Cash flow, the term used to describe the ability of a business to ensure uninterrupted access to adequate cash funds to pay bills, salaries and other obligations as they turn up from one day to the next, can take a great deal of planning. Many businesses simply aren’t good at it, choosing to focus on their products and customer service alone.
As wonderful as it may be to have full order books, they don’t ensure that there is cash in the bank on a given date and at a given time when salaries and bills come due. Missed payments can make things go seriously wrong for a business, after all. While it’s important to plan well to make sure that your business does always have access to cash when it’s needed, there’s a lot to be said for a contingency plan, as well. A small business credit card can be an important part of such a plan.
Not very sure that businesses really should use credit cards to get by?
According to research published by the Small Business Administration in 2009, two out three small businesses do use business credit cards to smooth out cash flow problems, and to fund investments in equipment and other necessities. Business credit cards are also viewed as an excellent way to build D&B business credit scores (D&B is the credit rating agency of record when it comes to businesses). A solid credit rating can be invaluable for business loans down the line.
Business credit cards bring other advantages along. Putting business expenses on a business credit card, rather than a personal credit card, can make accounting for business expenses far smoother when it’s time to claim IRS deductions.
What does one look for in a good business credit card?
Card offers change seemingly each day, and it’s important to do your research. It would be a mistake to be seduced by simple upfront bonuses of a few thousand frequent-flier miles or a couple of hundred cashback dollars. Rather, it’s important to think long, and consider every angle — the APR, the annual fee, and regular point offers among others. Card offers can be so complex, it’s actually a good idea to leave recommendations to the experts. Business card review websites such as Epsilon Business Credit Cards tend to have a great deal of relevant information on every important card out there.
Look for the right kind of features
Just as with personal cards, business cards are issued with different kinds of features. If you plan to travel overseas on business, you’ll need a chip-based card — it’s the only kind of card accepted in Europe and Asia. You will also want a card that offers fee-free foreign transactions.
Some cards require a minimum spending threshold. This can be a problem if you do not expect that your business will spend much or spend on regular basis.
While it may not be at the top of your list of features to look for, good accounting can be an extremely important feature in a business credit card. Not every card provides it. Capital One is one of the best. It offers quarterly summaries and statements. American Express has special features that work with QuickBooks.
Shopping for rewards
It makes sense to shop by reward as long as the reward isn’t the primary consideration. From travel miles to cashback rewards at specific stores, finding rewards tailored to the specific needs of your business can be a smart plan. It’s important to keep in mind, though, that with business credit cards, every purchase usually won’t qualify for rewards. Only purchases at certain stores or certain types of merchandise will. It’s important to make sure that you do get a card that works for the kind of purchases that your business will need.
There’s also the charge-vs.-credit question to settle
If you don’t believe that you will need to carry a balance from one month to the next, a charge card such as the American Express Business Gold Rewards card can make a lot of sense. It isn’t a very good idea, though, for short-term cash flow needs.
Pay attention to the finer points
Some cards come with no annual fee. The trade-off is that the grace period is usually no longer than three weeks. Others can be extremely restrictive in how they allow you to use your rewards. The various combinations of features can get confusing. It’s a very good idea take the guidance of an expert.
Thomas Holland has worked as a personal finance consultant for more than 15 years. He enjoys sharing his knowledge with an online audience in the hopes of helping them avoid some costly mistakes. His articles appear on startup and small/medium business sites.