An Easy Way For Small Business Owners To Save Money

Most small business owners already have a credit card they use for multiple transactions a month but if you don’t it could be costing you hundreds of dollars a year. Even if you already use a credit card you might not be using it to your greatest benefit! In this article I am going to discuss how you will have more money in your pocket each year by paying your vendors on your credit cards.

If you currently pay all of your vendors by check or debit card when you can be paying them by credit card you’re throwing money away.

Extra Cashback

The benefit that likely already has come to your mind is the extra cash back, points, or miles you would receive from your credit card from the extra charges. Don’t underestimate how paying an extra $1000 a month on your credit card over a check can help your bottom line. At $12,000 a year on a 2% cash back rewards card that relates to $240 in missed cash.

In addition, with the extra purchases on your credit card, upgrading to a higher cash back for a set yearly fee could become profitable. You can find many credit cards that offer 1% cash back on all purchases without a yearly fee, but 2% cash back if you’re willing to pay a $60 yearly fee (Capital One’s Spark comes to mind). This becomes an easy upgrade decision with the extra purchases on your card and it usually comes with a higher credit limit. Not only would you be able to double your rewards on your current purchases, it would come at no cost to you because of the additional payments!

Reduced Filing Expenses

Every year, business owners are required to file 1099-Misc forms for combined payments made to all unincorporated vendors over $600–with a few exceptions. One of the exceptions is that payments made via Credit Card or Paypal do not have to be reported each year–the credit card company and Paypal are required to do that work on your behalf. However, you are required to still file 1099-Misc forms for Debit Card and any other payments taken directly from your bank account.

The cost of filing 1099-Misc forms comes out to around $5/person if you use the QuickBooks filing options. This doesn’t include the cost of labor to prepare/verify these forms, the cost of printing and mailing the forms to your vendors and contractors or the time it takes for you to gather each individual’s W9 form.

On that note, don’t let your busy schedule prevent you from getting W9 forms throughout the year before you pay vendors. If your vendor refuses to fill out the form then you are required to withhold 28% of their pay. Failure to do so on your end could make you liable for their unpaid taxes.

Use Intuit Payment Network or Paypal To Pay By Credit Card

Before sending a check or paying by Debit Card, ask your vendor if he accepts payment by Paypal or Credit Card. If he uses QuickBooks, perhaps he has an account on the Intuit Payment Network (IPN); sometimes there will be a link to pay on the invoice. Definitely use either Paypal or the IPN if you have that opportunity as both will let you pay by credit card.

Drawback: Negative Vendor Feedback

In the cases where you can use your credit card, your vendors may not be as happy as you are. For starters, they will undoubtedly receive less than their invoice–the amount the credit card processor or Paypal charges to send the payment. This could be up to 3% of the total transaction and is the reason why some vendors stipulate that they will charge an additional fee if payment is made by credit card. If you have a vendor that has those terms, then do not use a credit card as the extra cost to the vendor is not worth the future savings from using the card.

Most vendors on the other hand (including us), price the credit card processing fees into their rates and consider it a cost of business. We benefit from knowing that you paid your bill on time and the fact that we don’t have to wait 60 days to receive a check. We also don’t have to drive to the bank to cash it and then wait for it to clear before using it. This doesn’t include the extra headache that is created when a check bounces.

For businesses that only receive a few checks a month we recognize the cost of the payment processor actually saves us time each month–time that could be spent working on clients.

If you would like more information on how you can save money as a small business owner or you are interested in any of the other services that we provide, please contact us!