Did you know large companies never pay invoices right away? They don’t even care about the due date. They set a policy telling vendors when they will be paid. While you don’t have as much leverage as a Fortune 500 company, you can manage your cash like one.
The first thing a company does to improve its cash position is to decrease its accounts receivable period. When I was an accounts receivable accountant, we worked with our business customers to decrease the time from when a bill was sent to when we received the payment.
The best way to do this was by encouraging auto-pay from a bank account or credit card (credit cards cost more to process, but give better rewards to the customer. Always pay with a card if you can!)
You can do the same thing. Almost every employer today allows you to pay them through direct deposit. Each payday, the money just shows up in your account. There is no delay from taking it to a bank or hassle of using cash.
If you have a small business, you can take credit cards through an app like Square or an online processor. You can also use your bank’s business tools to accept ACH payments from people’s bank accounts.
Slow Down Your Expenses
I always pay my credit card on payday to match my income to my expenses. I don’t have to do that though. If I am in a crunch, I can pay my credit card on the due date and delay all bills to the due date. By slowing down your payments, you increase your cash on hand and, depending on your account setup, you can even earn interest from leaving the money in your bank account longer.
If you are on auto-pay, it is hard to change the timing of current bills. However, if you are not, you can use your online payment platform to delay credit card payments to the due date and use your bank’s bill pay to hold payments until the last day.
If you are really clever and time it right, you can time a monthly bill to hit your credit card just after your statement cutoff. If you do that, you get a full extra month to pay. Just be careful that you don’t miss any due dates and get stuck paying fees.
Manage Your Cash
If you have a good online bank, you can manage where your cash sits actively. While it probably won’t earn you a whole lot of interest, you can follow a corporate structure to maximize your returns, particularly if you keep a lot of cash on hand.
Large companies use “sweep accounts” to move all of their cash into an interest bearing account each night. If you have a ton of cash in a checking account, you would be better off to move most of it to a savings account to earn more interest.
You only need enough in your checking account to cover your short term expenses. If your bank has a minimum balance on your checking account, you should look at my “best bank accounts” tab for other options that will give you full control of your money.
Use Credit and Loans Wisely
Most big companies carry both short-term and long-term debt to help fuel growth and manage cash flow. You can use a combination of bank loans, lines of credit, mortgages, and credit cards to ensure you have the cash you need.
Whatever debt you use, make sure you fully understand it before you start. Know your interest rates, due dates, fees, penalties, and so on. If you pay your credit card in full every month, you never pay a cent of interest.