SMEs represent 99% of all businesses operating in the UK and their financial health determines the growth and sustainability of the nation. Given the endless political and economic uncertainty it is hardly surprising that SMEs are exercising caution. Against a backdrop of trade war and the slowing of the global economy, Britain’s withdrawal from the EU couldn’t have come at a more challenging time.
Despite the gloom and the UKs weak economic growth, the latest GDP snapshot from the Office for National Statistics has encouraged economists to suggest that the UK should be able to avoid slipping into recession this Autumn. According to figures from the Bank of England, alongside a reduction in SME borrowing, consumer credit dropped to 900 million whilst borrowing for larger businesses grew by 4.4%. Michael Biemann, chief executive at the digital finance property lender, Selina Finance has said: ‘The same old narrative is playing out. Big business borrowing rates are up while those of the SMEs are down. In the current climate, high street banks are gravitating to blue chip businesses, which they see as less of a risk. It’s no wonder that a growing percentage of SMEs, believing they are likely to be knocked back, are turning to alternative sources of finance’.
One of those additional sources of finance is the use of credit cards. Credit cards are attractive to SME owners because they provide additional working capital at no additional interest, provided of course that payment deadlines are met on time. And there lies the rub, credit cards which are not properly managed haemorrhage debt and are catastrophically costly. Any credit card which you allow to carry a balance will result in punitive interest charges, but interest charges are not the only pitfall. You also need to watch out for balance transfer fees, annual fees, cash advance fees, over the limit fees, foreign transaction fees, late payment fees and returned payment fees. There is also an argument that the mere possession of a credit card encourages overspending. Despite these potential problems, credit cards which are properly managed are an undeniable asset to the financial management of an SME. Many SMEs use credit cards to provide employees with access to credit for official expenses. This is often a convenient way to minimise the need for cash transactions and it does not impinge on in house resources, however there is a need for clear procedures to be put in place.
– Employees must be made aware that they are financially responsible for any costs resulting from the inappropriate use of the card.
– The employee must understand who is responsible for making the payments and who is financially responsible in the event of late payments.
– The authorisation process must never cause delays resulting in late payments.
Credit cards can be an extremely useful tool for dealing with the expenses of individual employees, but it is important to shop around for the most appropriate credit card for your business before investing in one.