Credit cards for business can really help your cash flow

Managing both business finances and time is increasingly important to SMEs, particularly as everyone reassesses their positions in the teeth of an economic storm. Businessmen and women are constantly looking for new ways to balance their books and give them the capital breathing room that a fiscal downturn demands. Using a business credit card could help in some way to alleviate the day to day problems that many businesses encounter, enabling them to structure and control their cash flow in a much more manageable way.

Unlike normal credit cards, a business credit card can offer a small or medium sized company greater financial flexibility, providing an invaluable alternative to expensive business loans or other financial alternatives. If your company only needs a relatively small financial 'slush fund', then a business credit card could be the answer. It reduces cost to the business by being cheaper than a loan or overdraft, is easily managed and can help a business to survive a lean month by making sure suppliers are paid on time. If managed carefully, it can also improve the credit rating of a business - something that in a period where financial institutions are more reticent about making business loans could stand a business in good stead.

A 2004 study by the Warwick Business School that looked into financial options for small and medium size businesses found that business credit cards were the most widely used financing tool for SMEs. The study, which was a comprehensive one of 2,500 small and medium sized companies, found that 55% of SMEs used credit cards, 53% had overdrafts, 27% used leasing or hire purchase and only 3% used equity finance. Although this study was carried out some time ago, indications are that this proportion is still applicable and that business credit cards enjoyed a boom time through the more affluent 2005-2007 period. The benefit of a business credit card is that it allows a company to have a separate source of credit from their main cash flow and can also mean an extended period of interest free credit (depending on the card provider) when dealing with suppliers. This 'grace period' can mean the difference between survival and going to the wall for many small businesses.

The other crucial factor in any business is effective time management. Many companies are loosing valuable time (and money) by carrying out labour-intensive administrative processes and accounting. Using a business credit card can reduce this, as the card provider will give the business a full and detailed breakdown of monthly expenditure on all cards. This allows the accountants to be able to monitor expenses, supplier payments and other transactions easily and quickly. A business credit card also gives companies and their employees the chance to separate their personal expenditure from their business costs, again providing a much more efficient method of monitoring 'cash in' and 'cash out'.

Many business credit cards allow multiple users on the same account or additional cards for employees. This gives SMEs the reassurance that the relevant employees are adequately equipped with a payment tool that can easily be collated onto a single account. Pre-set limits can ensure that the company does not overspend inadvertently, giving business owners the ability to keep track of employee's spending on an individual basis. With the advent of online banking, this now does not need to be a monthly check but can be updated instantly, allowing a business owner to prevent an unnecessary overspend by any of their employees. Statements can also be a useful cost-cutting exercise - showing exactly how much the business is spending on travel costs, for example, and if necessary making fundamental changes in their organisation to reduce their overheads.

There are a number of business credit cards on the market, so it is wise to shop around and look for the best product that suits your company's needs. Some cards offer 'reward schemes', with company discounts on a range of products and services which could all constitute further savings for the business. Others offer interest free periods or low APR rates, which may be more attractive than 'sweeteners' designed to tempt companies to a specific card. By choosing wisely, a company can utilise a business credit card as part of their overall financial strategy effectively, giving the small and medium business user another weapon in their monetary arsenal.

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