Importance of Commercial Prepaid card for Your Small Businesses
What could be the worst nightmare for a small business owner? Actually, there’s a list,
- Getting rejected for a small business loan.
- Having cash flow issues.
- No cash for managing the working capital gap.
- Payment delays – from clients & to the vendors.
- Managing a bad business financial model.
In this post, you’ll understand why a commercial prepaid card or a business prepaid card can be a solution for all these.
But first lets’ learn about some of the facts.
Do you know?
As per the reports from the Bureau of Labor Statistics’ Business Employment Dynamics, the survival rate of small businesses in the year 2016 & 17 came like this.
Of all the small businesses that came into the market in the year 2016, only 79.8% made it to March 2017.
When CBI Insights analysis conducted a poll of 101 startups, their reports cited that 29% of failed because they were out of cash. In fact, there are many other reasons that contributed to their failure, but lack of cash was definitely one of the major reasons.
Many small businesses fail irrespective of having a good investment. The reason is the bad handling of their business money.
But why does that happen?
Why do businesses face working capital gap irrespective of having a good cash reserve and good sale?
- Impulse Spending
This happens if you have taken a business credit card for managing your business expenses. No matter how careful you’ll be sometimes you happen to spend more than you had to be. Suppose you have a watertight budget, then you’ll face cash issues in the later stages of your business.
Additionally, it’s not just you. Suppose your employees have to attend a T&E program, then you ought to give cash or your credit card for their expenses. Either the cases, your employees may spend in excessive. If that is the case, then you’ll end up paying the extra bills and that can be bad for your business financial health.
Normally, businesses that have very less control over the cash outflow tend to experience cash flow issues in their businesses at some or the other stage.
- Breaking the Budget Plan
Budgeting keeps a business from running into cash crisis and also, it keeps a business in the good light before the investors. You spent a good amount of your time planning your budget and planning for the seasonal sales and at the end; you ended up with more expenses than income.
Why does this happen?
Even though you have done effective budget planning, if you won’t be with your plan, it’ll be ineffective.
Sticking to the budget will be a problem or say challenging if you are using a credit card. The line of credit offered will amplify your purchasing power, making you spend unnecessarily and in excess.
In might not happen all the times, but if the expenses incurred is huge and out of the budget plan then it’ll definitely affect your small business financial model.
- Late Payments by Customers
You can manage your accounts payable only when you have a good control over your accounts receivable.
Customers not paying on time can negatively impact a business, especially for SMEs. In case there is a bad investment, over-head expenses and followed by the delay in payments, then a business will be pushed into bankruptcy.
Businesses should follow a proper protocol to avoid any such experiences.
When you pay your vendors/suppliers late then there are chances they may stop trusting you anymore. With a bad credit score, it’ll be hard to look for a new supplier and any delay; it can impact the business operations.
Business Prepaid Card/Commercial Prepaid Card
As you can see, a business prepaid card is a flexible financial tool that operates similarly to a debit card. Businesses using a prepaid card will enjoy invaluable benefits. Unlike a credit card, where you have to pay setup fees, transaction charges and annual fees, you don’t have to deal with any such things while using a prepaid card.
The global market for prepaid cards is estimated to reach US$3.1 trillion by 2022. The reason for such a huge growth is because a prepaid card is designed to meet the financial needs of unbanked and underbanked customers.
Customers who come under those two categories are normally declined of all the benefits that financially stable customers receive under a traditional bank. In such cases, many business customers found it challenging to secure funds until the inception of a business prepaid card.
There are a lot of benefits associated with using a business prepaid card. Understanding those long-term benefits, today many business organizations are switching to a business prepaid card.
Here are Top Reasons why a Business Prepaid Card can be a boon to your Small Business
- It’s Cheaper, Safer & Reliable
Running a business and running around with cash and checks do not work anymore. Cash, checks do not speak of convenience and nor security.
Whether you are paying your vendors or getting paid by your customers, you need to have a financial model that speaks of efficiency. It’s a huge burden for your small business finances if you lose cash or checks and you cannot trust that mode anymore.
Again, in the similar case, even a credit card does not make a good option for your business. You’ll lose a lot of money just paying the transaction fees and other related fees.
On the flip side, a prepaid card is cheaper than credit cards and safer than cash and checks.
There are no set-up fees, transaction charges or late payment fees. You just have to load the amount and use the available cash.
- Monitoring & Managing Employee Expenses is Easier
It’s common to get stressed if you have provided your business credit card to your employees for business expenses. And there’s nothing more stressing like verifying all the documentation and paying the bills if it has come huge.
A study by the Association of Certified Fraud Examiners cited that expense reimbursement fraud makes up about 15 percent of business fraud with a median annual loss of $26,000.
Also, according to their study, normally it takes anywhere about 24 months before the fraud is detected. The only way to keep employees from overusing your business credit card is not giving them one. Instead, you have to provide them with a pre-loaded prepaid card.
If you have put $1,000 on the prepaid card, then your employees cannot spend more than that. Also, you can track and monitor their spending in real-time. This way you can make sure that money is being used for the intended purpose only.
- Option for Making B2B Payments
Generally speaking, small business owners face numerous problems while making B2B transactions. They experience delay and security issues while getting paid or making payments.
Suppose if they are making use of a credit card then the transaction cost will be very huge if the amount involved is large. At any rate, if a businessman is making payments to at least 5-6 clients in a day then it’ll be a huge burden for his small business finances.
- Managing Working Capital Gap will be Easier
Big or small every business will face cash issues, and it will more often in the case of a small business.
Normally, established organizations will be having a good backing from investors. In addition to that, they don’t have to work much getting a loan from a traditional loan. So there is the least possibility that they would face any cash problems running their huge empire.
The problems with small businesses are they get rejected for a bank loan because they fail to meet the normal requirements put for qualifying a loan. That includes,
- Poor credit score.
- No solid business plan.
- No collateral.
- Or good revenue/cash flow.
For the reason, banks take small business owners as high-risk clients and deny them for a loan, unless they provided something against the loan or qualify other criterions.
However, under such circumstances, a businessman can always approach online lenders. Under online lending, you’ll find different programs and each of them is designed to be less intimidating allowing business owners to easily have their money.
Check cashing, A/R financing, factoring, asset-based lending, etc are some of the online lending programs. If a small business owner has a huge number of unpaid bills, then he can easily cash those checks and get the money loaded on to his business prepaid card.
The process is simple and managing the working capital gap or meeting immediate financing needs will be easier as the cash will be provided on the same business day.
The Bottom Line
Small businesses definitely need something like a business prepaid card, which is the best available low-cost solution for managing business finances. Every dollar counts and a business prepaid card keep you from making expensive mistakes.
Switching to a business prepaid card is the best decision you can make for your small business. Streamlining your business finances you’ll contribute better for your business growth and development.
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