Should You Use a Credit Card for Your Small Business Spending?

Man enters credit card number on a tablet computer.

One of the biggest challenges for many small business owners is managing cash flows. The timing of money coming in from your customers doesn't always match up with when you may need to spend it. Not only can it make the daily operation of your small business more difficult, but it can also cause you to miss out on opportunities to invest in growing the business.

Can a credit card help ease the pain of mismatched cash flows? Absolutely. And with so many rewards programs out there, it could actually help you cut some expenses if used wisely. But there's another side to it: Just as with personal spending, irresponsible use of credit cards for business spending could hurt your business, too.

There's more than one way a credit card can help your small business

Depending on the business you operate, you can probably pay for the bulk of the things you buy for it with a credit card. The simple act of using a credit card for most of your spending could make a massive difference in cash flow, since it would give you a grace period of a few weeks before you have to part with the cash to cover those expenses. And as long as you pay within the terms of your credit card, you can float expenses without paying interest. That's a big win for a small business.

Furthermore, credit card rewards programs can actually cut your expenses. This is especially true for certain categories of spending, like air travel, gasoline, restaurants, or groceries. If you spend a lot on these items, using a rewards card that gives the biggest rewards in one or more of these categories could be worth hundreds of dollars -- or more -- per year.

Using a credit card for recurring expenses, like utility bills, can also be handy. Most utilities support automatic payments, and some even offer a small discount when you do this, helping you not only avoid late fees but also to potentially put a little more money back into your bank account.

Lastly, most credit cards will also give you a spending summary. This can help tremendously with tracking expenses, to make sure you're staying within budget, or quickly figure out if your budget is out of whack with your actual spending requirements.

It could also make it much easier come tax season to make sure your tax bill is as small as possible .

Sometimes not using a credit card can save you money

You can get great rewards points for travel and many retail spending categories. But sometimes the suppliers you buy from may actually offer you a discount to not use a credit card. Some may also allow you to establish a line of credit, helping smooth out your cash flows. It's always worth asking a few questions to get the best deal you can.

Some suppliers offer cash discounts, and even revolving lines of credit.

A good rule of thumb: If you regularly spend money with a single supplier, ask for a discount. If you rely on its business for the things you need for your business, that supplier probably appreciates your loyalty and may be willing to give you a better deal. And if you offer to pay in cash, the supplier will save money on processing fees that it might be willing to pass on to you.

It's important to remember that there doesn't have to be a "winner" and a "loser" in these conversations. By giving you a better deal, your supplier wins by retaining a good customer, while you win by getting a better deal from a company you're already working with. Besides, the worst that can happen is that it says "no" (and the answer is already "no" if you don't ask).

When credit cards can be destructive

When used to strengthen your business, such as smoothing out lumpy cash flows, using rewards programs to get better deals, or reducing the time you spend paying bills one at a time, credit cards can be a powerful tool. But when they become a crutch simply to prop up a struggling business, or cause you to spend more than you should, credit cards can turn your small business into a big nightmare.

When the credit card becomes a way to float debt for the long term and you find yourself paying interest every month, it's become a burden on the business. Credit card interest is absolutely value-destructive, and will almost certainly put you further behind before it helps your business get ahead. There are exceptions, but as a rule, if you're not paying off the balance every month, that credit card may be hurting more than it's helping.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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