Just like in any other industry, credit card companies bombard construction businesses with offers. From zero-percent financing, to balance transfer and industry-specific rewards programs, these offers often seem to be great. While bank cards might be enticing, how building companies should use credit cards doesn’t always jive with the offers.
If a construction business uses credit cards properly, they are often tremendously beneficial – game-changing, even. Credit cards can improve cash flow, buffer lean times, and provide benefits like points and cashback. So, if you’re wondering how construction businesses should use credit cards, relax and keep reading.
Are credit cards “good” for construction companies?
Here’s the thing about the construction industry: It’s pretty old-school. For that reason, many company owners might be wary about using bank cards. While owners are right to question any significant financial decision, bank cards aren’t necessarily the fundamental of most evil society sometimes makes them out to be.
construction credit card can be great for construction companies. They are able to help fund expansions and new jobs. Some cards offer cashback or points for purchases that companies are already making. Some offer promotional rates just zero percent, which is actually even below you’d jump on a personal loan from a bank.
Any of those reasons might be compelling enough to open a new business visa or mastercard.
That’s not to say that credit card companies are angel investors. They’re banking you developing and carrying a balance each month – and they be prepared to collect interest on that balance.
Paying interest isn’t necessarily an awful thing. It’s actually fine if you factored that interest into your financial estimate. But if you didn’t factor it in, the interest rate will take sizable bites out of your profit on a monthly basis.
tips for construction contractors to best use bank cards
There’s more to using credit cards than paying down balance every month. The following tips will paint an improved picture of how and when to make use of credit cards wisely to grow or sustain your business.
1. Don’t spend money you don’t have
When it comes to credit cards – business or personal – this is the golden rule to check out. Credit cards can help extend your buying power, but construction companies will be wise to rely on them for money they’re already spending.
Hopefully, you can already afford your overhead each month. If that’s the truth, you can use a credit card to earn points, rewards, discounts, or cash return for those purchases. Simply use the visa or mastercard to make the purchase and then pay the balance off with the cash in your account.
What about floating jobs, you ask? If your customer won’t consent to a down payment, you can use credit cards for materials to get the work off the ground.
But a word of caution: Don’t spend a dime with out a signed contract. Most states need a long term contract to leverage your lien rights, therefore you could be stuck with a big credit card bill and no recourse if you don’t play your “cards” right.
2. Factor interest charge into the estimate
If number one was the golden rule, think about this one silver. If you’re by using a credit card, you will need to factor the interest you’ll be paying into your project estimate. That is a point many small or new contractors overlook – and it’s hindering their growth.
Maximizing your profit should be the goal, but cash flow and benefit are two different things. If you don’t factor interest into the estimate, the job becomes less and less profitable each month, no matter progress payments to arrive.
If you are factoring the interest into the estimate, by using a credit card won’t have any negative bearing on your profitability. On the other hand, you can find discount rates at some retailers like Lowe’s and Home Depot, that could actually boost your profit margin.
3. Plan out your credit-based card use in line with the payment schedule
If you really want to leverage your credit card usage, you’ll plan it in line with the payment schedule. It requires some careful planning, though.
Most credit card companies give you a grace period between 21 and 25 days when purchases won’t accrue interest. This sophistication period occurs from your day your monthly statement comes out to the day your payment arrives.
If you’re looking to avoid interest, you’ll want to buy things and pay them off completely within that window. To pay them off completely, you’ll probably need the money from your payments. By simple math, your payment date is likely to fall within your grace period, so make certain to put it to use and wipe the credit slate clean.
4. Reap the benefits
No one likes to pay interest, but there are times when using a mastercard simply makes more sense than using cash.
Many credit card companies offer promotional rates when you first open a card. These rates are often zero percent for the first couple of months. Assuming you have a zero percent offer, it could make sense to acquire materials or equipment with it. You’ll be able to bank the cash each month, possibly accruing positive interest, and pay back the complete balance prior to the promotion wears off.
You might also be able to get discounts at specific retailers. Opening a small business credit card with Lowe’s, for example, entitles you to a 5 percent discount on every purchase. That may lead to significant savings over the course of an entire project. Just make certain to pay the total amount off within the grace period, or you can kiss that discount goodbye after your first interest accrual.
Some cards offer points or cashback on specific purchases that you’re already making. For example, there are cards that offer 5 percent cash return or 5x points on marketing costs. You’re already paying for marketing services so you might as well earn points or cash back for them. There are cards that provide the same deals for mobile phone service, internet service, and office supplies.
5. Transfer the balance
Sure, if you follow the golden rule of credit card usage, you won’t have a balance to transfer, but we’re realists. Things happen. Problem-laden jobs or difficult customers could be supporting your repayments. It’s not always possible to pay off a balance in 25 days or within the promotional period.
If you’re facing an interest rate that’s going to tear your profit margin apart, you may consider opening another card and transferring your balances to it. You could often receive promotional interest rates as low as zero percent for a couple of months, that could be just enough time to get those cash flow under control and pay off your balance.
6. Protect your lien rights
If you follow no other rule on this list, follow that one: If you’re putting materials, overhead, or other expenses on a debit card, you need to safeguard the payment that’s going to cover them.
The first step to protecting your payments is to send an initial notice on every project. In many states, a preliminary notice preserves your lien rights. But, they can also serve as a paper introduction to the people cutting the checks.
Hopefully, they’ll recognize you know your rights and you’re serious about getting paid. They’ll be certain to cut checks promptly, and if you plan it right, you can pay off the charge card balance prior to the interest accrues.
7. File a mechanics lien to receives a commission (and make your balance paid off)
When you’re carrying a debit card balance, time is of the essence. Compound interest accrues every day that you’re carrying an equilibrium, so slow payments can be killer on your bottom line.
Filing a mechanics lien is the best way to speed up the amount of time you will need to get paid. While the lien is on the property, it’s far less liquid and the owner could find it difficult to secure more financing. Filing a lien will help put the cash you need in the hands so you can pay off your credit card balances and free yourself from compound interest.