Why Is it Essential to Have a Business Credit Card as a Business?

Depending on how you grew up, you may have been brought up to believe that credit and debt are bad.

But the truth is, when it comes to growing a company, credit is indispensable. For example, credit provides the cash businesses need to spend on growth-related activities without having to wait for customers’ money to clear in their bank accounts first.

In this article, we cover five of the main reasons business credit cards are essential for all businesses, and are also a better choice than prepaid cards for new and scale-up companies.  

Need funding to help you grow? Apply for a free Jeeves credit card.

1. Credit cards enable faster growth

Fast growth presents big financial challenges for companies. You have to deal with:

  • Waiting for your merchant services provider to transfer customers’ payments to your account.
  • Direct debits arriving at a particular point in the month.
  • Having to wait to place new stock orders or book marketing campaigns until after customers’ payments have cleared.
  • Unexpected expenditures like solicitors’ bills that can set you back as you wait for incoming payments.
  • Platforms that take 3 - 4 days to disburse income or only disburse once per month

It can often be either feast or famine, depending on what part of the month it is.

Business credit cards change all that. Here’s how:

  • You have the funding to pay for finding and closing new customers whatever your bank balance is.
  • You have cash to pay for spending that’ll bring in brand new and extra revenue – activities like purchasing new stock, raw materials, advertising and more.
  • They’re invaluable when a game-changing business opportunity comes along.

And, when you repay the balance on your card, your credit limit fully resets and you can start another sales cycle.

What type of major growth opportunity could a business credit card help with?

Let’s say a famous influencer wore your T-shirt in an Instagram post. Their post went viral around the world and now, the biggest fashion retailer in the country wants to order 100,000 of your T-shirts. There is also the promise of more from them after that.

This could be the big break you’ve been looking for. You have the machinery, capacity, and personnel to complete the order.

The problem is that the retailer wants to pay 14 days after receiving your T-shirts and there isn’t enough cash in your current account right now to pay for the raw materials.

This is exactly the type of problem business credit cards overcome.

Purchase the raw materials you need with your credit card. Then manufacture the T-shirts as quickly as possible. Get them to the fashion retailer and get paid 14 days later.

Depending on the length of the interest-free window you get from your credit card supplier, the money from your retail customer could be in the bank before you have to clear the credit card balance.

2. Credit cards make cash flow management easier

If you’re using prepaid cards to manage your business spend, you’re probably struggling with forecasting issues and cash flow. Business is unpredictable, and it’s hard to know how much you need to transfer to your cards every month.

For example, let's say you have to make payroll next Monday. But there isn’t enough cash in the bank because there are pressing invoices you have to settle later this week. You’re stressed because you just hired an incredible engineer and you don’t want to let him down in his first month on the job.

If you go to a bank, it will take a month for them to transfer the money. A local lender may promise to wire the money, but can you trust them?

If you’re a founder, that story might sound familiar. Managing cash flow and not making payroll will keep you up at night.

But a credit card can change all that: you could receive credit approval within minutes and have access to $50K within 24 hours.

With a credit card like Jeeves, you can have access to this even as a new business or startup. And we know this happens because this scenario above is a true story from an actual client of ours. Thanks to the Jeeves credit card, the founder kept his engineer and grew the company.

Remember that prepaid card providers don’t advance any funding to businesses. That means, unlike with a credit card, you’ll have no extra funding to grow your business and smooth out peaks and troughs in your cash flow.

Business credit cards are great for cash flow because the money doesn’t come straight out of your business account. That means you still have the money you need to meet regular bills like payroll, rent, and rates.

3. Credit cards make it easier to manage employee expenses

Many employees use prepaid company credit cards to make purchases on behalf of the business they work for. Employees find it frustrating to keep requesting top-ups and then having to wait for approval.

It’s time-consuming for finance teams to process and action employees’ requests. Not only that, but topping up 10 separate prepaid cards is an admin nightmare.

Prepaid cards for several employees can be expensive, too.

Although providers don’t charge for transferring money between your bank account and your card, there are often:

  • Monthly charges made per employee card
  • Steep ATM withdrawal fees
  • Charges of up to 3% on foreign currency transactions (1)

It’s much easier with a business credit card specifically for employees.

For example, with a Jeeves business credit card, you can set individual monthly limits per employee and raise or lower those limits at a moment’s notice online if required. You never need to top up a credit card with funds from your bank account if you’re under your credit limit.

And you can have 10 separate employee cards and you’ll just have to pay off the balance once at the end of the month – no need to keep topping them up!

4. Credit cards offer better rewards

Every time you use a credit, debit or prepaid card, the company you’re purchasing from pays a percentage of the transaction amount to your card provider.

These “interchange fees” are higher on credit cards than they are on prepaid and debit cards.

Many business credit card providers use these higher fees to offer rewards to their customers. Although not all credit card providers provide reward schemes, those that do will offer incentives like:

  • Cashback on purchases
  • Discounts at selected companies
  • Avios points (formerly Air Miles)
  • Free access to airport lounges
  • 0% interest
  • No foreign transaction fees
  • No ATM fees

It’s often less expensive to use a credit card than a prepaid card. In some cases, it’s cheaper to use a credit card to pay for goods and services than bank transfers because of the cashback offered.

For example, with the 3% cashback Jeeves offers on Google, Amazon and Facebook spend, you will see an impact on your bottom line. You won’t get that with a prepaid card. Learn more about our Benefits & Rewards.

5. Credit cards make the business of running a business easier

Some business credit card providers offer virtual cards, like Jeeves.

Virtual cards aren’t physical cards – they’re cards that only exist online just to make payments over the internet or phone. You can create virtual cards for different types of spending (for example, have one for each supplier) to make expenditure tracking easier.

And because you can track spending online in real-time, you can identify further savings opportunities.

Many companies have specified suppliers for certain goods and services. When you or your employees spend money with non-specified suppliers, this is called “tail end spending.”

A frequent example of tail-end spending is car rental. You might find that one employee pays $100 for a car while another pays $300 with a different supplier. By examining your tail-end spending, you can identify potential new specified suppliers that employees must use in the future for purchases like car rental.

By taking control of your tail end spending, you could save up to 15% (2).

Are there any cons to using a credit card?  

The number of credit cards available for new businesses is small but growing. Many banks offering credit cards currently only accept applications from customers with an existing business account and 3 years’ worth of accounts.

Although no business credit card provider will demand shares in your company, many of them require a personal guarantee from you and other shareholders.

If you sign a personal guarantee, you become liable for the debt owed to your credit card provider if your company fails. You have more options available to you if you are happy to sign a personal guarantee, but this is something you need to feel comfortable with.

And of course, with a credit card you need to be able to pay back any money you borrow. If you’re not confident you’ll be able to pay back any money you borrow in 30 days, then a credit card is not the best option.

Finally, be careful to examine the incentives and rewards available from each provider. While it’s great to be rewarded for using your business credit card, make sure charges and hidden fees don’t cancel out these rewards.

With Jeeves, you’ll be able to apply for a credit card as a new business or startup. We don’t require 3 years’ accounts or a personal guarantee. We can give you a decision and a credit limit within 24 hours. We generally just ask for either 6 months’ bank statements or proof of external investment.

In this article, we've seen how you can scale up your business with credit cards. With a credit card, you’ll have the funds and flexibility to spend money on revenue-generating activities like stock and raw material purchasing and advertising. If you need to, you can even transfer some of your remaining credit card balance into your business bank account to help with cash flow when needed. Credit buys you the time needed to help your company grow, which is why a credit card is so essential for new businesses and startups.

Sources:

1) https://www.moneysupermarket.com/prepaid-cards/business/

2) https://www.mckinsey.com/business-functions/operations/our-insights/long-tail-big-savings-digital-unlocks-hidden-value-in-procurement