In an environment of growing competition for small businesses, establishing processes around cost controls and spending visibility is an integral part of the path to profitability. Investors, regulators and long-term customers have expectations and demand for more disciplined spending in the relevant areas and growth oriented businesses are now turning to credit cards (commercial and personal) to help with their expense management process.
In the past, vendors had to first agree to accept your credit card payments.They would to go through a technical integration with an online payment gateway, get access to a merchant account and/or buy a physical point-of-sale device to accept credit cards. Now, with platforms like Reap, you’d be able to pay any business expenses even if the recipient didn’t accept credit cards.
We’ve highlighted a few main reasons businesses are turning to credit cards for expense payments to try and reduce their overall spend.
We have previously written about the difference and importance of managing cash flow vs profit. Without being able to effectively retain cash, your business will struggle even if your profitability numbers look healthy. Credit card payments act as an alternative to supplier payment terms as there is no actual cash outflow for up to 60 days after the initial transaction. The extra liquidity here will enable you to further develop your business and build a health cash reserve in case any unexpected expenses come up. Cash is still king!
Supplier payment terms are becoming harder to come by as many suppliers are also trying to improve cash flow by getting payment up front. Especially for new supplier relationships, where creditworthiness may not be established just yet, credit card payments are an easy way to for suppliers to receive guaranteed payments in a safe and secure way. This goes a long way to help your business improve the relationship you have with your suppliers and service providers.
For suppliers that do provide discounts for early payment (typical terms include “net 10,” “net 30,” or even “net 60.”), you would be able to pay bills early, get a discount and improve your company’s bottom line immediately without ever tapping into your precious cash resources.
As you grow your team, having oversight into the various channels of spending (cheques, cash, bank transfer, etc.) can be very troublesome and time consuming. Centralizing your spend to credit cards reduces the administrative cost related to the layers of reconciliation that you or your accounting team would have to perform. By consolidating all your expense payments to credit cards, you would have better visibility into different expense categories (eg. office supplies) and start building the purchasing power to negotiate volume discounts with larger suppliers.
Giving employees access to your personal or corporate credit card can you give you more control and visibility when it comes to business expenditure. You can also easily share credit card information securely using apps like 1password. Virtual card numbers (VCNs) also allows you to set individual limits and authorize transactions for specific expense types so you’d have even more flexibility.
Credit card rewards has an always been an important consideration in the consumer payment experience. How often have we chosen a specific restaurant or card to maximize our points? As you move more spending to your credit cards for business use, these rebates can add up very quickly. Some companies are able to use the rebates from cashback to reinvest in company offsites and perks for employees. At a minimum, being able to get free upgrades for business travel by using your Asia Miles wouldn’t hurt either!