How Credit Cards Can Boost Your Small Business

Time To Read 3 MIN READ

Date: June 30, 2016

How Credit Cards Can Boost Your Small Business

The Mamas & the Papas financed their early days as a folk-rock band with a borrowed American Express card—they made no payments until the group topped the charts years later. It's not an auspicious way to bolster a small business, but with careful thought and planning, your company can benefit from a healthy relationship with credit cards. Use your cards to streamline expenses and expand your business.


Aiding Your Cash Flow

Financing a small business can be tricky, particularly during the start-up phase when there's no cash flow history. A small business loan might be ideal, but banks partially analyze loan risk based on your company's past performance. Even when you've been operating for a while, the early days may not be a true indicator of current financial conditions.

This is why credit cards have advantages when you're just getting started. "Credit cards offer a cushion between spending and payment that gives your company time to process sales and collect from customers before payment on sales expenses are due—the same principle behind a business loan," says Steve Pellarin, executive director of the London Small Business Centre. "While overspending remains a risk, credit cards offer financing flexibility accessible at your discretion."


Establishing Your Business

Paying off your credit card balances monthly buys your business around 30 days of free credit during each billing cycle. At the same time, you're building that all-important financial history. When it comes time to make a purchase that's beyond the scope of your card's credit limit, your bank's loan officer now has a concrete indicator of your company's performance to look at. You're creating a favorable credit rating for your business, the same way you do with your personal finances. As a result, business borrowing becomes easier and likely comes with better terms.


Controlling Your Expenses

When you use a single credit card for all business expenses, a detailed summary of spending is delivered to you monthly, without having to pay a bookkeeper or accountant. If your business card is linked to finance software, such as Quicken Home & Business, categorizing expenses to departments or projects without extra data entry becomes possible. 

Authorizing key employees to use your account relieves you from being the sole buyer and delivery person for every purchase. Say goodbye to reimbursing staff for out-of-pocket expenses, too. The time you personally spend approving and paying expenses does not contribute to your bottom line, but it does affect how much you’re able to accomplish in a day. 

Using proprietary credit card accounts from your suppliers has added benefits as well. Office supply stores, for example, offer special deals on your most-used supplies, online ordering and free delivery.


Expanding Your Market

The move away from cash transactions continues to spread. Even if you're in a business that traditionally deals with checks and invoice accounts, accepting credit card payments is a must in today's electronic data environment. 

You'll capitalize on impulse sales to those customers who aren't carrying cash, and businesses in which tipping is common see larger gratuities when credit cards are used. Cash flow intake is improved because credit card purchases are deposited in your account within days, compared with the longer time cycle for invoices and checks to move through the mail. 

The world opens up to you as a sales market. Accepting international orders paid for on a card handles currency exchange for both you and your customer.