As a business owner, you may have heard the term “riding the float” in reference to your credit card debt—and you subsequently may have heard that it’s risky business. But what does it mean, exactly, and is it all bad? Here, we break down some of the benefits of riding the float as a small business owner, and how you can be more strategic with how you put credit to work for your business.
What is credit card float?
First things first, credit card float is the time period—usually 40-60 days—after a credit card purchase when the amount of the purchase is not yet accruing any interest. The vast majority of credit card issuers, for individuals and businesses, provide a grace period to pay a credit card bill. Pay the bill in full within the grace period—every time—and enjoy a 0% interest rate during the float period.
“Riding the float” is generally considered risky, but that’s only if you don’t have enough cash to cover today’s expenses plus your upcoming credit card bill. Using a credit card’s float period can be advantageous for business owners when approached with a thoughtful plan.
If that sounds like a no-brainer, then keep reading to learn more about using credit card float to your business’s advantage. Find out about the benefits and risks of leveraging a credit card’s float period.
Benefits of using credit card float
Do you use a credit card for your business? Do you pay the balance immediately after getting the bill? If you are a business owner in a strong cash position, then you can consider the benefits of using credit card float to further strengthen your cash holdings.
Here are some benefits of not paying a credit card bill until the end of the float period:
- Profits come in before expenses go out: As the saying goes, you need to spend money to make money. But you can use a credit card’s float period to hold off on paying those initial business expenses until after the revenue for the product is collected.
- Better cash position to deal with emergencies: If calamity strikes your business, how many days could the business survive with no income? By holding onto cash until the end of a credit card’s float period, your business maintains a stronger cash position that could be crucial in an emergency.
Using a credit card for business purposes can have many benefits, and maximizing the float period can be another way to derive business value from credit providers.
Why is “riding the float” considered risky?
No doubt, it can be financially risky to “ride” your credit card float. What if the bill comes due and you don’t have enough cash to pay it in full? Or you might have enough cash to pay the bill, but not enough money to also pay your current month’s expenses.
Proper planning is required to ride credit card float correctly. Business owners who purposely postpone paying a credit card bill risk spending the funds twice, effectively, since during the float period the money is still in your bank account but has already been spent on last month’s expenses. If you treat the money due to a credit provider as still freely available for use, then you’re not using this month’s income to pay for this month’s expenses. Whoops.
Business owners need to understand all the risks of using credit card float, and plan their cash flows accordingly.
Should you leverage the credit card float
Here’s a test to determine if you should leverage your credit card’s float period: Can you pay your credit card bill in full right now and pay all of your current expenses? If the answer is yes, then you can strongly consider using credit card float. If the answer is no, then you’ve got debt, and may need to focus on strengthening your financial position and cash flow before leveraging any float period.
As a business owner, your goal should be to operate using the money you made last month. And if you can responsibly hold off on paying your expenses until next month, with 0% interest, then that’s a power move. Using credit card float could put your business a step ahead—so long as you’re already starting off on good footing when you decide to leverage it.