How Business Credit Cards Can Increase Cash Flow

Lack of cash flow is one of the first warning signs a business is in trouble. Without enough funds coming in to cover payroll, inventory, rent and other expenses, even a previously thriving company might soon be forced to close its doors. Many businesses in this situation simply can’t wait months for a fresh marketing push or new product launch to help turn things around. But a new or existing business credit card could provide financial relief.

Here's how to use a business credit card to help manage cash flow gaps.

Maximize Interest-Free Periods

A recently opened business credit card with an interest-free grace period provides a timeframe where no interest is charged on purchases. This promotion is usually marketed as 0% APR.  During this grace period, which may last up to 12 months depending on the business credit card, allows you to partially fund your business with no added cost up to your business credit card credit limit. In addition, Business Cards also allow you to transact and not have to pay the balance until your payment date, for periods between 20 and 55 days, depending on when your statement closes and when the purchase is made. However, once those grace periods end, in both instances you’ll need to pay the balance in full by the due date to avoid interest charges, which are usually high.

By taking advantage of this interest-free period, you can effectively bridge the gap between when expenses are incurred and when customer payments are received.

Ask for a Credit Increase

Despite current cash flow concerns, revenue might have gone up since you first opened an existing credit card account. Contact the card issuer and request a higher credit limit based on those increased earnings. Higher limits can boost cash flow by allowing greater access to working capital through the credit card's revolving balance. In addition, obtaining a credit limit increase might in some instances help you increase your business credit score, due to your utilization rate. When your credit line is higher but your expenses remain the same, your utilization rate decreases, which is a factor that is taken into consideration when calculating your credit score.

Be ready to provide documentation reflecting your company’s financial strength and operational history.

Make Strategic Purchases

Using a business credit card lets you make large upfront inventory purchases, even if you don't have the full cash amount on hand. Instead of waiting months to buy needed inventory, pay for it using a business credit card and receive it right away. This might help your business keep up with customer demand. The card could also help you take advantage of limited time supplier discounts which could positively affect your bottom line.

In addition to better managing your inventory related costs, you can also use a business credit card to buy equipment, advertisement or incur in any other business related costs.

Capitalize on Cyclical Revenue

Consider using the card’s credit line to cover business expenses that occur at regular intervals, such as utilities or insurance premiums. This tactic lets you temporarily conserve cash flow by deferring payments until a later date when your financial situation has improved.

For example, if your business experiences a seasonal decline in revenue during the summer months, cover monthly utility bills with a credit card. Pay off the accumulated balance once your income rebounds in the fall.

Distribute Credit Cards to Employees

Many credit card companies let you issue cards to individual employees for work-related expenses. These cards allow businesses to monitor and regulate employee spending, preventing unauthorized or excessive purchases that can drain cash flow.

It can also serve as a centralized system for tracking and controlling expenses, ensuring that funds are used only for legitimate business purposes. This oversight helps mitigate cash flow problems that can arise from unexpected employee expense reimbursement requests.

Improve your financial situation with a business credit card. It could help resolve cash flow issues and make it easier to achieve your goals.

Written by

Tracy Scott

Personal Finance Writer

Tracy Scott is a freelance writer specializing in personal finance and higher education. She writes for a variety of financial institutions, universities, and lifestyle websites.