Role of corporate cards in improving business credit and cash flow

Payment infrastructure for businesses has improved over the years with many innovations. Technology has helped develop tools such as corporate cards to suit modern business needs and manage finances in a way that wasn’t possible before. Corporate credit cards are financial tools that a company can issue for its employees and provide them with a flexible way to incur business expenses. 

Using these cards helps improve your business credit score if you make timely repayments. It also aids in managing your cash flow in situations with a shortage of liquid cash. Their real-time tracking and custom management settings attract many finance teams to adapt these cards within their system and improve the overall financial performance of the organization. 

What is a corporate credit card?

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A corporate credit card is a credit card designed specifically for businesses. It offers features and benefits tailored to business needs, such as expense tracking, spending limits, and employee expense management tools. Using a corporate credit card can help businesses simplify their payment processes and streamline expense management. If you’re wondering how to improve your business credit score, then you’d be happy to know that using corporate credit cards is a great way to build your business credit history and creditworthiness.  

What is a business credit score?

Just like an individual has a personal credit score, a business has its credit score that is determined based on the credit history and financial behavior of the business rather than an individual. A business credit score is a numerical rating that reflects a business’s creditworthiness.

Business credit scores range from 0 to 100. A higher score in this range indicates better creditworthiness. Different factors affect your business’s credit score. That’s including payment history (i.e. whether you make timely payments or not), your credit utilization rate, the length of your credit history or the duration for which you’ve had access to credit, and the types of credit you’ve used.

How corporate credit cards can help improve credit scores?

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  • Timely payments. When you make corporate credit card repayments on time, it establishes a positive payment history for your company. Each time you make a timely payment without pending dues, it shows lenders your financial ability to sustain your business and pay off borrowed money. This reduces the risk factor and builds trust. 
  • Credit utilization rate. Keeping the credit utilization rate under control is crucial for improving a business’s credit score. Most financial experts recommend keeping the credit utilization rate below 30% of the available credit limit. Corporate credit cards can help businesses keep their credit utilization rate in check by providing customized credit policies that automatically reinforce policies without manual intervention.
  • Custom credit policies. Many corporate credit cards allow businesses to set custom credit policies that can help keep the utilization ratio under control. You can also set custom spending limits on each card that you issue for an employee. This way you can ensure that there is no overspending and also keep the utilization rate low. 
  • Establish credit history. For new businesses that haven’t used a credit card before, using a corporate credit card can help establish credit history, which is crucial for improving credit scores. The longer you use corporate credit cards, the better your credit score will be. This is because the duration of time that you have access to credit and use it is also a factor in determining your score. 
  • Credit monitoring feature. Many corporate credit card providers offer monitoring features that allow businesses to monitor their credit usage, credit history, and other factors that can affect their credit scores.

How does a good credit score help improve business cash flow?

No matter how good you are with predictions, unprecedented and random costs arise here and there. Such scenarios make your cash flow wobble and induce anxiety. This is where a business credit line or other financing options can bring stability and improve your business credit score.

The correlation between a good credit score and having a positive cash flow is quite simple. The better credit score your business has, the more credit you have access to. The more credit your business has to spend, the better you can manage your cash flow in case there are cash shortages. Based on this fundamental relation, your business also gains the following advantages:

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  1. Getting higher credit limits. A good credit score can help businesses get higher credit limits. This provides more financial flexibility and helps cover unexpected costs when you notice that there is a shortage of cash in hand for daily operational expenses. 
  1. Better negotiating power. Businesses with good credit scores have better negotiating power when it comes to securing loans or financing options. Lenders are more likely to offer favorable terms and lower interest rates to businesses with good credit scores.
  1. Easy qualification for financing options/loans. Businesses with good credit scores are more likely to qualify for financing options or loans. Which can provide additional funds to cover unexpected costs or help grow the business. Even if you don’t need it immediately, having the option to seek out additional funds with the confidence that you will get it acts as a safety net during tough economic times. 
  1. Access to better loan terms. When your business has a good credit score, it shows lenders your financial health and creditworthiness. This helps in future financing opportunities and access to loans with lower interest rates and favorable repayment terms.
  1. Portrays your business as trustworthy in front of vendors. A good credit score can help businesses establish a reputation for being financially responsible and trustworthy. Which can help build relationships with vendors and suppliers. This may also give you access to vendor discounts through early payment deals. 

By getting access to financing options such as a credit line or corporate credit cards, your business will be able to improve its cash flow and manage expenses more efficiently. 

Improve your business credit score using corporate credit cards

In today’s business environment, it is very tough to operate efficiently without using some kind of credit product for smooth financial operations. Corporate credit cards are a great option. Because they not only provide you with credit to handle business transactions but also do it in a controlled and efficient manner. Plus they are much easier to acquire and start using as compared to loans. So if you’re looking for a low-risk credit product to build your company’s credit score, then corporate credit cards are the way to go.