Managing cashflow with a business credit card
Business credit cards have lots of uses, whether you want to simplify expenses, or take advantage of the rewards. One of the most popular reasons you might want a business credit card is for managing cashflow.
However, used incorrectly business credit cards can work out quite expensive compared to some of the alternatives, and there are a few things to watch out for.
Which type of user are you?
First off, you should have an idea of whether you’re going to pay the card in full every month, or if you think you’ll sometimes carry a balance and pay interest. There’s no right or wrong answer, but this question helps determine which factors are most important.
If your firm falls into the ‘pay off in full’ camp, the most important aspects will be the administrative options like multiple account holders, and the rewards.
On the other hand, if you want a card mainly as a cashflow buffer, it’s worth focusing on interest rate, interest free period, and balance transfer options first.
Interest free period
All business credit cards will have some form of interest-free period — this is the window between ‘statement balance’ and ‘payment due’. Normally, it’s somewhere between 2–4 weeks, but some cards offer interest-free periods of up to 56 days (8 weeks), which means they could be a powerful tool for cashflow management.
Using the credit card’s grace period
If your statements restart on the 22nd of each month, everything until the 21st of the next month will be included in the statement.
In other words, your spending from the 22nd of January to the 21st of February would be named something like “period ending 21st February”.
However, your billing date (or ‘statement due’ date) is usually a bit later — for example, it might be the 15th of the next month. In this example, the statement for “period ending 21st February” would become due on the 15th of March — so you have three and a half weeks’ grace before paying the bill.
Another way to look at this is that you can pay for things in late January, but only need the money on hand by the 15th of March to avoid paying interest.
So, if a card has an interest free period of 56 days (8 weeks), it can give you considerable flexibility in terms of managing cashflow.Find out more
Don’t forget about interest, fees and charges
If you're researching the best business rewards cards, it's easy to focus on the rewards without thinking about the other aspects of using a card that might cancel out the benefits.
First of all, you should consider any annual fee in the context of your likely spending. For example, if the annual fee is £32 and the card gives you 0.5% cashback on all purchases, you'll need to spend at least £6,400 per year to break even — otherwise the fee will be more than the cashback.
Interest and charges
You should apply the same logic to any other interest or charges, which will further increase the amount you need to earn in rewards to make the card worthwhile. For example, some firms will benefit from a long grace period, while others may prefer a lower APR to reduce the cost of short-term borrowing.
If you want a business credit card to manage cashflow, be aware that it's generally a more expensive form of borrowing. There is a range of alternatives to a business credit card which are worth checking out if you want a cheaper or more long-term form of finance.