Using credit cards for your company’s payroll

Reading Time: 5 minutes

Editor’s Note: Using credit cards for your company’s payroll is a guest article written by the CardUp Hong Kong team.

Employers should ensure that employees get paid the right amount at the right time if people in the company matters. This economic downturn has placed companies under greater pressure due to the lack of cash flow. Many companies struggle with managing employee welfare and keeping their businesses afloat.

Most employees were paid on time prior to the COVID-19 pandemic. Payroll was an aspect that worked almost invisibly in the background – it performed its essential role almost seamlessly and everyone hardly spoke about it in the office. Fast-forwarding to this post-pandemic world, it has become very clear how essential payroll is in society. It is the coin that keeps the jukebox playing – without it, things would not function. However, in such unprecedented times, the lack of cash flow poses a challenge.

Financing payroll during downtimes

In attempts to adapt to change, many businesses focus on resilient business continuity plans. Undoubtedly, payroll should be an essential part of it. It is arguably so that employees are one of the most important assets to protect in any situation. The Hong Kong government also emphasised its importance. They provided a Covid-19 wage-subsidy scheme for businesses earlier in the year. 

Your people are central to everything. Retaining employees provide manpower for business operations and gives your people job security. It also indirectly provides extended support to a greater group of people close to them. Your staff could be taking care of vulnerable family members who are financially dependent on them. Hence, taking care of your employees is a very important aspect.

However, coming up with a good strategy to finance payroll and ensuring your people feel valued is definitely not easy. It is tough when your business is already experiencing a serious cash flow crunch. Payroll makes up a sizeable portion of monthly overheads – approximately 20% to 30% of a business’ expenses. In addition to that, 45% of Hong Kong SMEs facing delayed payments for two months or more from their customers. This large percentage of overheads in payroll is unavoidable.

Financing alternatives might solve this issue, however, payroll expenses might not qualify for financing that easily.

Lenders typically only provide support for loans that will be used by companies to grow their business, which better assures them of repayment. Business loan schemes are more affordable than many other options such as overdraft, invoice factoring, or moneylending. Nevertheless, it still carries a 4% to 10% interest fee and hidden administrative fees. This creates high additional costs in the long run. Most companies, however, still take on loans because it seems like the best financing option available.

Did you know that there is actually a more viable financing option that makes greater financial sense to most businesses? More businesses are starting to undertake this option. It involves shifting payments such as payroll and invoice payments onto a business credit card. Paying through a credit card offers much lower interest fees than loans and there are no hidden costs to it. It frees up businesses’ working capital by a significant margin and also ensures that all payments are made on time.

There are a few simple questions that can determine if using a credit card is right for your business. Is your company finding ways to maximise cash flow for important business operations? On top of that, is it also your priority to pay your employees on time? If your answer is ‘yes’ to both of those questions, then it would make more sense to shift your company’s payroll onto a credit card than get a business loan. By settling payroll through your business credit card, your company only pays at the end of the month (or up to 2 months). Your employees, on the other hand, will still receive their paycheck on time. This, therefore, gives you greater flexibility to manoeuvre your cash flow and use it for more time-sensitive business operations first.

Why put payroll payments on your credit card?

Payroll body image 1

1. Instantly tap on under-utilised, pre-approved credit

Your business credit cards typically come with a pre-approved credit limit. It is assigned based on a number of different factors such as the length of operation, profitability and more. This credit limit is the maximum amount of credit the banks have extended towards your company’s use. It is oftentimes much higher than it would be for a personal credit card. Companies can better utilise this credit line if they put their company’s payroll on the credit card – it’s already pre-approved and available instantly, so why not! It would be a pity to let this sum go under-utilised and used only to consolidate dining, travel and entertainment expenses. It is never too late to start tapping on your business’ pre-approved credit for working capital.

SELECTED FOR YOU  Talenox Updates - 14 March 2018

2. The available credit is interest-free for up to almost 2 months

Why pay high interest fees to free up working capital through loans when your business is trying to reduce spendings? Your business gets 2 months of interest-free credit if you pay through your business credit card. The interest-free credit begins from the date of your transaction to when your credit card bill is due. As long as you pay your bills on time, you will not have to incur the high interest rate for late bill payments. This makes for an extremely low-cost tool to finance your business in the short-term, and should not be overlooked. 

3. Keep operations smooth-running even with delayed customer payments

It is understandable that many people are facing the financial repercussions of the Covid-19 and payments are often delayed. However, once you place your employees’ payroll on your credit cards, delayed customer payments become less of a headache. There is no longer a need to struggle with paying your employees and suppliers before your customers pay you. Your business settles its payments on time while you only pay when your card bills are due up to 2 months later. Business cash flow will improve and your operations will run smoother.

4. More capital on hand means more room for growth 

You’d be able to have more working capital on hand with payroll expenses put on your credit cards. More time can be channeled to adapting your business to the new norm. Your business can focus on strengthening its operations, invest in new business tactics, or even anticipate an upcoming seasonal fluctuation. This may give your business better chances to tide through the post-pandemic environment with ease.

5. Rewards to be earned on your business’ largest expense

Your working capital is freed up and the welfare of your people is well-prioritised. What else? Well, in addition to having all those priorities sorted out, your business can earn credit card rewards! Many of us are familiar with using credit cards to rack up miles, cash-back and points on personal expenses. You can do the same for your business expenses. The rewards earned will depend on the credit card used. There are many business credit cards in the market that offer some form of rebates or rewards on spend. Additional benefits also include travel insurance, dining discounts and more!

How can I get started with payroll payments on my credit card? 

CardUp is a widely-trusted platform by many businesses in Asia. CardUp’s platform allows you to make your business payments with your credit card. This is regardless of whether your recipients accept card payments or not – and this includes your payroll. Simply sign up for a free account and you can start scheduling your monthly payroll. It is that simple!

Not a CardUp user yet? Use the promo code TALENOXFREE to enjoy 0% fee* (u.p. 2.6%) on your first payroll payment on CardUp! 

*Valid on first payment of minimum HK$5,000 and maximum HK$60,000. Other terms and conditions apply.

mandatory provident fund guide by talenox
Beginner’s Guide to Mandatory Provident Fund (MPF) in Hong Kong

The Mandatory Provident Fund (MPF) is a compulsory saving scheme or pension fund meant to help support retired residents.

talenox updates 2020 q2
Talenox Updates Q2 2020: Improved Security, Data Import and more.

If you’re a Talenox user or considering adopting Talenox for your HR operations, you’ll want to be updated on Talenox Read more

ess employment support scheme hong kong
Hong Kong Employment Support Scheme (ESS) Explained

Some of you may be scratching your head over the new Employment Support Scheme. Here's what you need to know Read more

talenox updates
Talenox Updates Apr 2020: Payroll and Leave Reports, Easier Tax Filing, and more

On top of our usual quarterly Talenox updates, we're bringing you a special feature for the month! Find out how Read more

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.