Business cards are an excellent way to build what many may call as a permanent working capital at an interest free rate.
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The first step to your business card is credit limit determination. This works the same as your personal credit assessment only that it has a little more business data. A typical assessment will require your financial statements, bank statements, credit bureau report of your directors and shareholders and their notice of assessments. Credit limits are typically 3x of your monthly cashflow and can go up to S$500,000
Once you got your credit limit determined, you are now able spend off the credit of the card issuer. However, it is to note that this only applies to “cardable” expenses. These are usually for online spends such as digital marketing, travel bookings, transportation and even some phone and utility payments. Monthly expenses as such can sometimes reach up to $100,000 for some businesses.
Here’s the most important part. Understanding your statement and due dates are key to helping you time your expenses and leverage on interest-free working capital for your businesses. See below diagram for better illustration.
With a $100,000 credit limit, an SME spends $45,000 on the 14 Mar 22, which is one day after the statement date. This is the best scenario where it is the furthest from the statement date. Therefore, it is most optimal for businesses to spend as earlier on as possible to leverage on a longer interest-free credit period (up to 30 days)
On the 13 Apr 22, the statement will be billed for transactions made from 14 Mar 22 to 13 Apr 22. Any transaction made after the statement date will be billed only in the next statement 13 May 22. Thus, the SME can still make another $45,000 transaction on the 14 Apr 22 with the raining credit limit.
With the due date on the 7 Apr 22, it gives the SME an additional 24-25 days of interest-free credit from the statement date.
Based on the above, this means that not only will the SME get a total of 54 days of interest-free credit, but if he only uses half of his credit limit each time, he is able to achieve what many call permanent working capital (in this case S$45,000). See table below.
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