Many small businesses are struggling with cash flow during the COVID-19 pandemic. If this applies to you, a credit card can be a helpful tool to keep your business humming along.
In one survey, conducted in March and April by Mercator Advisory Group, 56% of small businesses expressed concern about cash flow, and 22% described it as an “extreme concern.”
One tool that many businesses overlook is their business credit cards. It’s never a good idea to run up credit card charges if you are not in a position to pay them back. But if you have enough cash coming into the business to pay more than the minimum payment every month – and to make your payment on time – then credit cards can be a helpful tool.
How credit cards can help boost cash flow
When you put a charge on your credit card that you might otherwise have had to pay today, you give yourself extra time to come up with the money to pay it. Usually the grace period is two to four weeks. In the meantime, you can use your cash on hand to pay other bills or invest in new opportunities.
If you’re using a rewards card, you can also rack up valuable points by running charges through the card that you were going to pay anyway, such as your utility bills. Choosing a cash back card can provide you with an additional income stream, albeit a small one.
What if you have two or three business credit cards? Use the credit card with the lowest interest rate, but don’t max it out – that’ll lead to high credit utilization that will lower your credit score. Set reminders in your calendar and with the credit card company so you don’t forget to pay the bill by the due date.
Create a cash flow budget
Not sure if you will have enough cash coming in to put new charges on your credit cards? Keep a cash flow budget to make sure you do. Here is a free worksheet. If you don’t think you’ll get around to using it, ask your accountant to help you.
When in doubt, charge less, not more. Most small business credit cards require a personal guarantee, so as the owner, you’ll generally be on the hook for paying any debts you rack up, even if the business closes.
Of course, simply putting charges on a credit card isn’t enough to build strong cash flow. It’s important to take other steps, like asking for deposits if this is common in your industry, sending out invoices on time, opting for electronic invoices instead of mailing them and staying on top of late payments.
It’s also essential to take steps like negotiating favorable payment terms with vendors and suppliers. Asking a regular supplier if you can pay within 30 days instead of when the product or service is delivered gives you an extra month to use that money.
See related: What vendors can help me build business credit?
Ultimately, all of these steps will help you build a healthier business. That, in turn, will help you build a stronger credit profile, so you have better access to the credit you need to keep your business humming.