Being a business owner is a lot of work. The challenges are non-stop. First you have to go from a business idea, to generating revenue to developing a loyal customer base. While doing all this, staying on top of your companies’ finances is crucial to the success of your company.
It can be tempting to turn to credit cards for financing. They are easy to obtain, there is a grace period before interest is charged and everyone accepts credit cards for payment now. However, building your business with credit cards can quickly put you into additional debt, putting you and your business at risk.
Why You Shouldn’t Use a Credit Card for Your Business
- High Interest Rates and Fees. Typically, the easier it is to obtain a credit card the higher the interest rate and fees are attached to the card. By missing a payment date, you can quickly rack up late fees and additional interest.
- Lower Your Personal Credit Score. By adding additional credit cards, the rating agencies can downgrade your score for having too much credit. Also, if your company is ever late on making a payment this will also hurt your credit score.
- It’s Easy to Go Over Budget with Credit Cards. It’s easy to lose track of how much money you’re actually spending while paying with credit cards. Overspending, especially for a young company, is often the cause for many businesses to fail.
Here are some suggestions to help business owners from having to resort to credit cards to operate their business.
- Spend Only the Money You Have. The money you have started your business with is what you have to spend. Use these funds instead of credit cards and you will avoid having to pay interest and fees. Using cash will help keep you within your budget and avoid debt at a time when you can least afford it.
- Make a Budget and Stick to It. By sticking to your budget, you will avoid making unnecessary purchases for your company. This may seem self-evident, but many business owners never make a detailed budget for their company.
- Find Alternate Sources of Financing. If you need more money than your original startup capital, consider an SBA loan or you may be able to get funding from family and friends.
- Invoice Factoring. The best way to avoid credit cards is to get paid upfront for your products and services. You can do this by invoicing your customers and then selling your invoices to a factoring company to get the cash you need to operate your company.
- Invest in Good Accounting Software. Keeping careful track of your revenue and expenses is essential to a business’s success. Having access to an accounting software designed for the industry you’re in will help you stay organized and on top of your finances.
For over 40 years, American Receivable has helped businesses get the cash flow that they need with invoice factoring. Call today or complete our quick online application form to find out how American Receivable can put your company on the road to success.