Business Directory


The usual plethora of credit card offers that flood the advertising schedules has been noticeable by its absence this year, as credit card companies worry about continued exposure to potential ‘bad debt’ from consumers. But business credit cards are a different category, and something that many small and medium size businesses rely on to get them through lean months. Many SMEs utilise business credit cards as part of their financial organisation, and the Federation for Small Businesses is calling for a cap on credit charges to help struggling businesses this year.

“A cap on interest rates will at a stroke not only reduce business costs but give consumers a real boost and cut the cost of borrowing,” says FSB national chairman John Wright. He believes that small and medium size businesses will play a pivotal role in driving the UK economy out of recession and onto the road to recovery, but the interest rate charged on many business cards could scupper some businesses chances of being part of that recovery. According to the latest FSB figures, 23% of entrepreneurs use a business credit card to finance their business, but a worrying 26% use personal credit cards instead. This could cause a business problems in the long term, as it becomes difficult to separate business from personal expenses and exposes the cardholder to personal liability of the debts of the business and a potentially poor personal credit rating.

So perhaps this is the ideal time to start looking at business credit card transfers in much the same way as personal credit card transfer options. A business credit card works in a similar way to a personal card, giving the card holder a period of interest free credit, flexible payments and a much easier accounting system, with purchases and expenditure being listed on one, detailed statement instead of a disorganised wad of receipts. Like personal cards, business credit card suppliers are also anxious to tempt new customers with balance transfer offers, providing customers with the same options to ‘card jump’ as personal credit card holders. For a business this may help cash flow in lean months, particularly in the traditionally slow business months of January and February.

An alternative to the business credit card is the business charge card, which offers the same amount of convenience and flexibility as a credit card. However, with a charge card the balance often has to be paid in full at the end of the month by direct debit, so a charge card can offer a short-term solution to cash flow issues at best. It also has to be remembered that business credit cards often have an annual fee attached (sometimes hundreds of pounds) so this amount has to be taken into consideration when comparing and contrasting the cards on offer.

January is the ideal time to look at transferring to a new business credit card to take advantage of attractive offers that may not be repeated later in the year. It is also the time when many businesses are sitting down to take stock of their financial position and prospects for the remainder of the year, and so is an opportunity to examine the business credit card deals on offer. The competition between business card providers is fierce, with many including ‘reward schemes’ and other tempting sweeteners to get businesses to swap allegiances. The benefits of business credit cards are obvious – they allow the business to have a separate ‘slush fund’ of financing that can be easily controlled and monitored, no matter how many card holders are using the account. Business credit cards also give SMEs in particular another valuable commodity – time. Time not only to balance money in and money out (ensuring suppliers are paid on time and maintaining other lines of credit), but time saved on accounting and administration.

“2009 must be a year of action for small businesses,” says John Wright of the FSB. “The Chancellor and the Government can and must take a very serious look at capping interest rates charged on credit cards,” he adds. If the credit companies take notice of this then credit card charges could stabilise, leaving businesses in a much stronger position to be able to ride out the recession. It could also lead to a greater flexibility in credit lending for SMEs and avoid the knee-jerk reactions of the banks and credit providers seen in previous downturns. All of this means that now is the ideal time to look at business credit cards transfers to take advantage of the best deals, while they’re still on offer.



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Business Directory

One of the biggest concerns for small and medium size businesses (SMEs) is juggling time and company finances, particularly as the economy slips further into a financial downturn and priorities shift. Business owners are always looking for new ways to give themselves a little bit of financial breathing space that won’t unbalance either their business or their books. Using a business credit card could be one weapon that could help to minimise the day to day problems that many businesses encounter, giving them the chance to reappraise their cash flow and give them more control over their daily finances.

A business credit card (unlike a personal credit card) can offer SMEs greater financial flexibility and provide an alternative to expensive loans or debilitating overdrafts. If your company only needs a relatively small ‘fighting fund’ to cover daily expenses or the occasional payment to suppliers, a business credit card could be the answer. By choosing a card that best suits your company’s needs, you can reduce the amount of ‘empty money’ you pay on overdraft interest payments or loan interest charges. Business credit cards are easily managed and can certainly help a business to survive a lean month by ensuring suppliers are paid on time, thus keeping open other lines of credit essential to the operation of the business. If managed carefully it can also improve the credit rating of a business – something that, in the current climate, where banks are reigning in on business loans to minimise their exposure to ‘bad debt’, puts a business on much firmer ground.

In 2004, the Warwick Business School carried out a study of 2,500 businesses that looked into financial options for SMEs. The study found that business credit cards were the financial option of choice for 55% of small and medium sized businesses. 53% of SMEs had overdrafts, 27% used hire purchase agreements or leasing contracts and only 3% cited equity finance as their primary financial source. This study, although carried out before the current recession kicked in, is still applicable today and business credit cards are still an integral part of business life. The major benefit of a business credit card is that it gives a company a separate source of income from their main cash flow. It can also provide them with an extended, interest-free credit period when dealing with suppliers. This ‘grace’ period between payment to a supplier and the money being removed from the company’s assets via credit card payment can sometimes mean the difference between survival and closure for many small businesses.

Time management is another crucial factor, and business credit cards can also be a boon to a business in this aspect. SMEs waste valuable time (and money) by carrying out labour-intensive administrative and accounting processes. By employing a business credit card as part of an overall fiscal strategy, the time spent on complicated accounting (particularly when dealing with expenses such as travel and accommodation) can be reduced, as the statements provided by the card supplier will give a complete breakdown of monthly expenditure on all cards. This lets the accountants monitor expenses, supplier payments and other transactions quickly and easily. It also ensures that personal expenditure and business costs are kept separate, again allowing the business to chart ‘cash in’ and ‘cash out’ much more easily.

Most business credit cards allow multiple users to access the same account by issuing additional cards for employees. This gives SME owners the reassurance that employees have a payment tool that can be collated into a single account. Pre-set limits also control the amount of spending additional card holders can make, ensuring that the company does not inadvertently overspend and allowing owners to monitor individual employees’ spending. With the advent of online banking this monitoring can be carried out instantly, giving a business owner the chance to stop any overspend in its tracks. Statements can also be a useful cost-cutting tool, giving a business a window on their expenditure and if necessary making fundamental changes in their organisation to reduce overheads such as travel expenses.

There is a wide range of business credit cards available, so it pays to shop around to find the best offer that suits your particular business needs. Some cards offer ‘reward schemes’ with offers on petrol or accommodation, so if your business involves employees travelling extensively this option could save your business money in the long term. Others offer attractive APR rates or interest-free periods, which may be more suitable for a new business trying to find its financial feet. By choosing carefully, a business credit card can be an integral part of an overall financial policy that benefits a business both in the short and long term, particularly in a chilly economic climate.

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