of cash back
Not all cash back programs operate the same way. Each of these different types have their own pros and cons, and understanding them will help you decide which is best based on your spending.
Credit card rewards
Business credit cards are a common source of cash back incentives.
When you use a credit card with a cash back promo, a percentage of that transaction is banked. These cash back amounts can be redeemed as direct deposits into your bank account or as statement credits to pay down your balance.
Credit card cash back programs typically offer the widest coverage, giving you cash back on a variety of spending categories. They also come with the typical benefits of business credit cards, like fraud protection and expense tracking.
Flat rate
Flat rate cash back programs are the simplest to understand and take advantage of. Regardless of what you spend money on, you get the same flat rate percentage of cash back.
For example, if you have a card with a 1.0% flat rate cash back program, you’ll earn $10 of cash back on $100 of spending. This structure is most beneficial for businesses that have diverse expense categories with inconsistent spending.
While some businesses may opt for multiple cards with specialized cash back programs, each used for different expense types, a flat rate card helps you take advantage of cash back without the extra management and tracking.
Tiered and category
Tiered and category cash back programs give you a percentage back on transactions based on the expense category it falls under. You may have a card that gives you 5% back on gas, 3% back on office supplies, and 1% back on restaurants. As a result, you’d use this card primarily for auto expenses to maximize the cash back earned.
Some programs have tiered incentive structures where the percentage back increases based on how much you’ve spent in a month. For example, you may get 2% on gas, but that percentage increases to 5% if you spend more than $500 on gas in the statement period.
These types of cash back cards are great for businesses that consistent spending on expenses that line up with the categories. However, it requires more planning to maximize the rewards, opting for the right card at the right time.
Retailer and app rewards
Beyond credit cards, retailers and third-party apps offer cash back and rebate programs. An example of this is Rakuten, where purchases made through the app earn cash back rewards or store credit.
These options are the most limited in scope as they are restricted to specific retailers, and sometimes restricted based on what is being purchased. However, if your business frequents any of these vendors, they can offer more rewards than a flat rate or category-based cash back program. Just be mindful of the administrative burden that comes with managing multiple loyalty accounts for each retailer.
How cash back works
The main mechanics of cash back is simple: when you make an eligible purchase, the card provider tracks the percentage earned and banks it for your account.
Over time, these rewards accumulate, usually tracked as a dollar amount or points balance that converts to dollars. Some programs allow you to redeem the cash back at any point, but others will have a minimum balance before it can be accessed.
The cash back is redeemed as a statement credit (paying down your balance), direct deposit, or other reward with monetary value.
Credit card issuers fund cash back programs with interchange fees. Interchange fees are small charges that merchants pay every time a customer makes a payment by credit card. This is why reward programs exist: card issuers want you to use their card as frequently as possible so they can maximize their earnings on interchange fees.
Some cash back programs are also funded with account fees. If you have a cash back credit card with account fees, you should always track your cash back earnings against the costs to make sure it’s earning enough money to be positive for the business.
Considerations when choosing a cash back program
Looking to start taking advantage of cash back rewards? Start with these considerations to choose the right one based on your business’s habits, needs, and goals.
Your spending patterns
Start by looking back at your historical spend to understand where your business spends the most. Identify your top categories and the consistency with which you’re spending on them.
If the majority of your spending is concentrated in a select few areas, then a category-based program that lines up with it would likely offer you the biggest return.
Go the extra mile by looking at the last three months of spending and calculating the cash back earnings for the different programs you’re considering.
Annual fees and account costs
Some credit card rewards programs are locked behind cards or accounts that have high annual fees, interest rates, or other associated costs. Even if these reward programs earn you more cash back, the extra earnings need to be enough to cover the extra cost.
If your spending patterns are inconsistent, consider the probability that you’ll cover the costs. For example, small or early stage businesses that are still learning their expense patterns might favor a card with fewer rewards and no fees, so they aren’t worrying about the extra cost.
Redemption flexibility
The cash back rewards you earn only have value if you can turn them into something of value. Some programs limit how you can cash out, limiting you to gift cards and travel rewards, or only allowing you to redeem once a minimum balance is hit.
The more flexibility you have in redemption, the more control you have over when and how you redeem your cash back.
Reward caps and expiration
Card back programs often come with fine print that limits how much you can earn over a given period of time, and sometimes puts an expiration date on your rewards.
If you’re looking at a card with category-specific rewards, it’s worth checking the fine print to see if you’ll hit the cap and how much money you’d be missing out on. For flat rate cards, you may want to consider cards with higher costs if they come with uncapped rewards.
Credit and eligibility requirements
Credit card providers often offer better rewards programs to customers with a long-established credit history of reliability. What might be the perfect option on paper may not be offered to new customers.
Make sure you review the eligibility requirements before applying. If the issuer does a deep credit check, you’ll likely see the effects on your credit score.
If you’re compiling a list of options, weed out any options that the business would be ineligible for, so you don’t get too deep in the process. And if you find an option you’re not eligible for now, you can track your progress towards the requirements and apply later on.
Integration with your financial tools
If you’re committing to a new credit card, it’s always worth checking to see if it integrates with your accounting and expense management platforms.
The cash back program helps generate income, but a credit card that integrates with your tech stack will save you both time and money on your bookkeeping and accounting processes. Since transactions flow seamlessly into your accounting, you’ll have real-time visibility into your spending patterns, helping you make better financial decisions.
You might be surprised by how much the time spent reconciling a credit card statement affects your bottom line, offsetting the earnings from a cash back card.
Receiving cash back rewards
Once you’ve accumulated some cash back and you’re ready to redeem, here’s what you can expect from the process.
Ways to redeem cash back
Cash back rewards are most commonly redeemed for:
- Statement credits: Cash back is directly applied to your account balance, reducing the amount owed at the end of the billing cycle.
- Direct deposit: Cash is transferred to your business bank account, giving you flexibility in how and when you use it.
- Gift cards: Any earnings are redeemed as gift cards for partnered retailers and brands.
- Travel: Certain programs offer higher redemption rates if the cash back goes towards travel bookings, like hotels and flights.
If you’re considering cards with different redemption methods, think about how much you value the immediacy of a cash back reward. Statement credits and direct deposit will give you the most immediate value, but you could get more value from gift cards and travel redemption if you’re strategic.
Timeframes for receiving cash back
The timing of cash back varies based on the program and redemption method.
Some programs have cash back accrue on a per-transaction basis, with the earnings made available as soon as the transaction clears. Others may tally your cash back earnings on a monthly or quarterly basis.
Once a redemption method is selected, it typically takes a few business days for it to be reflected on the statement or deposited into your bank account.
Keep this in mind for your budgeting and forecasting workflows. Even if cash back is earned, it may take days, weeks, or months for you to actually redeem the value.
Conditions that may affect cash back redemption
Most cash back programs have some limitations on how you earn and redeem rewards. Some of the most common conditions are:
- Minimum balances: You can only redeem your accrued cash back once you hit a minimum rewards balance.
- Account standing: Rewards are only made available if the account is in good standing, meaning no delinquent payments or risk of defaulting on the balance owed.
- Utilization requirements: Some programs require you to use a minimum percentage of your available credit to qualify for rewards in that period. For example, a 10% minimum utilization rate on a $5,000 credit limit would mean holding a balance of at least $500.
- Excluded transactions: Certain purchases may be restricted, like cash advances, foreign transactions, or money transferring services.
- Account closure: Closing the account with a cash back balance often means forfeiting those rewards. Plan accordingly and redeem all possible rewards before closing an account.
Benefits of cash back programs
For businesses of all sizes and expense levels, cash back programs offer a wide range of tangible advantages over non-reward-based alternatives.
Direct impact on profitability
Every dollar that you spend on a cash back card gives you rewards, either saving you money on operating expenses now or in the future.
Consider a cash back card with a flat rate of 1.5%. If you have $10,000 of monthly expenses, you would immediately save $150 every month, accruing to $1,800 on the year. That’s money saved for doing nothing different than using a specific credit card.
No change to your existing workflows
Not only does a cash back card give you immediate savings, but it also comes with minimal impact on how you work. You spend money on what you need with your new cash back card, and the rewards accrue with absolutely no changes to your processes.
Improved cash flow management
Cash back rewards give you one more tool to manage and master your cash flow. While it can be a small stream of rewards, it’s consistent and dependable so long as you’re spending money.
These rewards can be automatically redeemed on a regular basis or saved up to be deployed at a time when it’s needed.
Simple reward systems
Compared to the points and airline miles of other card offerings, cash back has the simplest reward program to understand and take advantage of. The alternatives may have a higher ceiling, but require more effort to maximize the value from.
Instead, one dollar earned in cash back is worth one dollar to the business. No expiration risk, no program-specific redemption rules, just real world cash in hand.
Business spending that pays you back
For small-to-medium-sized businesses where every minute spent is as valuable as the dollars earned, a cash back card shouldn’t require micromanagement and spreadsheets of planning to get value from it.
That’s why BILL has made it easy with BILL Rewards, a business credit card with a rewards program designed around how businesses spend. Earn points on all qualifying purchases, with up to 7x the points on restaurants, 5x the points on hotels, and 2x the points on software subscriptions. Points are easily redeemed for cash back, statement credits, or gift cards, the choice is yours.
Plus, with the BILL Spend & Expense platform, you get access to powerful reporting and dashboards that provide the ultimate visibility into your spend patterns for planning purposes.
