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Why You Should Consider Getting a Business Credit Card
Many people grow up thinking credit cards are bad. They hear things like:
- Credit cards lead to debt
- Debt should be avoided completely
- Only struggling businesses use credit.
While these ideas might be true for personal finances, credit cards are very useful for businesses. Here’s why having a business credit card can be great for your company.
Contents:
- Credit Cards Fuel Faster Growth
- Credit Cards Simplify Cash Flow Management
- Credit Cards Streamline Employee Expenses
- Credit Cards Offer Better Rewards
- Credit Cards Make Business Operations Smoother
- Credit Cards Help Build Your Business Credit Score
- The Downsides
1. Credit Cards Fuel Faster Growth
Running a growing business means facing financial challenges like:
- Delays in receiving payments
- Inconvenient timing of direct debits
- Waiting for customer payments to clear before placing stock orders
- Unexpected expenses like legal fees
- Platforms taking days to release funds
Business credit cards can help by:
- Providing funds to acquire new customers regardless of your bank balance
- Enabling spending on stock, raw materials and advertising
- Being available for unexpected business opportunities
Example:
Imagine you secure a substantial construction project to build a new office complex, but the client pays 30 days after the project's milestones are completed. A business credit card can help you cover the upfront costs of materials, equipment rentals, and subcontractor fees, enabling you to keep the project on track and manage your cash flow until you receive payment.
2. Credit Cards Simplify Cash Flow Management
Prepaid cards can complicate cash flow management. Business expenses are unpredictable, and it’s hard to transfer the right amount to prepaid cards each month.
Scenario:
If you need to make payroll but your bank account is low because of pending invoices, waiting for bank transfers can be stressful.
A credit card can provide quick access to funds, crucial for managing payroll and other urgent expenses. Quick access to credit can prevent losing valuable employees.
3. Credit Cards Streamline Employee Expenses
Prepaid company cards often frustrate employees who need to request and wait for top-ups. It also creates extra work for finance teams.
Business credit cards allow:
- Individual spending limits for each employee
- Quick limit adjustments online
- Consolidated payments at the end of the month.
This reduces admin work and costs associated with multiple prepaid cards.
4. Credit Cards Offer Better Rewards
Vendors pay fees to card providers, and these fees are higher for credit cards. This allows providers to offer better rewards, such as:
- Cashback on purchases
- Discounts at specific companies
- Travel rewards like Avios points
- Free access to airport lounges
- 0% interest periods
- No foreign transaction fees
Business credit cards can offer these perks, adding value to your spending.
5. Credit Cards Make Business Operations Smoother
Some providers offer virtual cards for online and phone payments. You can create virtual cards for different suppliers to easily track spending and identify savings opportunities.
By analysing spending, you can reduce unnecessary costs.
For example, controlling spending with different suppliers for the same service, like car rentals, can save significant amounts.
6. Credit Cards Help Build Your Business Credit Score
Using a business credit card responsibly can enhance your business credit score by:
- Making timely payments
- Keeping your credit card balance well below half of your credit limit
- Building a solid credit history with regular use and repayment
A strong business credit score can lead to better interest rates on loans, more favourable terms with suppliers, and increased credit limits.
7. The Downsides
While business credit cards are beneficial, there are some considerations:
- Limited options for new businesses
- Many providers require a personal guarantee from business owners
- It’s crucial to repay the borrowed amount within the interest-free period.
Despite these potential drawbacks, the advantages of a business credit card can far outweigh the risks. They provide the funds and flexibility needed to invest in growth and manage cash flow effectively.
By understanding and managing the risks, you can use a business credit card to your advantage, supporting the growth and success of your company.
Want to talk to us about your business finances and accounting?
At Blue Rocket Accounting, we don't provide or endorse any specific credit card companies, but we do understand the great benefits business owners receive from them.
Thinking about your business finances and wanting to get the right advice and support?
Have a chat with our friendly team today on 01322 555442.
Blue Rocket Accounting help the growing businesses achieve their business goals through proactive and supportive accounting. Contact us today.
