Credit cards are great for miles and cash-back, but how else can it benefit my business? Many businesses opt for financing tools such as bank loans. They are high on interest and puts many businesses in long debts. What many business have yet to realise is that they can free up cash in a more savvy way with their credit cards instead.
In the past 10 years, card billings doubled on our island, and it seems to be a trend that will only continue in the years to come. In fact, the number of card payments in Hong Kong are expected to surpass 1 billion in 2020. However, aside from being just a tool that racks up your air miles or accumulate cash rebates, an often overlooked benefit of credit cards is the fact that they are pre-approved lines of credit at your disposal.
Credit cards are issued by banks and financial institutions as an easy way for cardholders to get instant access to funds, or to put purchases on credit terms. While it is true that credit cards can come with very high interest rates, there is a significant interest-free window that can be leveraged on – up to 2 months, to be exact. This is beneficial for individuals who are looking to pay off big-ticket expenses, but especially so for businesses, with many of their expenses being large and recurring in nature.
Essentially, this means that businesses can view their credit cards as a short-term financing option that provides access to cash, similar to micro-loans and overdrafts – but way more convenient and are faster to obtain than any of these other financing options.
3 reasons to use credit cards for short-term financing
1. Interest-free short-term financing
Small business loans and overdrafts are pegged with interest rates ranging from 5% to 8% per annum, exclusive of administrative and annual fees that are imposed on top of the interest.
With credit cards, you have an interest-free period of up to almost 2 months starting from the time you make a charge to your credit card, up to the end of the repayment period. This helps greatly with companies dealing with volatile cash flow or seasonal demand cycles, as well as businesses looking to tap into additional funds for growth.
> Read: How CardUp helps your business maximise working capital on hand
2. No collateral or paperwork required
With small business loans or overdrafts, collateral is often required — assets such as your inventory or equipment that banks hold as insurance should you fail to fulfil your monthly repayments.
However, with the pre-approved line of credit on your existing credit card, there is no need for additional collateral or administrative documents — making this the quickest way to get a short-term loan, by simply putting your purchases on the existing credit cards you already have in your back pockets. This gives you instant access to credit, without any long waiting times or cumbersome administrative processes.
3. Save time and cost on consolidation of expenses
With multiple purchases and invoices in a month, small businesses usually require hours of manual administrative work every month to ensure proper and accurate reconciliation. This is made even more cumbersome with some payments that can only be made via cheques or bank transfers when the recipient does not accept credit cards.
With all payments made via credit card, payments are compiled on just one credit card statement. This simplifies your accounting processes as all payments are reflected in one location — allowing for simplified reconciliation that requires less time and less manpower effort.
How to pay with credit cards if my suppliers do not accept it?
Many business payments such as commercial rent, supplier payments or even salaries are still only made payable via cheques or bank transfers, as many of these recipients are not willing to accept credit cards because of the fees or operational set up required.
Payment platforms such as CardUp allows for expenses such as rent, insurance, payroll, supplier payments and more to be shifted onto your credit cards, even if your supplier do not accept credit cards. Paying through CardUp allows you to pay your existing invoices and payments via credit card, while your suppliers receives it by bank transfer. This allows you to free up cash while earn rewards at the same time!
Schedule your first business payment with CardUp, and make the most of your corporate credit cards today.