How to use a business credit card to better manage your cash flow

Capital on Tap Business Rewards Credit Card

Finder Award

• Up to 1% cashback or 1 Avios per pound spent
• Up to 10,000 bonus points when you spend £5,000 in 3 months
• Up to 20 free supplementary cards
• Up to 56 interest-free days on purchases each billing cycle

Representative example: When you spend £1,200 at a purchase rate of 26.4% (variable) p.a., your representative rate is 29.9% APR (variable).

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A business credit card is no magic wand, but you’ll be surprised by what you can achieve by using one the right way.

Here are a few tips to make the most of your credit card and make sure it’s beneficial to your company’s cash flow.

Free up additional cash flow

When you pay for something using a credit card, you don’t have to pay the sum back immediately, so you’re freeing up some cash to use on something else or simply to keep your account positive.

Ultimately, of course, you’ll have to pay the credit card bill, but in the meantime, perhaps you will receive that invoice payment you’d been waiting for.

Bring your expenses together

It goes without saying that the more expenses you can move to your credit card, the more cash you will free up. If you do get a business credit card, using it regularly is the only way to produce a significant impact on your company’s cash flow.

It’s also a good idea to bring your expenses together on your credit card as much as you can since seeing them all on the same statement will make budgeting and accounting easier. However, there are a couple of things to be aware of:

• Using all 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. A high utilisation ratio may raise a red flag with potential lenders because it could mean you are experiencing financial difficulties.
• You should never go over your credit limit. You’ll usually be charged a fee and there may be other consequences, such as an impact on your credit score and having your credit limit reduced.

How to make the most of your interest-free days

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. So, if you make a purchase on the first day of the month, you won’t have to pay for it until almost two months later.

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. A longer billing cycle gives you more time to recuperate and helps you avoid more expensive forms of business finance.

Line up your credit card bill payment with your suppliers’ payments

Making the most of your interest-free days doesn’t mean you should be paying your business credit card bill on the very last day. That’s actually a bad idea because it doesn’t give you any leeway were you to need some extra time.

Instead, consider lining up your credit card bill payment with a regular incoming payment, for example, when a regular client’s invoice is due. It’ll create a nice balance in your bookkeeping, help your cash flow and still leave you with some extra time to arrange things were some accident to happen.

Rewards business cards: Are they a good idea?

There aren’t as many rewards credit cards for business use as there are for personal use, but it’s still an option to consider. For example, cashback business cards are fairly common and if you can get a good deal, then why not? It won’t work miracles, but it’ll allow you to treat your team to a nice meal or buy some extra snacks.

However, don’t forget to do your maths: rewards credit cards usually come with an annual fee, so you need to make sure you’ll use the card enough to make it worth it.

Finally, American Express, which is arguably the biggest name when talking rewards credit cards, does offer two 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. They’re great for rewards, but you can’t use them to borrow. If you do decide to go for a rewards credit card, always make sure the rewards aren’t detrimental to the financial features your business needs.

Dos and don’ts

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 every month, 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. Instead, give your business some leeway by not waiting to pay the balance at the last minute and not using the card up to the credit limit.

Frequently asked questions

• 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 it’s positive, it means that in that period your business has been sustainable.

• How about using a credit card to borrow for a longer period of time?

  Credit cards are an expensive form of finance in the long term. If you think your business needs some extra funding, there are a number of cheaper options to consider first. You can read more about this on our business finance page.

• Any other tips to improve my business's cash flow?

  There are a number of things that could help, but the most basic one is probably trying 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.