Business planning, Finance, Legal

Small businesses shun overdrafts for plastic: Report

Michelle Hammond /

A new report reveals small businesses are increasingly opting for credit cards over arranged overdrafts in order to manage cashflow.

 

The latest business banking star ratings report, by financial services and ratings group Canstar Cannex, shows more businesses are making use of cards in their daily operations, including credit and debit cards and EFTPOS transactions.

 

“We are noticing an increase in the number of Visa debit cards available to business, the big selling point… being the ability to spend in all places that accept Visa and MasterCard,” the report says.

 

According to Canstar Cannex, an added bonus of using credit cards to pay for the majority of business expenses is the number of rewards points a business can accumulate, leading to additional benefits.

 

“Credit cards reward programs for many small businesses are an attractive proposition, delivering thousands of dollars of value each year just by putting expenses on the card rather than other means,’ the report says.

 

Canstar Cannex financial analyst Peter Arnold says many sole-owner businesses opt for frequent flyer points to use for either work or leisure-related travel.

 

“Businesses with multiple owners, on the other hand, often find it easier and fairer to take the points accrued as cashback to the business account as one way of keeping costs down,” Arnold says.

 

Arnold says given the increasing number of business actively using credit cards in their day-to-day operations, it is more important for business owners to get a “bigger bang for your buck”.

 

“The number of products available in the market place is sizeable – 113 term loans, 63 overdrafts, 42 credit cards and 85 deposit accounts,” Arnold says.

 

In its review of the various rewards programs, Canstar Cannex says American Express proved to be the best program for business use.

 

American Express was recognised for its Membership Rewards Ascent, delivering value of money in the areas of cashback and flight rewards.

 

“If you spent $60k a year, you would earn $444 cashback through this program, and the rewards dollar would then increase in line with your spending as the points are not capped,” Arnold says.

 

For frequent flyers, the American Express Membership Rewards Ascent program offers one point per dollar spent and points can be converted to seven different flight programs including Velocity, KrisFlyer, Air New Zealand and Virgin Atlantic.

 

Arnold also identifies NAB as a standout, which allows business owners to allocate Qantas Frequent Flyer points to different accounts.

 

Previously, points were either allocated to the cardholder’s QFF account or the business owner’s account, ruling out fair allocation of points for businesses with multiple owners and cardholders.

 

Arnold says there is no doubt business banking is evolving, with the business sector set to benefit from a multitude of new ideas and features now being offered.

 

“Ultimately, these will increase the banks’ market share but they are also appealing to business owners; the very people they were designed to impress,” Arnold says.

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