by Tom Jennings
December 08, 2015

For example prepaid cards enable small businesses to better manage cash flow with real-time expense tracking and spending controls

There are many indicators of a healthy business – annual revenue, hiring, sales pipeline for example – but perhaps none is more important than cash flow. The ratio of cash inflow to outflow is so crucial to a company’s economic health that it can be used to predict bankruptcy. Poor cash management is often listed as the number one cause of business failure.

For small and medium sized businesses (SMBs), optimising cash flow is a top priority. One way to accomplish this is with prepaid cards, which enable companies to manage expenses, such as payroll, while keeping track of where funds are flowing in real time.

Prepaid cards help small and medium businesses control spending

The underlying logic of positive cash flow is actually quite basic: ensure that more money is coming in than going out. This becomes complicated, however, by factors that SMBs can’t always control, such as customers’ timely payment of goods and services. Prepaid cards for businesses help counteract that uncertainty by enabling greater control over corporate spending. SMBs in particular benefit from more advanced financial planning.

When it comes to procurement, for example, SMBs can load prepaid cards with a limited amount and for a specific purpose. And since the company controls when funds become available, it is able to plan spending around current cash flow. This means employees can order supplies and pay invoices without fear of overspending, and the boss no longer has to worry about surprise costs.

Companies can keep payroll costs down with specific cards

One of the biggest costs for a small company is payroll. Of course, employees should be compensated according to the professional experience and expertise they bring to the business, but some small and medium businesses may not realise that they’re also covering the high administrative costs of printing paper cheques, or the risk of distributing wages in cash. One estimate puts the total price of paper cheques at £10, after factoring in bank fees as well as time spent by employees for processing.

In comparison, companies can issue prepaid payroll cards with the relevant funds for each employee via an online management system, which is more efficient and cost-effective. This is also perfect for companies with an international workforce, since prepaid cards can be loaded in a variety of local currencies, and for contract workers, who otherwise may have been paid in cash.

Real-time records aid cash flow forecasts

Another bonus of using prepaid cards: they provide real-time electronic records of outgoing funds. This helps companies create more accurate cash flow forecasts based on the most recent financial information available. Because SMBs use such forecasts to decide when they can afford to hire a new employee, or when they need to secure a small business loan, even small lags in record keeping could lead to undesirable outcomes.

Furthermore, real-time records of expenses can help SMBs identify areas where they can trim costs and free up cash, such as clearing old stock before ordering new items, or finding a better deal on office supplies. With all expenses gathered in one place, it becomes easier to spot cash flow mismanagement.

Whether providing more transparent expense management, more efficient payroll, or more accurate financial forecasts, prepaid business cards present a simple solution to one of the most complex problems a small company faces: maintaining positive cash flow.