Maximizing Credit Card Float for Small Business

There are many great benefits to using credit cards for your business including that they are easy to use, nearly universally accepted, accrue points/miles/cash back, and the float they offer.

The float is the time you get to use their money free of charge.  The only way to utilize this float is to pay your balance in full on your card.  If you leave even one penny on the card this perk and most of the value of a credit card is washed away.

The best way to utilize this float is to learn how the system works.  Lets go with a one credit card scenario first.  Let’s say you have a due date of the 23rd of the month and a statement date of the 1st.  You will want to pay all of your biggest bills/largest charges immediately after the 1st of the month.  E.g. the 2nd.  If your bills/purchases do not match up with these dates, then simply call the credit card company and request a better set of dates for you.  So if you charge $2k on the 2nd of the March and not a penny more the rest of the month then you will not have to pay back the credit card until the 23rd of April. You see that when you charge on March 2nd your statement will close on April 1st with a due date of April 23rd on it.  If you have paid your balance in full the previous months you have show zero interest on these purchases and thus this gives you a loan of $2k for 54 days.  Not bad if especially if you really scale this up.

Here is where it gets good.  I have about 8 accounts which I use regularly.  This might be a little cumbersome, but you will see the benefits below.  I float about $70k on these cards and never pay interest on them.  I use each card for about 7 days only.  That is the first 7 days of a statement cycle.  If we take the example above I would utilize that card from the 2nd to the 8th of each month then put it away.  I will pull out the next card for the next 7 days.  I try to never go over half the spending limit so that each month I have half or better available.

I do keep a single card for specific small purchases and never switch it.  It would be too tiring to keep changing the card in my wallet.  For example, my gas card yields  4% cash back and I never spend more than $2k on it, so I do not worry about maximizing the float on such a small amount.  I still pay the balance in full, but this approaches gets me closer to 50 days of float on average.

Most of our charges are paying venders which we do over the phone.  I have created a spreadsheet using google docs (more on this in a future post) to show exactly which card to pay with based on the dates.   This has relieved me from constantly checking statement dates and fairly well automates the entire process.

We use this float to finance our A/R and pay off any long term debt.  If we had to keep this on long term debt it would cost us a lot more money than the zero in interest we pay now on the float.  If we were to leave a penny on each card every month I would estimate this to cost us approximately $1,05o in interest per month.

As a side benefit we net over $1,200 per month in rewards points/cash back (more on this later) on these credit card charges.  If you add this up it is about $2,250 per month ($27,000 per year) in net benefit as opposed to using a long term working capital loan and then using cash from there.

Since this is almost 100% automated, I would say this is well worth it.

How do you finance working capital and A/R?

Getting Paid to Pay Off Your Loans

I just paid off a company vehicle with this company.  I have seen plenty of chatter about this service, but I don’t think that anyone has really picked it apart yet.  It is a great service, very reliable and fast.  It is easy to use and if done properly quite affordable.

In fact the way I have been using their service, I pay about $0.0028 for every Chase Ultimate Rewards point (earned through either Sapphire Preferred or Ink Bold credit cards) which can easily be transferred into United miles, Hyatt Gold Passport points, or any of the programs points and miles options without a fee.

So here is the big secret, you MUST pay in increments of $500 to get the best deal on car loans ($750 for mortgages).  If your payment is $1,000 you are in luck!  Just make two separate payments of $500 each every month.  If your payment is $450 you can do like I do and just pay the additional on the loan and feel better about getting debt free sooner!

Here is the math I used to calculate my cost of doing business with this company (or the cost to buy one credit card point):

Payment: $500.00

Fee: $9.95

When you first sign up, every 3rd payment is $10.00 off per their ongoing promotion.

So for $1,500 in car loan payments I paid $19.85 to this company in fees. (1.32%)

To take this a little further, you are getting something for the interest as well.  You are not paying anything for the credit card interest as you should be paying your ENTIRE BALANCE in full before you ever consider getting rewards for spending anything.  Anyways, your bank is crediting you today for money you have not yet had to pay out of pocket (because your floating it on the cc).  This is saving you interest on your loan.  Figure that your loan is at 4% and that you get 55 days on your card (you should ALWAYS maximize the float by paying on the first day of a new credit card cycle – more on this in a future post).

Interest Saved 4% for 55 days = 0.60% of the amount paid

Then you want to get 1.5 points per $ (or more) on what is commonly referred to as the OLD Chase Bold card for spending $100k per year on the card or a similar card like the Chase United Club card which is 1.5 miles per $ all the time.

To sum it up, we have $19.85/$1,500 = 1.32%

1.32%/1.5 points per $ = 0.88%

0.88% – 0.60% = 0.28% or $0.0028 net per point.

The math is just about the same for mortgages but you need to pay in increments of $750 and the gross fee is 50% higher.  The net is still very cheap points/miles.

These points can be valued at nearly $0.02 each by many.   If you prefer to use a fixed value card like the Capital One Spark which is 2% then you are netting out 1.72% return for every dollar.

Another side benefit of this is that you need to keep less cash in the checking account as you have less charges coming out.  Most everything goes on the credit cards (for points of course!) then you only need to have the cash to pay these cards (in full, always!).

I hope this works as well for you as it does for me!

Combined Airline Miles Chart

This is an airline miles chart which shows you what it takes to get to anywhere in the world from the Los Angeles area using the miles of a particular airline.  I chose to focus on airlines that are either US based or have great access to transfer points/miles for other popular programs such as Starwood Preferred Guest (SPG Amex), Chase Ultimate Rewards (Visa/Mastercard), and Membership Rewards (American Express).

It has been extremely useful in long term planning for trips.  Please let me know if there are any errors that you notice.  I try to keep it updated for my own purposes.

Combined Airline Miles Chart

The way I use this chart is to search for a trip.  E.g. I want to go to Vietnam so I would use the main page (US Airline and Major CC) since I current have points in all of the programs listed.   If you scroll over to Southeast Asia you will see that Alaska is the best rice at 60k miles per person for Economy and 100k for Business.  If you prefer First Class then American Airlines would be the best bet at 125k miles.

If you only have access to say Chase Ultimate Rewards then you would use the Chase page which shows you just three options.  For this you would find that United is the best option at 65k miles for Economy, 120k for Business, and 140k for First Class.

Hope it helps!

Intro

The purpose of this blog is to help small businesses save and make more money.  The two main ways we will go about this are through the areas of finance and technology.  We will also cover areas of big spenders on credit cards to accumulate the maximum value for you.

On the finance side we will show you how to save thousands of dollars a year through credits cards.  A great deal of time will be spent on earning points and miles worth many thousands of dollars per year by using various credit cards.  We will cover the area of credit scoring as well.  This is one of the most valuable assets to a small business and likely not for the reasons you think!

On the tech side we will discuss the many tools we use every day in our current companies.  The tools will range from using telephone systems to cloud storage.

Most of these tools are free.  Some have a fee, but I believe they will all be a great investment for most small businesses.

I would hope to post 3-5 times per week.  We will see how that goes.  Please feel free to contact us using the comments or via email.

Looking forward to getting started!