smallbusiness.co.uk: Helping your business think big

Small businesses should consider credit cards as a source of funding for purchases and day-today outgoings, says the Institute of Chartered Accountants in England and Wales (ICAEW).

While often seen as an expensive and risky way to borrow, the ICAEW state that, providing debt is controlled, credit cards can offer a great deal of convenience and flexibility to SMEs.

ICAEW’s head of enterprise Clive Lewis comments, ‘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.’

Credit cards are generally one of the most popular forms of payment for consumers, rather than businesses. They are issued by a financial institution and give the holder an option to borrow funds to pay for things and charge interest on the repayments.

However, the ICAEW say that most card issuers now offer an interest-free period and if businesses monitor this they could incur no interest if the bill is paid in full by a specified date.

Credit cards cut out cash and can be used for making payments in person and over the internet and phone. Making purchases using a credit card also offers protection if any items are faulty under the Consumer Credit Act 1974 that states that the credit card company is liable along with the trader for any breaches of contract or misrepresentations, provided the goods have cost over £100 and no more than £30,000.

The ICAEW also points out that credit cards can benefit start-ups as they ‘allow them to build a credit record’, which can help secure better rates on other forms of finance in the future.

Lewis adds, ‘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.’

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