If you have a business line of credit, you may be wondering how and when to use it. Also, are you really saving money, or are you paying out too much in interest? We’ll discuss this a bit, in today’s article.
First, let us deal with the issue of interest and incoming invoices. If you have invoices with a Net 30, 2% 60, and 4% 90 agreement, you should be fine, for most lines of credit. What this means is that if a payment is made within 30 days, then they pay you without any late payment penalty.
Since you’ll be paying off your business line of credit within the grace period, and paying nothing in interest yourself, that’s a wash, and it’s fine. 2% in 60 days is approximately 12% a year, so your credit line should be under 10%. The same principle applies to 90-day payments.
One thing to be wary of when making these calculations is how much leverage you have to pay for emergencies when they come up. It makes no sense to use your entire business line of credit to float incoming invoices only to get expensive business cash advances to deal with your own cash flow issues and emergencies.
My suggestion is that, if you find yourself running short of cash, you should convert some of your invoices to cash using a factoring service that will purchase these invoices for 1% to 4% per invoice. This means you’ll lose a bit on the balance between your incoming receipts and their execution, but at least you won’t have to pay double-digit interest for cash advances.
For more information, go to Business Line of Credit at http://www.unsecuredbizloan.com/business-line-of-credit/