If you make good use of interest-free days, it can be much easier to use a business credit card to manage your cash flow: read this guide to find out how and why.
(A word of warning: if your business is really struggling with cash flow, and/or if it’s happening regularly, particularly if you have a small business, take a look at the sources of help listed on the government’s website before you consider taking out a card.)
What is cash flow exactly?
It’s the difference between the money your company receives (receivables) and the money it spends (payables) in a set period of time. If you’ve got more going out than coming in, that’s a negative cash flow: and even if it’s only in the short term, it can make it difficult to keep up with the costs of running your business, which could damage your good credit as well as your relationship with your customers and suppliers.
How do I use a business credit card to manage cash flow?
These days, most business credit cards offer 45-day or 56-day billing cycles. In practice, this means that while your credit card statement still goes from the first to the last day of the month, you’ll get an extra 14 or 25 days to pay it off before the balance starts accruing any interest.
Let’s say you make a purchase on the first day of the month: instead of having to pay forit within 30 days, you won’t have to repay your card payments until almost 2 months later. That means you’re freeing up some cash to use on something else, or simply to keep your account in the red.
Generally speaking, this gives you more time and flexibility, but it’s especially helpful when something goes wrong unexpectedly. Say, for example, one of your biggest clients is late in paying an invoice, or a piece of equipment breaks and you have to replace it.
Ultimately, of course, you’ll still have to pay the credit card bill. However, in the meantime, the longer billing cycle will give you more time to recover from this financial shock, and hopefully get that invoice you’ve been waiting for. It’ll also help you avoid more expensive forms of business finance.
Bring your expenses together
The more expenses you can move to your credit card, the more cash you’ll free up for day-to-day expenses. What’s more, having your expenses all on the same credit card statement will make your life easier when it comes to budgeting and accounting.
However, there are a couple of things to be aware of:
Maxing out your credit limit could impact your business credit score.When calculating your credit score, creditors will look at your “credit utilisation ratio”, which is how much you’re borrowing against your overall credit availability. If you’re using a high ratio of your limit, it could look like you’re having financial difficulties, which could make it harder to borrow money in future.
Never go over your credit limit if you can possibly avoid it. You’ll usually be charged a fee, it will affect your credit score, and your card provider might reduce your credit limit.
How to make the most of your interest-free days
You might be tempted to put off paying your business credit card bill until the very last day of your interest-free period, but we’d advise against it: there’s too much risk that something will go wrong (like another client failing to pay you on time) at the last minute.
Instead, you could line up your credit card payment with a regular incoming payment. Got a regular client who always pays on time? Time your card payment around them. It’ll create a nice balance in your bookkeeping, help your cash flow, and still leave you with some extra time to come up with a plan B if you need one.
Reward business cards: Are they a good idea?
There aren’t as many reward credit cards for business use as there are for personal use, but it’s still an option to consider. If you need the card anyway to help you manage your cash flow, a credit card that offers cashback or air miles could be a sweet little bonus for you and/or your employees.
Just a couple of things to bear in mind when it comes to reward cards:
Remember to prioritise what your business really needs. If your main reason for wanting a business credit card is cash flow, then don’t get too distracted by shiny rewards. Look at the key features, like the interest rate, the interest-free purchase period and the number of corporate credit cards available for your employees, not just the eye-catching extras.
Reward credit cards usually come with an annual fee. Make sure you’ll use the card enough to make it worth it.
American Express offers 2 business options that earn points at a decent rate. However, they’re both charge cards, which means you can’t carry a balance but need to pay your bill in full every month.
Dos and don’ts
Do
Use your business credit card regularly.
Analyse your cash flow to figure out the best time to pay your credit card bill.
Pay for any extra expense at the beginning of the month with the card.
Choose your credit card thinking of the financial features you need first.
Import your card statement into your accounting software for more efficient expense management.
Don’t
Carry a balance on the card: always meet the minimum payment at the very least.
Max out or exceed your credit limit.
Pay the credit card bill on the very last day every billing cycle.
The bottom line: Will a business credit card help my business’s cash flow?
It should if you use it correctly. Always clear up your balance in full at the end of every billing period so you don’t have to pay interest or fees, analyse your receivables to time the bill payment in the way that’s most beneficial to your business and don’t stretch the card to its limits.
Frequently asked questions
Credit cards are an expensive form of finance in the long term. If you need extra funding there are cheaper options to consider first, such as a business loan. You can read more about this on our business finance page.
Try to negotiate your payment terms, both with your clients and with your suppliers. If you’re billing your clients at 90 days, it may be time to shorten the invoicing cycle. Conversely, you could try and see if you could pay some of your outgoing payments a bit later in the month.
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Grace was a Finder writer specialising in credit and loans. She's been writing about personal finance for several years and enjoys helping consumers sort the facts from the fluff. See full bio
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