Credit Card Float Strategy for Business: How to Get 30-45 Extra Days to Pay Bills
Discover how credit card float can give your business up to 45 extra days to pay its bills.
- Key takeaways
- What is credit card float?
- Benefits and risks of credit card float
- How to get "free float" using credit cards
- How to get an additional 45 days to pay your business bills
- What if vendors don't accept card payments?
- How to avoid credit card float
- Striking the balance: make credit card float work for you
- Credit card float FAQs
Key takeaways
- Use credit card float to delay bill payments by up to 45 days and free up working capital before expenses are due.
- Pay any vendor by card with Melio, even those that don’t accept cards, and gain the same interest-free float.
- Avoid the float trap by keeping a cash buffer, tracking expenses, and automating payment reminders.
- Pay your balance in full each month to keep the float interest-free and protect your credit score.
What is credit card float?
Credit card float is the time between when you make a credit card purchase and when the money is actually debited from your account. During that window, the funds stay in your account, spent but not yet paid. They can be used for other things in the meantime, such as more urgent payments.
Imagine you own a plumbing business and your van needs hefty repairs, totaling $1,600. The repairs must happen now, in mid-October, but you only have $1,000 in available cash. You’re expecting a $4,000 payment for a big job you finished last month, but it’s only due to arrive on November 1. So you pay for the van repairs by credit card, leaving your available cash intact, and plan to pay off the credit card bill next month once the $4,000 payment comes in. That’s credit card float.
Benefits and risks of credit card float
Credit card float uses current income to pay off older credit card debts. This can help or hurt, depending on your business’s financial circumstances. Here’s a breakdown of the benefits and risks if you float a credit card balance regularly.
The potential benefits of credit card float
There are plenty of advantages for small business owners to pay with credit cards, including credit card float. Here are several benefits businesses can enjoy:
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Improve cash flow: Credit card float lets businesses delay payments for up to 30 to 45 days, or sometimes a bit longer, freeing up cash before expenses are due.
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Short-term financing: Think of credit card float as interest-free short-term financing, as long as the balance is paid in full by the due date. It can help you manage immediate costs without taking expensive loans.
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Flexibility for purchasing: With credit card float, you can make necessary purchases or investments without needing cash on hand. That gives you far more flexibility in operations.
The risks of credit card float
Credit card float may seem like a saving grace. However, it’s too easy to get stuck in a cycle of paying yesterday’s debts with today’s income. That can make it hard to stay financially healthy. Here’s why:
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Accumulating interest and fees: Relying on credit cards can quickly lead to high interest and fees if the balance isn’t paid in full or on time. This adds strain to your finances.
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Over-reliance on credit: Credit card float can make it seem like your business has more funds than it does. Leaning too hard on credit masks cash flow problems and makes the real picture harder to see. Over time, debt can build up.
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Impact on credit score: Consistently high credit card balances can hurt your credit score. That makes it harder to secure financing in the future and stay stable long term.
How to get “free float” using credit cards
Once you understand credit card billing cycles, you can take advantage of credit card float:
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Billing cycle: Card companies give you about 30 days to make purchases before billing for them.
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Grace period: They also give you at least 21 days to pay, as required by the Credit CARD Act.
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Total: That adds up to about 50 days of “free float” for business purchases made just after a cycle ends.
Why should your business take advantage of “free float”?
If your small business is like most, it probably has around 27 days of cash on hand, according to the JPMorgan Chase Institute. Put another way, if your cash flow suddenly stopped, your business could run out of runway in under a month.
If you’d used “free float” for your business expenses, your business could keep going for an additional 45 days or even longer. When expenses spike in a busy season, cash flow dips, or you’re buying for a big project, credit card float gives you more time to generate the cash to cover them.
How to get an additional 45 days to pay your business bills
You can get up to 45 extra days to pay your business bills by using a credit card’s float. Here’s how it works in practice.
With Melio, you can pay vendor invoices with your credit card now, even if you don’t have the immediate cash, and the vendor receives the payment on time in their preferred method. The card charge isn’t deducted from your bank account for up to 45 days or longer, depending on when you made the payment.
This way, you can earn card rewards and cash back on the payment. At the same time, you leverage credit card float to extend your vendor payment times and improve your cash flow.
What if vendors don’t accept card payments?
Not all vendors accept credit cards, but with Melio you can still pay by card and gain the benefits of credit card float.
Melio processes the card payment on your behalf, then sends the vendor the payment in whatever format they choose, whether that’s a direct deposit or a check. Pay any vendor, including suppliers and utility companies, with a credit card using Melio, and take advantage of “free float.”
You can also use Melio to schedule credit card payments in advance, so you never miss a payment or pay late. That reduces the pitfalls of credit card float, so your business benefits.
How to avoid credit card float
Credit card float is a tool that can be used well or poorly. To get out of it, or avoid it altogether, keep a cash buffer, track your spending, and automate payment reminders.
Keep cash in reserves
Running a business has ups and downs, so keep a buffer for cash flow emergencies. During slow periods, or when an unexpected expense arises, emergency cash means you won’t need to lean as much on credit card float to carry you over.
Watch your expenses closely
Keep a close eye on your bank balance, projected income, and credit card expenses. This makes it easier to spot when you’re falling into the float trap and spending more than you can pay off soon.
Set automated payment alerts
Use a tool like Melio to set up automated alerts and reminders for credit card due dates. That way, you pay on time and prevent rolling balances into the next period. It also helps you avoid the late fees and high interest that build up when float usage gets out of hand.
Striking the balance: make credit card float work for you
To leverage the benefits of credit card float, make sure you have a tool on hand to manage it properly.
With Melio, you can pay your business bills by credit card, ensure each vendor receives their preferred payment method, schedule automated reminders and payments, and track your credit card payments and expenses, all from one easy-to-use platform. These capabilities are what you need to avoid the traps of credit card float while enjoying the benefits for your business.
Sign up for Melio today.
Credit card float FAQs
How long is the credit card float period?
The float period usually lasts up to about 50 days. It starts when you make a purchase and ends on your payment due date, combining your billing cycle with your grace period.
Is credit card float the same as a grace period?
Not quite. The grace period is the time after your statement closes before payment is due. Float is the full stretch from the day you buy something until that due date.
How do I know if I’m riding the float?
Compare your credit card balances to the cash in your account. If you can’t cover your balances today, you’re likely using this month’s income to pay for last month’s spending.
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.
