Shikko Nijland
Shikko Nijland Innopay
Shikko Nijland
INNOPAY

6 Ways that corporate credit cards help SMEs to manage liquidity

In the rapidly evolving financial landscape, small and medium-sized enterprises (SMEs) face diverse challenges in managing liquidity effectively. Corporate credit cards are increasingly recognised by bigger companies as a valuable financial tool, but many SMEs are still not fully aware of their comprehensive and valuable capabilities in this context. By providing a one-stop solution for a range of financial needs – from bridging cash flow gaps to strategic financial management – corporate credit cards not only simplify operations and streamline processes for SMEs, but also give them enhanced financial agility and competitive advantage thanks to better liquidity management.

There has been a sharp rise in the need for liquidity support among SMEs. Currently, 60% of SMEs in the Netherlands say their expenses are increasing to such an extent that it directly impacts their liquidity, compared with just 39% in 2021 (source: www.cbs.nl). This trend underscores the growing challenges that SMEs face in managing their financial resources effectively.

The 6 key benefits of corporate credit cards for SMEs 

 

1.Bridging cash flow gaps

There are various approaches to managing liquidity as an SME, but each has its own set of challenges. One option is invoice factoring, which allows the company to receive immediate cash by selling outstanding invoices at a discount. However, this results in the loss of some invoice value. 

Short-term loans are another option. These offer quick liquidity but come with higher interest rates, adding a financial burden over time. Similarly, revenue-based financing provides funds in exchange for a percentage of future sales. While offering adaptability, this option creates uncertainty about the future financial burden because repayments are aligned with business performance.

Corporate credit cards address these issues by providing direct access to credit, allowing businesses to bridge cash flow gaps seamlessly and maintain operations without reliance on accounts receivable. This makes them a predictable and stable financial management tool.

2. Managing operational expenses

When it comes to managing operational expenses, prepaid business cards help control spending by limiting expenditures to the preloaded amount. However, they lack flexibility. Expense management software tracks and categorises spending efficiently but does not provide liquidity. And while it is good practice to maintain a cash reserve, doing so ties up capital that could be used elsewhere.

The use of corporate credit cards simplifies the management of operational expenses thanks to associated tools that track, categorise and provide real-time insights into spending. They also include the option to set spending limits. This gives SMEs crucial flexibility to adapt to varied business needs while maintaining financial discipline.

3. Improving supplier relationships

When facing cash pressures, SMEs can be tempted to ask their suppliers for extended payment terms through trade credit. This is effective, but risks straining the relationship if overused. At the other extreme, supply chain financing ensures that suppliers are paid early, strengthening trust. Early payments often qualify for a discount, but can still involve third-party fees. Bartering is one way to save cash, but this option is limited to parties that have shared needs and aligned values.

As an alternative, corporate credit cards ensure timely and in-full payments to suppliers. This fosters strong, reliable relationships, which can potentially lead to better terms, not to mention improving supply chain stability.

4. Accessing flexible financing

Access to financing can be crucial for SMEs, enabling them to seize business opportunities or manage unexpected financial shortfalls. Lines of credit are reusable, but often come with stringent approval processes and variable interest rates. Peer-to-peer lending offers potentially lower rates, but lacks formal guarantees and carries higher risk. Microloans provide easy and low-risk access, but the available level of funding is limited.

Corporate credit cards offer a straightforward and rapid means to access credit, with generally fewer procedural delays, risks or limits than other financing methods.

5. Building credit history

SMEs can struggle to demonstrate their creditworthiness. Secured business loans build credit history but require collateral, which not all SMEs can provide. Business instalment loans facilitate credit building through consistent repayments. However, these can be restrictive and costly over time. One way for an SME to enhance its credit profile is by regularly reporting expenses, but this depends on third-party practices.

By regularly using corporate credit cards and making timely repayments, SMEs can build their credit history effectively. This enhances their creditworthiness and facilitates easier access to financing in the future.

6. Strategic financial management

Budgeting tools and business intelligence software support strategic financial management by providing financial insights. However, they require manual analysis and can be costly. Similarly, financial advisory services offer tailored strategic planning advice but involve consulting fees.

With their built-in analytics and reporting tools, corporate credit cards give SMEs essential insights into their spending patterns and financial health. These insights support strategic decision-making and effective budget management, without the need for additional software or advisory services.

Market size and financial impact

  • SME demographics: The Netherlands is home to approximately 1.56 million SMEs, including 1.25 million sole traders (‘ZZP’), 259,000 small businesses, and 55,000 medium-sized businesses.
  • Financial needs: Each year, about 150,000 SMEs (roughly 50% of all small and medium-sized businesses) require an additional €60,000 to €100,000 in financing.
  • Total addressable market: The total addressable market in the SME sector ranges from €9 billion to €15 billion.

     

Source: www.cbs.nl

Streamlined way to optimise payments and expenses

While there are various ways of addressing specific financial challenges facing SMEs, corporate credit cards stand out as a multifaceted solution for navigating the complexities of financial management. Corporate credit cards can play a positive role in managing liquidity, controlling expenses, maintaining good supplier relations, accessing flexible financing, building credit history and making strategic financial management decisions. 

By integrating corporate credit cards with existing payment processing systems, businesses can achieve a more streamlined way to monitor and optimise both payments and expenses through a single platform. This integration facilitates enhanced control over spending, more efficient expense management, and improved cash flow flexibility. This makes credit cards an invaluable tool for SMEs aiming to maintain agility and competitiveness in today’s dynamic market environment.

 

Opportunities for card issuers

The strategic implementation of corporate credit cards within the SME sector not only offers vital liquidity support and significant financial management benefits to businesses, but also opens up substantial new revenue opportunities for card issuers. 

Critically, the opportunity to potentially double card revenue by issuing secondary cards to spouses or partners of the primary cardholders not only enhances customer engagement, but also elevates the issuers’ value proposition. This strategy opens up a highly profitable channel for issuers. By positioning corporate credit cards as an indispensable asset, issuers can expand their market reach and boost card usage, thereby driving significant growth and fortifying customer loyalty in a highly competitive market.

With these advantages in mind, card issuers are advised to develop tailored offerings that specifically address the unique needs of SMEs. Enhancing the utility and appeal of corporate credit cards in this way will not only promote wider adoption among businesses, but also empower them to achieve greater operational efficiency and strategic growth.

 

Stay tuned for the next blog in our series, when we will explore the future of liquidity management and how integrated solutions are shaping the SME landscape.

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