Small Business Credit Card Approval
The use and acceptance of small business credit cards increase over past year.
Visa's second annual Small Business Cash Management survey also notes that cash management, financial planning and budgeting remain key concerns.
According to the Visa survey, small business owners are increasingly adopting and are more satisfied with business payment cards as a tool for managing their business. The survey also found that financial planning, budgeting and meeting monthly expenses continue to be the greatest concerns for small businesses and that business payment cards are consistently considered to be a strong solution to help improve the cash management process.
The survey, consisting of several hundred small business owners and individuals with financial authority within a small business, revealed that the use of business credit cards increased by nearly 10% to 65% over the past year. Overall satisfaction with business credit cards as a form of payment reached 64%. Additionally, within the next 12 to 18 months, 30% of small business owners said they plan to increase their reliance on business payment cards.
Receiving and collecting payments (52%) is the cash-management issue that was recognized as being the most challenging for small businesses -- regardless of their size. The ability of small business owners to manage and move funds was ranked as the second most challenging issue, at 21%, followed by their concern with making payments (14%).
Business Owners Focused on Managing the Bottom Line: For the second consecutive year, financial planning and budgeting was noted as being the predominant financial concern for small businesses, with 53% of respondents agreeing this is their greatest concern. However, reconciling bills and financial reporting were significant concerns for larger ?small businesses, with 19% saying that this is their greatest concern, versus just 3% in last year's survey.
Sluggish cash flow ranked as the largest factor driving small business owners' cash management challenges, particularly not being able to always accurately estimate the timing of payables and receivables (35%). Another 27% noted that the cash management process is labor-intensive administrative work, followed by observations of a cumbersome operational process (18%).
Electronic Payments: For those respondents who already have business credit or debit accounts, 45% noted that if they could, they would make all of their purchases using some type of business payment card. Benefits noted by this group included greater ease in managing and moving funds (27%), greater efficiency in receiving and collecting payments (30%), and greater efficiency in making payments/disbursing funds (28%).
Additionally, these small businesses see business payment cards as an effective tool for managing travel and entertainment costs (91%), personnel supply services (48%), as well as for purchasing capital equipment and raw materials (42%).
Respondents consistently recognized that business payment cards are a strong solution to help improve the cash-management process. Nearly 27% said that they see card-based payments further providing greater efficiency in receiving and collecting payments. Additionally, 25% found that these products offer greater ease in making payments, as well as managing and moving funds (21%).
Visa has designed a suite of products and services to meet these needs and help maximize efficiencies through the electronification of payments and the delivery of detailed online reports allowing small business owners to better manage their cash flow process through greater visibility into business spending. Visa business payment cards achieved record overall growth in calendar year 2005, at 30% year over year, and are the cards most accepted by small businesses nationwide.
Growth Opportunities for Business Payment Cards: The Visa Commercial Consumption ExpenditureTM index, which tracks business-to-business spending, identified areas in which small business spending occurs. Tracking results of the survey against spending identified by CCE indicates continued growth opportunities for business credit and debit cards.
According to the CCE analysis, small business spending grew 5.4% in 2005 to $4.7 trillion with growth expected to slow slightly to 4.3% and reach $4.9 trillion in 2006. In 2005, the largest share of small business expenditures (54%) comprised core business services, such as legal, accounting, insurance, and shipping and mailing.
Based on the survey results, the leading expense categories representing opportunities for business payment cards include:
Raw materials/manufactured goods. These accounted for the largest portion of small business spending, representing nearly $800 billion of small business expenditures (17%). The survey reported that 42% of respondents used business credit cards and that 38% used business debit cards to pay for this large expense.
Professional services. In 2005, small businesses spent $541 billion, or 11% of all small business expenditures, on professional services; yet only 10% of those surveyed reported making these payments on business credit cards and 6% reported using business debit cards -- exemplifying a largely untapped segment for business payment card use.
Rent. This represented 9% of small business expenditures, or $412 billion in 2005; 42% of those surveyed reported using business credit cards, and 38% reported using business debit cards to make such payments.
Personnel supply services. Most businesses in the survey (48% use credit cards; 56% use debit cards) reported using business payment cards for these costs, which represent nearly $404 billion of small business expenditures.
About the Survey: The Visa Small Business Cash Management Survey was conducted by Survey.com in January 2006 and involved the responses of 468 small business owners or individuals with financial authority within a small business. Of the respondents, 9% had annual sales of less than $1 million ("small" small businesses), 34% had annual sales of $1 million to less than $10 million ("midsized" small businesses), and 32% had annual sales of $10 million to less than $25 million ("large" small businesses). Visa defines the small business segment as companies with less than $25 million in annual sales and the self-employed.
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