Entrepreneurs, What Are the Dangers of Using a Business Capital Credit Card? – Business Loans
Will a big problem arise if you use a business capital credit card? What are the dangers of using this credit card? This time Captain Nero will discuss the dangers of using business credit cards.
Dangerous to Use a Business Capital Credit Card
One of the fundamental problems of forming a business is capital, without sufficient capital a business will be difficult to run, and large capital does not necessarily guarantee the continuity of a business. Finding a source of capital is not easy and most people will refer to the bank to look for it. One of the well-known products is KTA (Unsecured Credit).
Submitting KTA also has risks, namely the risk of your request being rejected, then what other ways can we use? The answer is a credit card. By using a credit card you can buy goods and make business capital. But in using this consumptive debt, you must be careful of the dangers that might indirectly threaten the sustainability of your business.
Failure or Late Paying Arrears
Most people are in a hurry and don’t read the rules and conditions of the bank carefully. The provisions are in the form, the amount of interest charged for credit card usage, maximum usage limit, payment grace period, and penalties imposed for late payments.
The bank will not charge you a fine if the customer pays the bill within a predetermined time period, usually 20 days, so suppose your bill is issued on February 5, then February 25 is the credit maturity. Paying between these 20 days will not cause problems.
Problems can arise if you pay late, which means paying past a predetermined date. You will be fined for arrears on the bill and the fine imposed will consume your money like a leech.
Besides paying late, you also don’t pay the bills in full, which means you don’t pay the bills. Even though your payment difference is only small, the bank will automatically charge a fine on the unpaid bill. Therefore, as much as possible you carefully read the bill amount and pay attention to all the terms and conditions set by the bank.
Not Suitable for the Business Run
Because you want to use a credit card as your capital, you also have to pay attention to whether your business cash flow allows you to pay bills in a timely manner. Your type of business is related to your ability to pay debts to the bank.
You must ensure that your type of business can provide a smooth cash flow and fast cash flow. A short payment period requires your business to be able to pay the bill quickly.
In addition, do not use a credit card as your capital if the items you need have a high enough price. The reason, high usage limits will increase the risk of failure to pay and the risk of the difficulty of the goods being sold. Look for types of businesses that do not require large capital, such as selling clothes online , buying and selling electronic pulses or daily catering services.
Understanding of the use of a wrong credit card
You must be careful if you feel that a credit card is extra money. Even though technically, you only swipe the card and don’t physically spend money, using a credit card you already have debt to the bank. Like all types of debt, your debt to the bank must also be paid in accordance with the agreement and the applicable provisions.
Keeping in mind that credit cards are additional debt or financial burden, you will be more careful in shopping. You will also avoid impulsive shopping. This danger you can avoid with a disciplined attitude when using it and using it with the aim of increasing your business profits.
Worsening Background to Unfair Financial Conditions
Using a credit card can worsen unhealthy financial conditions. Unhealthy financial conditions are determined by many factors, for example the level of excessive debt or low liquidity. Using a credit card when your financial condition is not healthy will only worsen it.
Therefore, you should check whether your business financial status is healthy enough to use a credit card as a source of capital. Ways to check your financial health by measuring the following ratios:
- The current ratio is routine income divided by debt and that number shows your ability to pay debts smoothly. Why calculate the important current ratio ? Because the use of credit cards is included in the debt post and you must ensure that your income is smooth enough to pay for it.
- Average Collection. This figure is obtained from the division of the value of business debt with daily credit sales and the figures obtained are a period. This period shows the period needed to collect credit from the customer and the greater the number produced, the higher the capital required.
- Inventory Turnover Ratio. This ratio is obtained from the cost of goods sold divided by inventory and this number shows how long it takes for an item to sell, starting from the time of entry of the item.
- Account Payable Turnover. This figure shows the amount of business debt turnover that is known from the division of cost of goods sold with capital loans.
Must be careful and careful
Indeed, using a credit card as a source of your capital is not recommended, but if indeed you believe that you are not exposed to these 4 dangers, you can take advantage of the consumer debt. As a debtor you must be careful and careful in using it because credit cards are expensive debts.
What difficulties are the main things in using a credit card? Give your answer in the column below. Don’t forget to share with your closest friends so they can find out information from this very useful article, thank you.