Both business credit cards and business charge cards allow you to postpone payments until well after the end of the monthly billing cycle. This means that you can usually get 44-55 days of free credit on your business purchases, depending on the terms applicable to the card you choose. This is much more beneficial than paying with cash, cheque, EFT or BPAY, because the cash resources of your business stay in your bank account for longer, potentially earning interest or reducing interest expense. It’s even preferable to negotiating credit terms with your suppliers, who may want to be paid within seven days and rarely grant more than 30 days credit before they start getting impatient.
You can achieve maximum benefit for your cash flow by arranging with your suppliers to have deliveries – and payments – made at the very beginning of the monthly billing cycle for your card. (Suppliers will probably jump at the chance of prompt payment, even though they will have to pay a merchant fee for accepting your card.) Alternatively, ask your card issuer to set your monthly billing cycle to begin on the day your suppliers normally expect to be paid.
Business credit cards have the additional feature of allowing you to postpone full repayment of your account balance in any month when your business finances are tight. Provided you are still within your credit limit and are prepared to pay interest charges of up to 20% p.a. (or possibly more) for a short period, you can smooth out the bumps in your cash flow.
Business charge cards don’t have this feature, requiring full repayment of the account balance every month. However, they do have the additional benefit of having no fixed credit limit. This does not mean unlimited credit – your card provider will have an implied limit recorded on your file based on your payment history, credit records and spending patterns – but it does provide more flexibility, especially if you discuss your fluctuating credit requirement pattern with your card account manager.
