Credit Cards Can Offer SMEs Convenience says ICAEW

Credit cards can offer SMEs convenience, says the Institute of Chartered Accountants in England and Wales (ICAEW)

Credit cards can be seen as an expensive and risky way to borrow but they are often a convenient and flexible option for Small and Medium size Enterprises (SMEs) to fund expenses. Providing debt is controlled, credit cards can be a good way to make purchases and finance day-to-day outgoings. Clive Lewis, ICAEW’s Head of Enterprise, explains:

“With difficult economic conditions and constrained access to finance, many small businesses opt for forms of finance that offer quick and easy access to cash. Besides being secure, credit cards offer flexibility and can help businesses to monitor and control expenditure. With a wide variety of company or corporate payment cards on the market it is easy to find one best suited to your business.”

Essentially, credit cards:

  • Allow purchases up to a specified limit
  • Offer an interest-free period
  • Allow a minimum repayment each month, but charge interest on the balance
  • Incur no interest if the bill is paid in full by the specified date
  • Can be issued to employees, with an approved spending limit, allowing owners to effectively manage and monitor staff purchases

Clive continues,

“Business owners who use credit cards typically have an interest-free period of up to 56 days before they have to settle the bill, which can help with the company’s cash flow. It can also help to cut administration. With a company credit card you pay one bill each month, no matter how many transactions you make. Itemised monthly statements help with administration and accounting.”

Using a credit card means business owners do not have to carry large amounts of cash or a company chequebook and can keep close track of expenditure. They are also convenient for paying everyday company expenses over the internet or by phone.

Making purchases using a credit card also offers protection if any items are faulty. If you purchase a faulty item on a credit card, under the Consumer Credit Act 1974, the credit card company is liable along with the trader for any breaches of contract or misrepresentations. The goods must have cost more than £100 and no more than £30,000.

For start-up small businesses, using a credit card can help build up a credit record which could help secure better rates on other forms of finance, such as bank loans or overdrafts.  Most lenders are reluctant to lend to businesses if there is no payment history in settling bills.

Clive adds:

“A bad credit history may not exclude using credit or debit cards but it may be that you need to trade as a business for 18 months to 2 years to establish a trading history and a credit track record before applying for a card. Ultimately, it is important that you choose the right card for your business. Interest rates, charges, interest-free periods and benefits can vary a great deal and it is advisable to shop around and negotiate to ensure you get the right card to help finance your business.”

The use of credit cards for start-ups and SMEs are just one of the subjects an ICAEW Chartered Accountant can help with. The Business Advice Service (BAS) is a scheme that gives small businesses a free consultation with an ICAEW Chartered Accountant with no further obligation. See for further information.

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