As a small business owner, you’ll no doubt be juggling many things. But one of the most important things you’ll have to work out is whether you should use cash, credit or debit to pay for your expenses.
Using Credit Or Debit For Purchases
Overall, you probably have a preference for debit, credit or cash. However, when you get prompted at a store, like one of the many frozen yogurt franchises you frequent, asking credit or debit when you swipe your debit card, you may be unsure of which to choose. There is certainly a difference between the two that many are unaware of. Credit transactions are handled differently than debit transactions. This is true regardless of the fact that the money is being pulled from the same account. In most cases, you can go ahead and select debit. However, if you are making a large purchase or are making a purchase outside of the country, use credit for the added transaction security. Keep this in mind no matter which type of payment you decide is best for your company overall.
Ultimately, there are advantages and disadvantages to each, particularly in the area of payment protection, and here are just a few of them:
Credit Cards Offer More Purchasing Power
You’ll probably find that a lot of the vendors you deal with don’t accept cash, only accepting debit or credit cards for payments. By using a credit card instead of a debit card or cash, you’ll be able to boost your company’s credit rating for the future.
Using your low interest credit cards on a regular basis before paying off the balance, should mean that you’re able to increase the credit limit on your card. This then makes it much easier for you to buy big-ticket items and additional products, especially during peak times or when your business needs a bit of a cash injection. What’s more, a lot of credit cards now come with reward programs (you can find out more about these on UpgradedPoints.com) which can provide another boost to your business with the advantage of things like more air miles that you can use on those important business trips.
Spend Less With Cash Or Debit Cards
Business owners who use cash or debit cards for their payments tend to be more self-disciplined. This is because they’re conscious that they’re using their business’s assets to make these purchases as opposed to the credit balance that’s available on their private credit cards. Expenses are frequently paid for with business credit cards and these can often be used more liberally, especially when they’re used in place of cash. Handing physical dollar bills over tends to make you feel like you’re spending money more than it does if you hand a card over.
So, if you need to try and lower the number of purchases your company is making, try using many ways to use a debit card or cash. This will help to make sure you aren’t spending too much and that you aren’t going over you limit.
Credit Cards Hit You With Fees
Despite the fact that there are a number of great advantages to using credit cards for your expenses, you may also face hidden costs in the process. Extra monthly fees, late charges and fluctuating interest rates are just some of the hidden things that could affect your company’s finances, sometimes even hitting them hard.
That’s why it’s important to do your research before you sign up for using business credit cards, checking the small print for any charges that may be implemented on your monthly statement. You may find that some issuers will hit you with additional fees if you use your card to purchase big-ticket items, so always look for a provider that doesn’t do this if you are going to need to make big payouts.
Cash Is Difficult To Keep Track Of
Keeping on top of your business’s expenses can be easy when you use cash as you are less likely to spend more. However, tracing where cash has been spent and on what can be incredibly difficult to monitor. With credit card processing or debit card payments you are provided with a paper trail but this is non-existent when it comes to cash, which is why you need to be vigilant at making sure all of the purchases that are being made are being noted and receipts are being kept on file. Everything from paying cash for a business trip to buying some more staples for the office needs to be recorded and saved for your future accounts.
However, it isn’t just the collection of receipts that can be difficult as cash can also give workers the chance to misspend money when it could have been used for something more useful for the business. That’s why, as a small business owner with a credit card or cash, you need to have certain restrictions in place that shows employees what they can and cannot do when using the business’s resources to pay for things.
Cash, credit or debit choices are ultimately down to you and what’s best for your company’s needs. Each come with pros and cons and if managed correctly, your company’s finances will benefit from using one, two or all three of these methods. But before you decide to use any of these methods of payment; it’s crucial that a budget has been put in place. Then, when you’re using one of these options, you’ll know exactly what limits you have and will be less likely to go over these.
Image from http://blog.quizzle.com/2013/12/credit-vs-debit-charge/