How to Use a Business Credit Card to Finance Your Inventory

A Woman And Man In A Hi Vis Jacket Walk Through A Warehouse With Floor To Ceiling Shelves Of Stock

You run a shop that sells tech and electronic items. You notice that a pair of new, must-have headphones are hitting the market, and your customers are asking for them. You're excited to meet this demand, but you don't have enough cash in hand to place a large order of these headphones.

This is where a business credit card comes in handy. You can use your business credit card to buy the headphones immediately, meet your customers' demands, and make more sales. You don't miss out on those valuable sales opportunities.

On the other hand, let's say you own a clothing boutique. You usually order inventory in large quantities to keep up with the latest fashion trends. However, this time, you miscalculate and order way too much of a certain item. Now, you're stuck with an excess of those clothes, and they're not selling as expected.

Your business credit card can help once again; you can use it to pay off the extra inventory costs without affecting your cash flow or personal finances. You've avoided unnecessary expenses and can focus on other aspects of your business.

In both scenarios, having a business credit card provided financial flexibility, enabled timely inventory purchases, and made handling expenses more straightforward and rewarding.

Key takeaways

  • Inventory financing is a way for businesses to get money to buy products they want to sell. This money can come from sources like a business credit card, a line of credit, or a business loan.
  • When you use inventory financing, the items you purchase become a guarantee for the money you borrowed.
  • Using a business credit card for inventory is a smart move. It helps you buy stock when needed, and save money through rewards. Plus, it keeps your cash ready for important bills and expenses.

What is inventory financing?

Inventory financing is a type of funding, such as a business credit card, line of credit, or business loan, that a business uses to purchase products or stock. The product you buy using inventory financing acts as collateral to secure the financing. During your repayment period, the inventory you purchased is yours to sell, but the revenue you generate is used to pay back the loan or credit. 

Why use a business credit card to finance your inventory?

Business credit cards work in exactly the same way as personal credit cards, except they're only to be used to make business purchases. Business credit cards offer more flexibility and potential rewards when financing inventory purchases compared to business loans and lines of credit. With business credit cards, you can earn cashback, rewards points, and take advantage of expense tracking and cash flow management tools. Business loans and lines of credit provide a lump sum upfront that must be repaid with interest, and often have stricter repayment terms. The revolving credit nature of business credit cards makes them better suited for ongoing inventory financing needs, Plus if you repay your business credit card in full at the end of your billing period, you won’t pay any interest on your inventory finance.

Benefits of using a business credit card to finance your inventory

  • Rewards: Cashback business credit cards, such as Capital on Tap, allow you to earn rewards on all inventory purchases, reducing inventory costs and adding value to each transaction.

    Our unlimited 1% cashback means if you spend £50,000 on inventory, you’ll earn £500 in rewards points, which you can redeem against your balance, turn into cash, or use to purchase gift cards. 

  • Expense tracking: Keeping an eye on your inventory spending as it happens can help you make better decisions. When you use a business credit card, you can quickly see where your money is going and get a clear picture of how much you're spending on inventory.

  • Purchase protection: Business credit cards often come with some form of protection to help you if your purchase is faulty, broken, or never arrives. So, if you make an inventory purchase using your business credit card and it’s not as it was described, you can dispute the transaction with your credit card provider. Other forms of inventory financing don't offer the same protection.

  • Cash flow management: Business credit cards can be a lifesaver for keeping the cash flowing. Instead of using up your cash, you can make inventory purchases with your card. It's like having a financial safety net that lets you keep your cash handy for other important expenses.

Drawbacks of using a business credit card to finance your inventory

  • Repayments: If you can’t pay off your balance in full at the end of your billing period, you will accrue interest. 

How to use a business credit card to finance your inventory

When you're ready to get a business credit card, it's important to choose wisely. Here's how to do it:

Choose the right business credit card 

  • Do your research: Look into the different options available. Check out what each card offers, like rewards, and credit limits. Do this research before applying. Applying for many cards at once can hurt your credit score if they do a hard credit check.

  • Watch the costs: Pay attention to the money side of the card. Check the annual fees, foreign transaction fees, and interest rates. Make sure these costs fit your business's financial plan.

  • Read the details: Understand how the card works. Read the fine print in the terms and conditions. Pay attention to things like Personal Guarantees and credit reporting. This keeps you from surprises later on.

If you’d like to know more about choosing the right business credit card for your business, head to our blog, How to Choose a Business Credit Card

Create an inventory financing plan

Before making inventory purchases with your business credit card, it's essential to have a clear inventory financing plan in place. This plan should include: 

  • Procurement: Clearly outline the suppliers or sources you will use, the quantities to be purchased, and how often you’ll be making purchases. This ensures that your inventory remains well-stocked to meet customer demand while preventing overstocking that can tie up valuable capital.

  • Budget allocation: Detail how you will allocate your budget for inventory purchases. Consider factors like seasonality, market trends, and potential sales growth. By strategically dividing your budget, you can ensure a balanced approach to inventory financing, preventing financial strain during peak demand periods.

  • Repayment strategy: Establish a clear strategy for repaying your credit card balance. Determine how much you can comfortably pay off each billing cycle and plan to meet or exceed the minimum payments to avoid accumulating interest charges. Include provisions for unexpected challenges, such as changes in market conditions, economic downturns, or unexpected expenses. This contingency planning ensures you have a safety net to fall back on if unforeseen circumstances impact your repayments.

Use your business credit card to purchase inventory 

To reap the rewards of your business credit card, make sure you use it to purchase inventory. Not only will you receive tangible rewards such as cashback or statement credit, but it will help you maintain a clear and organised record of inventory expenses

Remember that your business credit card may provide purchase protection. In case your inventory purchase is not as described or is damaged, you can dispute the transaction with your credit card provider, offering an added layer of security.

Make regular payments on your business credit card balance 

To keep your inventory financing on track and maintain a healthy financial standing, it's crucial to make regular and timely payments on your business credit card balance. This will help you avoid unnecessary interest charges and fees, ensuring that your financing method remains cost-effective and sustainable.

Tips for using a business credit card to finance your inventory effectively

When it comes to using a business credit card for inventory financing, here are some straightforward tips to make the most of it:

Track your inventory levels carefully

Keep a close watch on how much inventory you have on hand. This helps you avoid having too much or too little. It ensures that your business credit card spending matches your actual inventory needs.

Set sales goals

Plan out how much you expect to sell. This helps you decide how much inventory to buy and when to buy it. Having sales goals also lets you see if your financing strategy is working.

Monitor your cash flow

Check how money is moving in and out of your business. Make sure you have enough to cover your inventory purchases and other expenses. Match your credit card payments with the money you're making to stay financially stable.

Consider other financing options 

While a business credit card is a valuable tool for inventory financing, it's not the only option available. Explore alternative financing methods such as business loans, lines of credit, or supplier credit terms. Assess the advantages and drawbacks of each to determine if diversifying your financing sources may be beneficial for your business.

The bottom line

The choice of financing your inventory with a business credit card is not just a financial decision; it's a strategic one that can lead to growth, efficiency, and security. It empowers you to make timely inventory purchases, address unexpected challenges, and avoid unnecessary expenses. Moreover, it keeps your cash flow intact, ensuring that your financial resources are readily available for other essential expenses.


If you’re ready to finance your inventory with a business credit card, apply for a Capital on Tap Business Credit Card in under 2 minutes today. 

This does not constitute financial advice. For funding advice, please contact your financial advisor or accountant. 


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