In my article How to Add Low-Effort, Bottom-Line Value, I shared an overview of a recent study we commissioned by Accenture to learn more about how certain business owners were adding value to their companies’ bottom lines by simply using their OPEN Charge Cards.1 By charging most of their expenses and taking advantage of the system of OPEN Savings, the Membership Rewards program, and OPEN expense management tools, these “best-in-class” companies were able to save time and money and improve cash flow.
With this article, I’d like to provide more information on just how you, too, may be able to improve cash flow for following their example.
These best-in-class companies take two steps to maximize their cash flow:
- They fully leverage their purchasing power with the OPEN system
- They manage the timing between when they make their purchases and when final payment is due for those purchases, thus having time in between to earn income before having to pay their bill.
For example, by charging purchases, you can hold off on payment and hold on to cash about 25 days longer than with cash or check. Plus, if you time your purchases at the beginning of the billing cycle, you could get nearly two months of time between purchase and payment. Let’s say Company ACE charges $25,000 a month on their OPEN Card. By doing that instead of using an alternative line of credit – at let’s say a 10 percent annual percentage rate – Company ACE can avoid $2,500 in interest charges.3 Or, if ACE is not cash-constrained, the $25,000 can earn significant savings on early payment discounts with a vendor.
As another example, Karen Helburn, founder of Just Hatched, told us, “I use my Plum Card to pay for one large inventory purchase with one particular vendor. I defer that payment a whole extra payment period to have time to sell the products and accumulate some additional cash.” She then turns that freed up cash into bottom-line value by paying off other vendors. “I have certain vendors where if I pre-pay with check, it’s an extra 5 percent, sometimes even more, 8 percent! With OPEN, I free up extra cash so I can take advantage of my vendors’ offers.”
The study provides additional information and best practices for how a small business can improve cash flow and capture up to $15,000 in value for their bottom line. I hope as you read through the study, you’ll think of ways you can adopt these practices and boost the bottom line for your own company. If you use any of these or other strategies, I invite you to share your story with me at firstname.lastname@example.org. Your experience may provide valuable insights to other entrepreneurs.
Download your complimentary copy of “How High-Performing Businesses Boost the Bottom Line through American Express Business Cards.”
1Based on actual customer data obtained by Accenture in March 2010 via research of OPEN Charge Cardmembers. The Study, consisting of interviews and surveys involving over 135 U.S. firms using an OPEN Charge Card – ranging in size from 1 to over 100 employees and in revenues from $200,000 to over $20 million a year –shows that small businesses can derive substantial value by using the OPEN system.
2Based on American Express proprietary data compared to small business credit card data from major banks as reported in The Argus Small Business Study, September 2009. Spend capacity is determined individually based on your payment history, credit record and financial resources known to us, and other factors.
3 Interest rate based on average 5-year prime average of 6% plus 4% premium reflecting medium risk profile.