January 2019

Doing This One Thing Can Maximize Your Cash Flow

6 minute read

Are you looking for ways to maximize your cash flow to gain access to the capital you need to grow your business? Paying vendors on their terms should be top of mind in that regard as it can ensure the best pricing and enable you to maintain good relationships.

The tools you can leverage to hold onto your money longer and still pay your vendors on time may already be right in your pocket—literally. Take advantage of interest-free days by paying your business expenses with unsecured credit, and put your cash to work for you.

Best of all, these same tools can be employed by your customers to help you get paid faster, too. When vendors, suppliers and customers all take advantage of interest-free days, everyone gets paid on time while delaying exit of cash. In this scenario, everybody wins.

Why interest-free days are better than trade terms

Other options do exist to manage cash flow. You can request terms of net 30 or net 60 days from vendors. But this may require credit checks, which can temporarily reduce your credit score, potentially making it harder to obtain other forms of financing, if necessary.

Qualifying for a line of credit from multiple vendors can be an uncertain proposition as well depending on your credit score, existing debt and even how long you've been in business.

In addition, some vendors offer discounts for early or on-time payments. When you pay your bills keeping interest-free days in mind, you can limit risks and hassles. You can also reap any rewards your vendors offer for on-time payments, too.

So what are interest-free days?

A billing cycle, or statement period, is the amount of time between when your credit card company issues each bill or statement—typically ranging from 28 to 30 days. When you use a credit card to make a purchase, the card issuer begins charging interest on the purchase at some point during that billing cycle.

Interest-free days are the time between making a purchase and when the card issuer begins charging interest. Many Amex products don't start charging interest until 25 days from the end of the statement period. With 25 interest-free days after the statement closing date on an Amex charge product, you can time your purchases to give yourself up to 55 days to pay your bill without accruing interest.

How do interest-free days work?

To take advantage of the full 55 interest-free days, use the first day of your statement period or billing cycle to make your purchases. Then pay the bill in full by the due date on that month's statement.

If you make a purchase on April 1 and have a 30-day billing cycle, you'll receive that statement on April 30. The bill will be due on May 24. Pay the balance in full on that date to avoid interest charges, and you'll have 55 days between making the purchase and paying for it.

Avoid these interest-free pitfalls

Be sure to read the fine print before you use interest-free days to maximize your cash flow. Interest-free days do not apply if you carry a balance on your credit card from month to month. You will continue paying interest on the previous months' purchases, as well as any new purchases you make.

Some transactions, including balance transfers from other credit cards and cash advances, may be charged interest from the first day of the transaction. If you use your card for a cash advance or balance transfer, any other purchases on the card that month will also accrue interest.

Enjoy all the benefits of interest-free days

If you make it a rule to take care of all accounts payable on the first day of your billing cycle, interest-free days can help you effectively manage cash flow. You can also maximize any credit card rewards you earn when you pay attention to interest-free days because interest charges won't erode your rewards earnings. Then, your accounts payable actually become a revenue source, as you cash in your credit card rewards to pay for key costs such as business travel, office supplies, or meals with clients.

Taking more time to pay your vendors without interest and enjoying the maximum value of your credit card rewards can help free up cash to invest in your business for faster, more consistent revenue growth.