This blogpost explores the top three reasons why companies should be using their credit cards as cash flow tools for their business, and how they can be putting business expenses such as rent, payroll and supplier invoices on credit cards.
Credit cards have a special place in our hearts, as well as our wallets. The average Singaporean owns between 4 to 5 credit cards, and our country has only seen more and more spending put on plastic over the years. In the past 10 years, card billings doubled on our island, and it seems to be a trend that will continue in the years to come.
The main reason why most of us own and use multiple credit cards are for the rewards – miles, points or cashback – something all of us are familiar with. However, aside from being just a tool that helps you rack up air miles or accumulate cash rebates, an often overlooked benefit of credit cards is the fact that they are pre‑approved lines of credit at your disposal.
Credit cards are issued by banks and financial institutions as an easy way for cardholders to get instant access to funds, or to put purchases on credit terms. While it is true that credit cards can come with very high interest rates, there is a significant interest‑free window that can be leveraged on – up to 60 days, to be exact. This is beneficial for individuals who are looking to pay off big‑ticket expenses, but especially so for businesses, with many of their expenses being large and recurring in nature.
Essentially, this means that businesses can view their credit cards as a short‑term financing option that provides access to cash, similar to microloans and overdrafts – but way more convenient and are faster to obtain than any of these other financing options. Here are three reasons why:
No collateral or paperwork required
With small business loans or overdrafts, collateral is often required – assets such as your inventory or equipment that banks hold as insurance should you fail to fulfill your monthly repayments. However, with the pre‑approved line of credit on your existing credit card, there is no need for additional collateral or administrative documents – making this the quickest way to get a short‑term loan, by simply putting your purchases on the existing credit cards you already have in your back pockets. This gives you instant access to credit, without any long waiting times or cumbersome administrative processes.
Interest‑free short‑term financing
Small business loans and overdrafts are pegged with interest rates ranging from 7% to 13% per annum, exclusive of administrative and annual fees that are imposed on top of the interest. With credit cards, you have an interest‑free period of up to 60 days starting from the time you make a charge to your credit card, up to the end of the repayment period. This helps greatly with companies dealing with volatile cash flow or seasonal demand cycles, as well as businesses looking to tap into additional funds for growth.
Consolidation of expenses
With multiple purchases and invoices in a month, small businesses usually require hours of manual administrative work every month to ensure proper and accurate reconciliation. This is made even more cumbersome with some payments that can only be made via cheques or bank transfers when the recipient does not accept credit cards. With all payments made via credit card, payments are compiled on just one credit card statement. This simplifies your accounting processes as all payments are reflected in one location – allowing for simplified reconciliation that requires less time and reduces human error.
With these benefits, then why aren’t more businesses making full use of their corporate credit cards to streamline their accounting process? This is because most business payments such as commercial rent, supplier payments or even salaries are still only made payable via cheques or bank transfers, as many of these recipients are not willing to accept credit cards because of the fees or operational set up required.
CardUp, an online payment platform, allows you to do just that – business expenses such as rent, insurance, payroll, supplier payments and more can be put on your credit cards, even if the recipients do not accept credit cards. This allows businesses to use their credit cards for large, recurring expenses, making full use of the underutilized credit limits sitting in their wallets. Learn more about CardUp here.
To find out more about how CardUp works, visit them on their stand, A12 at the upcoming Accounting & Finance Show Asia.
The Accounting & Finance Show SG is entirely free to attend, including all the sessions across the two day conference programme. To visit the show simply register for your free visitor pass.