Broadly, as explained by small business advice website SmallBusiness.co.uk, there are three ways in which a business credit or charge card can help SMEs manage their cash flow:1
- Businesses can draw on the credit line at any time, and in a number of ways, to help them spread expenses and reduce financing costs;
- Online tools can help businesses keep track of outgoing payments;
- Rewards programs and cash back can be used to meet certain business expenses.
Spreading Expenses and Managing Cash Flow With a Business Credit Card
Many SMEs experience cash flow gaps, when business expenses fall due but customer payments have not yet been received. Businesses can use a business credit card or charge card with an interest-free period to make payments in advance of receiving funds. Provided the balance is paid off by the end of the interest-free period, this can enable businesses to stay on good terms with suppliers even when they’re caught short of cash, without incurring interest charges on the working capital they’ve borrowed in the interim. SMEs that frequently experience cash flow management gaps might wish to opt for cards with long interest-free periods. Some card providers are developing innovative ways of enabling businesses to pay with their card even when the supplier does not accept cards.
A business credit or charge card can also be useful for spreading out large business expenses while keeping finance costs low. For example, a business might use a charge card with a long interest-free period to pay for next season’s inventory. At the end of the interest-free period, the business could pay off part of the balance from cash flow, then either convert the rest to revolving credit (if the card allows it) or refinance with a business loan. Using a credit or charge card this way for a large purchase can work out cheaper than up-front financing with a business loan.
For new businesses and those with poor credit scores, using a business credit card regularly and always paying on time helps to build the business’ credit score. SME advice website FitSmallBusiness.com points out that this can make it easier to get other forms of business credit, such as loans, and may reduce financing costs over the longer-term since higher credit scores can earn a business lower interest rates.2
Simplifying Expense Management with Online Business Credit Card Tools
Many business credit cards have online tools that enable SME owners and managers to view details of their card payments and balance at any time. This can help business managers to decide on the best time to make card payments so as to maximize use of interest-free credit and better manage cash flow, freeing up cash for other purposes.
Some card providers will provide multiple cards on the same account. These can be particularly useful for managing employee expense claims. Cards on the same account can be issued to employees, enabling them to pay their expenses from the company’s account rather than meeting expenses themselves and reclaiming payment later. This can make business trips and entertaining clients easier for employees to manage, and it can also give senior management better control of expenses since online tools can give management an instant overview of expense payments made by all employees. FitSmallBusiness.com explains that credit limits on employee cards can be used to create an authorization hierarchy for expenditure, helping to ensure that large expenses are always authorized by the most senior staff and thus reducing risk to the business.3
Using Rewards Programs to Help with Business Expenses
Businesses can use business credit card rewards points to pay for a range of ad-hoc business expenses such as flights, hotel bills, and entertaining. Some reward programs also offer discounts on things like legal expenses and fraud prevention.4 In addition, some cards offer extra bonus points or cash back for certain types of purchases, such as office supplies, telecommunications services, and travel.5
Employees can also build up reward points on their corporate credit cards. SMEs can choose whether to keep business costs down by using employee points for their own business expenses, or whether to try improving employee motivation by allowing them to use the points for personal expenditures.6
