How business credit cards can help manage cash flow

Maintaining consistent cash flow is one of the biggest ongoing challenges for many small-to-medium size businesses. Timing discrepancies between when you pay expenses and when you collect revenue can create cash crunches. That’s why having access to working capital during these lulls is necessary for keeping operations running smoothly.

This is where business credit cards come in. Incorporating a business credit card into your setup can provide valuable breathing room in your cash flow. Let’s take a look at the various ways credit cards are an asset for cash flow.

But first… managing cash deficits responsibly 

Despite their benefits, it’s also important to note that business credit cards are not a long-term cash flow solution. You should always aim to pay off balances in full each month to avoid accumulating interest charges. Viewing your credit card as a short-term bridge for cash flow gaps and timing discrepancies is best practice.

If cash deficits persist in the long run, there could be an underlying cash flow issue that should be addressed. Drawing against credit card limits continuously can quickly create compounding interest fees that eat away at profits. It can also negatively impact your business credit profile which has ripple effects.

However, having a credit card’s revolving credit line available can be a responsible financing option during working capital shortages. It can help prevent operations from stalling before more permanent solutions are put in place.

Smoothing out cash flow gaps 

An advantage business credit cards often provide is the ability to smooth over temporary cash flow gaps. Most cards extend an interest-free grace period between the statement date and payment due date—Funding Circle, for example, offers 42 days interest free on the Cashback credit card. 

By putting expenses like payroll, inventory, utilities and other recurring costs on your credit card during these float periods, you gain additional time before those charges must be paid to take advantage of interest-free cash flow benefits.

For example, let’s say your inventory costs are due on the 1st of the month but you aren’t expecting payments from customers until the 15th. Charging inventory purchases to your credit card essentially extends your cash runway by 25-plus days before that balance is due, interest-free. This added flexibility helps prevent cash crunches during fluctuations in your revenue.

Keep it simple with FlexiPay

FlexiPay from Funding Circle offers an alternative cash flow financing solution, acting as more than just a business credit card.

With FlexiPay, you have the option to make any business payment upfront by card. But you can also make a cash transfer, which is just like making a bank transfer. You then choose to repay over 1, 3, 6, 9 and 12 months depending on your cash flow needs using a dynamic fee per transaction, instead of accumulating interest charges over time.

Let’s say your business needs to purchase £20,000 worth of new inventory or equipment, but available cash is limited. By using FlexiPay, you can finance that full £20,000 expense immediately. When it’s time to repay, you’ll choose your preferred repayment term.

The fee is then applied and split over your chosen repayment period, with the fee amount varying based on the term you select. It’s an approach that gives you flexibility in managing your cash flow while spreading out the cost over time.

Cash flow benefits of rewards programs 

Rewards earned from business credit card spending can also have a positive cash flow impact. This is especially true for lucrative cashback programs that generate substantial rebates.

For example, the Funding Circle Cashback business credit card provides 2% cashback, up to £2000, for the first six months and then 1% uncapped thereafter. As you can charge all business spend to the card, those cash rebates add up quickly.

Let’s say your business puts £50,000 in annual expenses on the Funding Circle Cashback card. With the intro offer, that equates to £1,000 cashback that can be reinvested into operations, emergency funds, or supplement any temporary working capital needs. Over time, cashback rewards can become an impactful component of cash flow optimization.

Building a strong business credit profile 

An underrated cash flow advantage of credit cards is the ability to build a strong business credit profile. Much like personal consumer credit scores, all businesses establish their own master credit report over time as they access credit facilities and make repayments.

Your business’s credit score and history is what lenders assess when your company applies for finance like commercial loans, lines of credit, lease agreements and other facilities. The stronger your score and supporting credit utilisation metrics, the better terms and interest rates offered.

Using your business credit card responsibly by adhering to best practices like full statement balance payments, requesting periodic limit increases and maintaining reasonable spending limits helps build your profile quickly and accelerate growth financing opportunities down the road.

Safeguarding cash flow during downturns 

Finally, business credit cards offer access to working capital and emergency funds during economic downturns or unexpected business disruptions where cash flow is directly impacted. “Black swan” events, as they’re known, can all restrict a company’s short-term cash position.

While lenders are often hesitant to extend additional commercial loans or lines of credit during volatile times, companies can still rely on tapping into available credit on existing business credit cards. Having this liquidity during turbulent periods means operations can hopefully continue without extreme measures.

Business credit cards can provide entrepreneurs the freedom and flexibility to maintain consistent operations and weather any economic storm. From optimising cash runways through daily expenses to securing large cash reserves for major investments, strategic credit card usage belongs in every business owner’s toolkit.

Summing up: Using a business credit card to help with cashflow

With their ability to smooth cash flow peaks, responsibly bridge deficits, leverage promotional financing and more, business credit cards are helpful options for cash-flow management. Using credit strategically means businesses can keep up their operations, while continuing to grow.

02/10/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.