How to Use a Business Credit Card to Control Cash Flow
Does your business have cash flow problems? The credit available on a card is an excellent way to receive a short term loan and some room to manoeuver. The benefits of credit cards for small businesses outweigh the disadvantages if used correctly. Here are some key points to managing your cash flow using a credit card.
Keep business and personal expenses separate
You will add to your workload if you have to spend time sifting through statements to sort through what is a business vs. personal expense. You should also keep the receipts separate to avoid sifting through them. Receipts are best stored in an organised fashion and I for one cannot recommend Shoeboxed high enough for this.
Pay by card when possible
Easier reconciliation, reduced bank charges and easier preparation of accounts are some of the key benefits you will enjoy when paying by credit card. Stores offer extended interest free payments when purchasing large items, which is a cash flow benefit. And don’t forget to talk to your banker. Always look for better banking services and you’ll find financial solutions tailored to your personal and business needs.
But always repay on time
You might get up to 55 days to pay off your purchases, but if you don’t actually repay your debt and let it roll over, you’re going to incur interest. And it probably isn’t going to be at a low rate, particularly if you have a credit card with rewards.
Interest free periods
Find out what your card’s cut off days are and time your purchases accordingly. This allows you to maximise your free credit period. Keep the cash you save in a high interest rate savings account until the payments are due.
Manage your cash flow
Most businesses make the majority of their sales during the first and last weeks of the month. If you don’t manage your cash flow properly, you will run out of money before you make more. Businesses with irregular income can put everything on their cards and wait till the end of the month when the money has piled up. This could mean the difference between having a little cushion and an overdrawn account.
What to do before applying for a business credit card
- Find out how limits are set and how to control your employee’s spending.
- Note when payments are due and set up a direct debit to cover the minimum.
- Have a look around at what’s available. For comparison, Clydesdale Bank offer business credit cards with up to 56 days interest free on purchases as well as all the usual business class features.
While using a business credit card is a common business practice, remember that nothing beats astute management. Do not spend more than you have and keep up to date records. If you are having problems managing your cash flow, consider hiring a professional to manage your accounts and keep your business in the black.