Business credit cards often come with a lot of perks, but the best one has nothing to do with rewards, expense tracking, or even business-related services.
No, the best credit card perk for business owners is a card’s grace period. Not only does it give business owners time to float expenses but it can also help them avoid paying interest on their purchases.
What is a grace period?
Your credit card grace period is the period between your statement date and your due date. During this time, you can pay off your balance without any interest. Among the best business credit cards, you’ll typically get a grace period of 20 to 25 days after each billing cycle ends.
Credit card issuers aren’t required by law to provide a grace period, but most do. So, if you’re in the market for a new credit card, check the fine print to make sure it gives you plenty of time to pay off your monthly balance interest-free. If you’re looking for a card with certain benefits, Nav can help you find the best cards for your business.
Your grace period is typically in force as long as you pay off your balance on time and in full each month. If you carry a balance one month, you may lose the grace period for that month plus the next one.
Why a grace period is the best business credit card perk
A grace period isn’t as sexy as a big sign-up bonus or travel rewards, but it can make a big difference for your business every month. Here are three ways.
1. It gives you extra flexibility
A grace period allows you to float business expenses for up to almost two months, giving you plenty of time to pay them off. If your business cash flow is healthy, you might not need the float.
But if your cash flow is irregular or you’ve run into some temporary money problems, that extra time can feel like a godsend.
2. It helps you plan
Once you know your credit card’s grace period, you know exactly how long you have to pay your bill each month.
For example, let’s say your billing cycle ends on January 31 and your grace period is 23 days. This information can help with your cash flow planning for the upcoming month to ensure that you make your credit card and all other payments on time.
And if you are experiencing issues with your cash flow, it can help you prioritize which payments to make on time.
3. It saves you money
The average interest rate on a credit card is 15.54%, according to Federal Reserve data for the second quarter of 2018.
As a business owner, your ultimate goal is to maximize your profits. If you’re paying interest on every purchase you make on your credit card like you would if you were to use a business loan for capital, those costs would eat directly into your bottom line.
Of course, it may still be a good idea to use a business loan on larger capital needs, especially if you need to pay off the debt over time and qualify for a relatively low interest rate.
But for smaller capital needs and operational expenses, a business credit can provide you with the credit you need while allowing you to pay it off interest-free.
When the grace period doesn’t apply
Business credit card issuers vary in how they treat their grace period, so you might run into some limitations with some issuers that you won’t find with others.
For example, you may not get a grace period for cash advances or balance transfers. So, if you use these features on your business credit card, interest might start accruing from the date of the transaction.
Depending on the card issuer, you may even lose your grace period on purchases if you miss a payment or don’t pay at least the minimum amount due.
In other words, always pay your balance on time and in full to keep your grace period and avoid interest.
The bottom line
Business credit cards are a versatile form of credit, and it’s worth it to maximize all of their benefits. But as you consider whether or not to use one, don’t forget the flexibility and cost-savings that you can get from a credit card grace period.
Depending on how often you use the card and whether you make payments on time and in full each month, you could save hundreds of dollars each year — if not thousands — in interest.
This article was originally written on September 21, 2018 and updated on September 9, 2022.