Acquiring Edit Lock
is currently editing this page.

Manage cash flow for your nonprofit and build credit by using this valuable tool wisely

When it comes to making purchases or paying vendors, a nonprofit is like any other business, and a credit card is a valuable tool that makes managing expenses more convenient. It’s also a smart way to build credit. So, how do you choose the right card for your nonprofit?

While some credit card companies and banks offer cards specifically designed for nonprofits, most nonprofits use business credit cards. Look for cards designed for organizations of your size — a small-business credit card for a small nonprofit, and so on — and with the features that matter to you, such as:

  • No annual fee
  • A low APR and/or introductory rate
  • Online tracking tools
  • Cards for employees
  • Rewards in the form of cash back on business-related expenses, airline miles, points that can be donated to your nonprofit or something else of value to your organization

Building a strong business credit history

Depending on your nonprofit’s age and credit history, you’ll need good to excellent credit to qualify for most cards. If you’re a newer nonprofit, you may need to rely on the credit score of your executive director or board chair to qualify. If that happens, that individual’s name is likely to appear on the card instead of your nonprofit’s name, at least until your nonprofit establishes a strong payment history. That individual will also be personally liable for the credit card, even if the nonprofit is a separate legal entity.

As such, nonprofits should strive to establish a credit history separate from any executive or board member. Once your organization has a federal tax identification number and business bank accounts in its name, the business credit bureaus — Equifax, Experian and Dun & Bradstreet — begin generating business credit scores based on credit obligations, legal filings and company background information. Scores range from zero to 100. As with personal credit, the higher the score, the lower the risk your organization poses.

Most card companies require both a personal and a business credit check to qualify for a business credit card. But if you want to build business credit, be sure the bank reports card information to the business credit bureaus, not the personal credit bureaus.

To help ensure that you’re building strong business credit:

  • Always make payments on time
  • Keep balances low and try to pay the full amount, if possible
  • Don’t open multiple credit cards unnecessarily

Formal guidelines help protect your tax-exempt status

Because 501(c)(3)s enjoy tax-exempt status, you need to be aware of the types of purchases made with your nonprofit credit card. Using it for personal expenses could jeopardize your status, so monitor spending carefully.

Given this, your board of directors should establish clear policies for credit card use, including:

  • Who in the organization can obtain a credit card and for what purpose
  • Spending limits for each cardholder
  • Qualifying expenses
  • Expenses and/or amounts that require preauthorization
  • Procedures for approving charges
  • Documentation for submitting expenses, i.e., itemized receipts
  • Penalties for improper use, including revoking card privileges

Minimizing risk

Like every other organization, nonprofits need to minimize the chances of fraud — and credit cards pose a definite risk. As such, encourage those who use your nonprofit’s credit card to incorporate a few practices into their daily routine. These include:

  • Not giving out the account number to callers unless you know they’re reputable
  • Never signing a blank receipt
  • Saving receipts to compare with the monthly statement
  • Reporting any questionable charges or a lost or stolen card promptly

Also, establish a clear chain of command for reviewing credit card statements and addressing discrepancies. Supervisors should review employees’ purchases, and executive leadership should review those of board members. Finally, someone in a position of financial authority should reconcile credit card statements against your books on a monthly basis to ensure that all records are in agreement.

Body

Disclaimer

MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.

Disclaimer

References




References

Author

Seasoned writer covering a spectrum of industries, including nonprofit, financial services, health care, insurance and technology