Cash Flow Management: Credit Cards Can Help You

Credit Cards

If you’re a retailer, you probably already take credit cards for payment and you’re familiar with their benefits. While getting paid immediately with cash or a check generally is the best way to run your business, credit cards may be the next best thing, and encouraging your customers to use credit cards whenever possible is probably a good idea. Why? Here are a few reasons:

  • You get your money (fairly) fast. Although cash is faster ‘” you have it in your hand as soon as your customer takes it out of his or her wallet ‘” credit cards aren’t too far behind, and they’re definitely much faster than those familiar net/30 payment terms. Most card companies will pay you within a couple of days. (If yours doesn’t, find one that does!)
  • Anyone can do it. You don’t have to sell books or computers or auto parts or other goods to accept credit cards. Consultants accept credit cards, public speakers accept credit cards, and Web sites accept credit cards. Heck, by using a service such as PayPal, anyone can accept credit cards.
  • Customers using credit cards tend to spend more per transaction. According to industry statistics, credit card users spend 34 percent more money per transaction than people paying with cash. The more your customers spend, the better your cash flow. And the better your cash flow, the better you’ll sleep at night.

We have just one little bit of bad news about credit cards: You must pay a fee ‘” typically between 2.5 percent and 5.0 percent of the total transaction amount ‘” to the bank or credit card company that carries your merchant account. But considering the advantages of credit cards, they may be just the ticket for improving your cash flow. Before you settle on a company to handle your merchant account, however, be sure to shop around to get the best deal available. And then calculate the equivalent interest rate for the use of credit cards to be sure that they are creating a positive impact on your financial position rather than a negative one.

Miscellaneous Tips

  • Banks have some good cash management systems that enable you to “float” your payments. These can yield up to 5 days of payables.
  • Payroll pay dates can be extended to yield more cash ‘” the exact delay can depend on state law. For example, a biweekly payroll can have a pay date as late as 7 days after the last day in the pay period. Many companies pay faster, but when you’re tight on cash, extending payroll pay dates is a common legal way to wring out a few more days of cash. And don’t allow electronic payment of paychecks ‘” that gives you several more days of float.
  • When your expenses or sales are seasonal, you sometimes can negotiate level payment plans that help manage cash more smoothly.
  • Having your customers wire payments to you instead of using the mail can save days in receivables. Sometimes the use of regional lock boxes ¦ for collections also can save days.

The strategies that follow have long-term or permanent effects.

  • Landlords and others often want a security or other type of deposit ‘” money tied up and not available to you. Negotiate away from these by either having deposits refunded after you’ve established a good payment record or set up a stand-by letter of credit with your bank.
  • Lease or rent equipment whenever you can. Outright purchasing can make a huge dent in your cash flow.
  • Carefully review your federal tax elections with your CPA before you file your first return. Doing so directly affects how soon you must pay your income taxes. When you have long-term contracts or inventories or significant capital equipment, these basic elections can delay the taxes you must pay for years.
  • Use stock or warrants to pay for some critical items with key suppliers.