What do Credit Cards have to do with Cash Flow Management?


If you have a prejudice against using credit cards, we will tell you the reasons why they are beneficial for your business. These act as the perfect source for short-term business loans you can obtain.

Small business owners can take advantage of quick approval and seamless usage of such a tool to manage cash flow. Let us find out how to make optimum usage of credit cards to improve cash flow management and prevent impulse purchases.

How credit cards help manage Cash Flow?

Here are some ways having a credit card can help your manage cash flow for your business:

  1. Increase cash flow

It is crucial to have sufficient cash flow for your business, irrespective of its size and nature. Owning a business credit card will open credit availability that can further align your cash flow.

A credit card comes in handy when buying equipment, supplies, inventory, etc. It also helps you have ample time to pay it off within your following billing cycle and let you streamline your cash flow.

The best part about a credit card is that it is faster to procure compared to an overdraft loan, small business loan, or line of credit. You need to provide minimal documentation to get a card approved. However, such cards might have higher interest rates.

  1. Helps track expenses

When looking for ways to save money, the primary suggestion given by financial advisors is tracking spending habits. Just as you would follow this to track your personal expenses, you can do the same for your business.

It is essential to know how much your business spends on maintaining equipment, supplies, marketing, and other expenses. It will help you prevent budget crises or cash crunch in advance.

Having a business credit card allows you to review every transaction detail. You get a notification of an email you receive for every online payment you make. The cashless transactions will help you review aspects where you are probably going overboard. 

Once you track down such expenses, you can ask for discounts, choose cheaper alternatives, curb costs, and save more. The process not only helps you understand the importance of cash flow statements in business but suggests ways to manage better.

  1. Helps control and track employee spending

Business owners can possess a single credit card on their business account and provide the same to their employees. It eliminates the process of individually designating cards for each person, saving time and money. 

Your employees can require credit cards to clear business expenses like petty cash, checks, etc. Keeping them all under one umbrella can minimize overspending and help you track. It will prevent an employee from personal shopping and allow you to look over every transaction.

Every credit card issuer for businesses has a unique merchant category code. It helps identify the business type and take control of who can spend on what. These are convenient for employees who need to travel often to complete business purchases. It also prevents them from spending their own money or waiting for reimbursement. Moreover, it reduces an additional task to record such payments and process paperwork for them.

  1. Credit card rewards help save money

Business credit cards give you several special rewards that you can use to minimize expenses. Gradual usage makes credit card companies provide you with loyalty points that you can use during airline bookings, hotel bookings, pay bills, etc.

You gather bonus points as you keep using your credit card for regular expenses. These bonus points help you cover costs that you would have had to pay for otherwise. While the amount might be small and seem insignificant, these add up and create big saves.

  1. A tool to expedite the purchasing process

Having a business credit card can make your purchasing processes more efficient. You can choose banks that offer specialized credit card options to make procurements convenient and fast. These can assist last-minute purchases and also help you during dire times of need.

For example, suppose an employee needs additional funds during a business meeting or pays for an unforeseen expense. A credit card comes in handy to cover such costs without the business owner arranging other ways to transfer money.

In crucial circumstances, a credit card doesn't make you wait to make a quick purchase order. So, these are perfect for covering unplanned purchases. However, such expenses must not disrupt the budget and need monitoring by supervisors.

How to optimize credit card usages for business?

Credit cards can be both a boon and a curse – depending on how well you can use them. So, you need to use them cautiously and assertively. While a credit card gives your small business several benefits and aligns your cash flow, it can also result in mismanagement.

Overspending your credit card due to impulse purchases or going overboard on a budget can make you fall into a debt trap. It is vital to acknowledge a credit card as a loan and not plastic money that allows you to splurge temporarily.

Most credit cards give you a 30-day grace period to pay off pending bills. However, neglecting such statements due to spending more than your budget can lead to penalties and added costs. Interest charge on late payments is usually steep.

Not paying your credit card on time can also leave a negative impact on your credit score. It is harmful to your cash flow and reduces your chances to obtain other forms of business loans.

While credit cards can allow you to withdraw cash during an emergency, it comes with high fees. It is essential to curb such requirements by making an adequate cash flow and managing inflows and outflows accordingly.

Final thoughts

Having multiple business credit cards can impact the credit score and make it difficult to track expenses. Thus, small businesses should try to limit their credit card procurements to one to two cards only. It is also essential to use them effectively to refrain from the downsides of owning a credit card.