4 Benefits of business credit cards for small businesses

What specific cash flow needs does your business have this year?

How optimistic are you about your company’s prospects this year? For many business owners, the answer to that question is directly linked to thoughts—and worries—about cash flow. To be a small business owner is to continuously fret about cash flow and how to best manage payments and receivables.

The good news is there are no shortage of tools designed to help business owners manage their payments and expenses.

“There are many ways small business owners can make purchases and other payments,” says Kellé Hamby, Business Credit Card Product Manager at Regions Bank. “There’s ACH, wire, cash, check and debit card.” But the options don’t stop there, she says. Small business owners could potentially access other short-term financing options, like a line of credit, a commercial bank loan or a business credit card.

Finding protection and flexibility

It’s helpful to grasp some of the unique benefits and advantages of business credit cards. It’s also important to understand which features of business credit cards are most important to you and how they complement your other financing and payment solutions.

Here are four advantages of using a business credit card for daily purchases along with employee travel and entertainment expenses:

  1. Improved cash flow.

    When a small business owner chooses to make a purchase with a check, debit card or cash, they see the impact to their operating account instantly. A business credit card, however, provides more flexibility. “It gives you a little more time to pay off that credit while allowing you a few extra days to collect outstanding receivables,” says Hamby. “It’s a very practical tool for improving cash flow.”

  2. Greater protection.

    Opting to make day-to-day business expenses using a business credit card delivers fraud protection that is not available when using a check or cash. Additional protection extends to the ability to keep business and personal expenses separate, which is harder to do if a business owner uses their personal credit card for company purchases. Having a business credit card also provides owners with options when faced with unexpected fees or bills that aren’t in the company’s forecasted budget.

  3. Control over employee purchases.

    One of the most common reasons for small business owners to obtain business credit cards is to cover employee travel, entertainment and other expenses. Providing a credit card for employees to use is now an expectation. Employees don’t want the hassle that comes with using their personal credit cards, collecting receipts and waiting for reimbursement.

    It’s not just employees who benefit from using a business credit card. “It allows the back office to get a view of where money is being spent,” says David Smitherman, Retail Products and Payments Product Manager at Regions Bank. “That has the halo effect of not having to manage cash or petty cash, which has risk associated with it.”

    For business owners, business credit cards can also restrict the amount of money individual employees are able to spend as well as the type of purchases allowed. By applying controls to a business credit card—such as Merchant Category Code (MCC) blocking—business owners can, for example, prevent employees who don’t travel as a part of their jobs from buying airline tickets. They can establish a ceiling on the spend amount or the number of purchases allowed over a defined period.

    A business credit card also provides immediate transparency about expenses to both the employee and the business owner. “They’re able to see transactions essentially in real time,” says Smitherman. “That enables them to shut the card off at a moment’s notice in the event of fraud or a rogue employee or terminated employee.”

  4. Improved efficiency for better decisions.

    Employee purchase data can also provide insights that help business owners make decisions that benefit the company, especially when a business owner works with a banking partner to analyze their cash flow and expenses. For example, an analysis of card transactions could yield the realization that a business is spending a significant amount with a vendor, and it would be worthwhile for the owner to pursue improved or discounted pricing.

Explore the benefits of each short-term financing option

Choosing the right business credit card requires analyzing and comparing different products and finding a card that uniquely meets the needs of your business. As a start, it’s important to examine the card’s features, capabilities, interest rate and other fees. Like consumer credit cards, many business credit cards also offer rewards, and it’s helpful to understand whether the rewards can benefit your company and how they are earned.

One business credit card option is a purchasing card, or P-card. Unlike other business credit cards, P-cards generally don’t allow users to revolve balances from month to month. But P-cards provide granular data on purchases and information that can make life easier for your company’s back office. “If you swipe the card, it can prompt the user for a purchase order, so the back office can tie POs and purchases together easily,” says Smitherman. “That is helpful when you need to have itemized detail of your spending, so you can match it back to a particular job or project.”

While business credit cards are a good tool for daily expenses, travel and entertainment, they are just one of several short-term financing tools owners can use. For instance, business owners can also utilize business lines of credit, commercial loans, U.S. Small Business Administration (SBA) loans, asset-based financing and trade credit.

Determining which financing tool is best depends on the type of purchase. For example, a line of credit and loans are best used for items with higher price tags. “Lines of credit are very viable for a higher expense sort of item,” says Hamby, “whether that’s a large equipment purchase or a case where a business owner needs to draw on that line to make a recurring payment for something that’s more costly. The same is true for loans.”

An operating line of credit can also help business owners navigate the natural fluctuations of a business cycle in a way that a business credit card can’t. “Sometimes it’s to augment cash flow because of the seasonality associated with a business or due to inventory buildup,” says Smitherman. “A small business should never try to fund their business off of their credit card.”

Successful small business owners understand the importance of flexibility in all that they do. That same flexibility applies to financing and payments. A business credit card provides a payment and financing tool that delivers added flexibility business owners need.

Three things to do

  1. Contact your Regions banker to discuss what financing options might be right for your business this year.
  2. Compare what business credit card rewards are right for you.
  3. Consider these 5 Techniques to Improve Cash Flow During a Downturn.