Paying Bills with a Credit Card in QuickBooks

Managing bills and payments is a crucial part of running a business. As a business owner, you likely receive bills for expenses like inventory, supplies, services, etc. And you need to pay those bills on time to maintain good relationships with vendors

These days, many businesses choose to pay bills with a credit card for rewards points or cash back. Paying with a credit card allows you to delay payment until the credit card bill is due, giving you more time to have cash on hand.

QuickBooks makes it easy to pay bills with a credit card and keep accurate books. In this article, we’ll walk through the steps for paying vendor bills with a credit card in QuickBooks Desktop and QuickBooks Online.

Overview of Paying Bills with a Credit Card in QuickBooks

Here’s a quick rundown of the process:

• Enter bills from vendors as usual in QuickBooks
• Select “Credit Card” as the payment method when paying the bill
• When the credit card statement arrives, enter a payment in QuickBooks to pay the credit card bill

This allows you to keep track of vendor bills paid with the credit card and make the payment to the credit card company later when the statement is due.

Let’s look at the details for QuickBooks Desktop and QuickBooks Online.

Paying Bills with a Credit Card in QuickBooks Desktop

Follow these steps to pay a bill with a credit card in QuickBooks Desktop

1. Create the vendor bill as usual in QuickBooks. Go to Vendors > Enter Bills and enter the bill details.

2. When ready to pay, go to Vendors > Pay Bills. Select the bill(s) you want to pay.

3. In the “Method” field, select your Credit Card from the drop-down list.

4. Click Pay Selected Bills. QuickBooks records the payment to the vendor and creates a credit card liability.

5. When you receive your credit card statement, go to Banking > Pay Bills and select the credit card account to make the payment.

6. In the Expenses tab, select the bank account you will use to pay the credit card bill.

7. Click Pay Selected Bills. The credit card liability is reduced and payment is recorded.

Be sure to match downloaded credit card transactions to related bills for accurate reconciliation.

Paying Bills with a Credit Card in QuickBooks Online

Here are the steps for paying bills with a credit card in QuickBooks Online:

1. Create the vendor bill. Go to Expenses > Bill and enter details. Click Save & Send if sending to vendor.

2. When ready to pay, click Pay bills on the Home page or go to Expenses > Payments.

3. Check the bill(s) to pay and click Pay selected bills.

4. Choose the credit card account in the Paid from field.

5. Select the bank account to transfer funds from in the Transfer Funds From field.

6. Review payment info and click Pay $xx.xx. The bill is paid using the credit card.

7. When your statement arrives, click Pay credit card on the Home page.

8. Select the credit card account, enter amount to pay, select payment account, and click Pay credit card.

The process is straightforward in both QuickBooks Desktop and QuickBooks Online. The key things to remember are:

• Select the credit card as the payment method when paying vendor bills.

• Record a payment transaction to pay the credit card bill when the statement is due.

• Match downloaded transactions to related bills for accurate reconciliation.

Why Pay Bills with a Credit Card?

There are a few potential benefits to paying bills with a credit card for your business:

Delayed payment – Paying with a credit card allows you to wait until the credit card bill is due to pay, rather than paying the vendor directly. This can help with cash flow management.

Rewards – Many credit cards offer cash back, points, or miles that you can redeem for statement credits, merchandise, gift cards, or travel. Rewards can help offset some of your expenses.

Cardholder benefits – Credit cards often include benefits like purchase protection, extended warranties, and insurance coverage for rental cars or travel.

Floating expenses – Putting expenses on a credit card can allow you to temporarily “float” the expense by not immediately deducting from your bank account.

Easier recordkeeping – Paying with company credit card(s) often makes it easier to keep track of purchases compared to employee reimbursements.

Improved margins – Some suppliers provide discounts for volume credit card purchases. This can improve your profit margins.

The rewards and benefits offered by credit cards provide great incentives to utilize them for paying business bills.

Best Practices for Paying Bills with a Credit Card

If you decide to start paying vendor bills with a credit card, keep these tips in mind:

• Compare card features – Compare rewards cards and choose one that best fits your spending. Get a card with no annual fee.

• Set a budget – Establish a budget for credit card spending to avoid getting in over your head.

• Pay in full – Always pay the full statement balance each month to avoid interest charges. Set payment reminders.

• Assign cards – If issuing cards to employees, assign specific cards to certain individuals for easier tracking.

• Check statements – Carefully review statements each month to ensure there are no unauthorized or fraudulent charges.

• Match transactions – Match downloaded transactions with related bills or expenses in QuickBooks for accurate reconciliation.

• Track rewards – Monitor rewards earned and redeem them before they expire. Treat rewards as income.

What to Do If You Can’t Pay the Full Credit Card Bill

Ideally, you should always pay the full credit card bill each month to avoid interest charges. But sometimes emergencies or cash flow issues prevents that. Here are some options if you can’t pay the bill in full:

• Pay minimum – Make at least the minimum payment due to avoid late fees and severe credit score impacts.

• Call for lower APR – Contact your credit card issuer and request a reduced APR. This lowers your interest charges.

• Work out payment plan – Explain the situation and try to negotiate 3-6 month payment plan at lower or zero interest.

• Consolidate debt – Transfer debt to a 0% balance transfer card or lower rate consolidation loan.

• Use business assets – Consider liquidating assets or using lines of credit, loans, or investments to settle debt.

• Consult professionals – Ask your financial advisor, accountant or bookkeeper for guidance on managing situation.

While paying the minimum keeps your credit card active, you should have a plan to pay the balance down faster to avoid accumulating expensive credit card debt. Prioritize paying down cards with the highest interest rates first.

Warning Signs of Credit Card Trouble

It’s easy to overdo it with credit cards, leading to growing balances, large interest payments, and credit damage. Watch for these warning signs of credit card trouble:

• Only paying the minimum each month
• Using cards for non-business expenses
• Taking cash advances
• Getting near or over the credit limits
• Relying on cards to make ends meet
• Not having enough income to cover card payments
• Seeing card balances increase every month
• Making late payments
• Using one card to pay another

If you notice any of these issues arising, take corrective action immediately to get credit card use back under control. Make serious spending cuts, increase income, balance transfer debt to lower rates, or consider business financing options.

Recording Credit Card Rewards in QuickBooks

If your business credit card provides cash back, points, or miles, you need to record those rewards as income in QuickBooks when they are redeemed.

Here are the steps for QuickBooks Desktop and QuickBooks Online:

QuickBooks Desktop

1. Go to Company > Chart of Accounts and create an Other Income account called “Credit Card Rewards”

2. When you redeem rewards, go to Company > Make General Journal Entries

3. Credit the bank account you redeemed to and debit the Credit Card Rewards income account

4. Enter date, memo, splits, save and close

QuickBooks Online

1. Go to Accounting > Chart of Accounts and create an income account called Credit Card Rewards

2. When rewards are redeemed, click + New and select Journal Entry

3. Select accounts, enter date and memo, save

Be sure to categorize any redeemed rewards as income. Consult your accountant on the proper tax treatment of credit card rewards.

Key Takeaways on Paying Bills with Credit Cards

Here are some key points on handling bills and credit cards in QuickBooks:

• Enter bills from vendors as usual

• When paying bills, select the credit card as payment method

• Record a payment transaction when you pay the credit card bill