Les Roberts, owner of Cha, a café bar in Wirral, England and writer for Moneysupermarket.com writes about whether business credit cards may be the answer to your business’s cash flow roller coaster ride!
Cash flow problems are something that most small business owners will have faced at one time or another, but are small business credit cards a suitable way to ease the financial strain?
As a small business owner, I’m well aware of the constant struggle many of us face just to keep our heads above water.
I opened a small café bar about 18 months ago and, after the odd tweak to the menu, a couple of major refurbishments and a working week that would probably be deemed an abuse of human rights in most developed countries, the business has hit an even keel and is pretty much paying it’s own way these days.
That said, the end of every month still sees me in a blind panic as it seems that no matter how well things are going there’s always some bill or other that comes along to clear out the account.
I’d imagine that this is a familiar feeling for a lot of small business owners and, when this happens, it doesn’t take much to tip you past your overdraft limit – if, indeed, you’re lucky enough to even have an overdraft!
This, in turn, leaves you wide open to bank charges, black marks and the various other penalties that come with missed payments.
So, if you’re struggling to make ends meet, are small business credit cards a good way to clear pressing debts and keep some cash in the bank for any unexpected outgoings?
The answer to this is probably dependant upon the nature of your business and how your cash flow works.
Small business credit cards are a practical way to instantly access funds to make purchases and, if used correctly, are also good way to build your business’s purchasing power.
And although the typical APR of a business credit card is the wrong side of the 20 per cent mark, you shouldn’t be hit with any hefty interest charges provided you pay off the balance in full at the end of each month.
This is something that works well in the retail industry, whereby payment for services is usually instant, but may not work so well in other sectors, especially those where customers need to be invoiced and payments can take anywhere from a matter of days to a matter of months. [Note: So it’s probably not a great idea if your clients are on 30+ day payment terms]
In addition to the potentially prohibitive interest rate, business credit cards generally come with an annual fee which seems to sit anywhere between £30 and £80, depending upon the creditor.
But creditors tend to offset this with a number of incentives, most notably business discounts; so if used creatively, these fees can be written off against discounts gained over the year.
One final and very important point worth considering is that most small business cards have a personal-liability agreement and so any late payment or default could adversely affect your personal credit rating.
But, provided they are used correctly – as an alternative source of funds and not your only source of funds – there’s no reason why a small business credit card shouldn’t be a useful lifeline when you’re up against the cash flow.
Do you ever use your credit card as a lifeline? Leave your comments and experience – good or bad – below.
This post first appeared on Heather Townsend’s excellent blog, The Efficiency Coach.
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