Get tight control over your company’s cash flow
At a time when revenue has been severely restricted or even cut off for many businesses, it’s more important than ever to maintain tight control over your company’s cash flow. It may seem like you don’t have much room to maneuver how money comes into and goes out of your business, but you may have more options than you think.
Many people avoid credit cards or even fear them. They could be missing a great opportunity. When businesses responsibly use credit cards to pay vendors and suppliers and make other regular purchases, they can much more carefully control disbursements, save money and get the most out of their cash. That’s especially true for year-round businesses suddenly facing the prospect of a more seasonal schedule due to pandemic shutdowns.
Credit cards for business come in a few different forms, but they essentially break down like this:
- Small Business Credit Cards
- These are a good fit for most small companies with small staffs. Credit limits go up to $50,000, which is more than enough for many vendor payments, staff purchases and incidentals. It comes with many of the same types of rewards typically found on consumer cards.
- Commercial Cards
- These are very similar to the small business cards but have a higher credit limit for larger businesses.
- Corporate Purchasing Cards
- P-cards are specifically designed for larger businesses that spend at least $500,000 per year on the card and have multiple employees using it. The controls are more robust, and the benefits are greater.
No one should rely on a credit card to pay personal or business expenses unless they have a clear plan for paying it off every month. If you can commit to that, here are three ways a credit card could help.
Rebates and Cash Back
One of the most attractive benefits for any card is cash back. For small business and commercial cards, it can come in the form of credit applied to your statement. For p-cards, it’s a rebate based on the amount of money you spend. Typical rates start at a half-percent and grow depending on how much you spend. It can add up quickly and is nothing to take for granted.
Working Capital
By using a card for recurring monthly payments, you are in complete control of when the money goes out. Pay bills as they come up, and then plan the most advantageous date for paying off the card each month. You’re essentially making a just single payment every month for as many expenses as possible. That means you can extend the amount of time your cash sits in an interest-bearing account. And if you use an account sweep service to pay down a line of credit, that’s more money going toward your debt every day. Over the long term, that can be worth more than you think.
Eliminate Soft Dollar Expenses
Most companies are filled with soft-dollar expenses many business leaders never think about. For example, think about the time your staff spends processing disbursements, writing and mailing checks, compiling and processing ACH payments and more. Add in some stop payment charges, and it goes up even more. With a card, you can automate many of your recurring monthly payments and pay them all off with a single stroke. It takes a little effort to set up, but it’s worth it in the end for the time and incidental expenses you’ll save. Not every company is a good candidate for this solution, but most everyone can take advantage of at least part of it.
The important thing to remember with credit cards for your business is to consider them only if you’re confident you can pay them off each month. If you ever find yourself considering a partial payment, you will want to look at another option. But if you can commit, it could be just the tool you need to better manage cash during the crisis and beyond.
Chuck Hayward is a commercial card services advisor with Pinnacle Financial Partners based at the firm’s downtown Nashville office. He can be reached by phone at 615-743-8890 and by email at Chuck.Hayward@pnfp.com. Credit cards are subject to credit approval; contact us for more details.
