4 Benefits of Using a Charge Card for Your Construction Business

Running a construction business takes a lot of upfront cash since the typical contractor has to invest in equipment before they can secure a project. Then as you win bids, you'll have to pay for additional project materials and supplies.

And all of these purchases happen weeks before you ever receive your first payment. All of this puts a significant strain on your business’s cash conversion cycle. That’s why most contractors can benefit from putting these expenses on a 30-day charge card.

Unlike a debit card, a business charge card lets you delay your payments for up to 30 days. This flexibility can help improve cash flow and make it easier to keep track of expenses.

Cash Conversion Cycle: Length of time it takes to convert inventory into cash for your business. See more here.

What is a Charge Card?

A charge card is a payment method that allows you to delay cash outflows by giving you a specified amount of time (typically 15 to 30 days) between the day you make a business expense and the day you need to repay the card. All without any interest payments.

Cash outflows: Any money leaving the business. Most important are the expenses, inventory and other items you spend cash for, and do not expecting cash in immediately.

Charge cards often come with higher spending limits and generous rewards for members. For instance, members can earn travel rewards or cashback for their purchases. And you’ll receive fraud protection on all your expenses.

You can only apply for a charge card with a limited number of issuers. And some lenders do require that you have a good business (not personal) credit score to qualify, though the exact requirements will vary.

One thing to keep in mind is that you’ll get hit with stiff penalties if you miss a monthly payment. Plus, missed payments are reported to the credit bureaus and can impact your business credit score.

Overall, a business charge card is a great way to manage short-term cash flow. And you’ll avoid the hefty interest charges that come with a credit card.

Charge Card vs. Credit Card

People sometimes use the terms “charge card” and “credit card” interchangeably, but they aren’t the same thing. A charge card requires you to pay your balance in full at the end of the month.

In comparison, credit cards only come with minimum payment requirements at the end of the month. Some people like credit cards because it allows them to carry a balance from month to month.

However, a credit card comes with hefty interest charges for this convenience — according to data from the Federal Reserve, the average credit card rate was 15.91% in 2021.  

Charge Card vs. Debit Card

Unlike a charge card, a debit card links to a bank account with money already in it. For instance, you probably have your debit card linked to your business bank account. That means the money you spend will come out of your account immediately, and you can’t spend beyond what’s in your account.

Since a debit card doesn’t allow you to delay your payments, this can end up causing cash flow problems for your contracting business.

4 Benefits of a Charge Card for Contractors

For contractors looking for a way to fund projects and improve their cash conversion cycle, charge cards offer unique benefits over credit and debit cards. Let’s look at four benefits of a charge card for contractors.

Free up cash flow

Most contractors experience a gap between when a project begins and when they actually receive their first payment from the customer. If you don’t have a way to navigate this gap, your business could experience cash flow problems.

With a charge card, you can fund your project and delay payment on these expenses for 30 days. And charge cards typically come with higher pre-set spending limits, so you might be able to use them for a larger equipment purchase.

Avoid paying interest

Unlike credit cards, charge cards don’t come with hefty interest payments. A charge card lets you borrow money interest-free as long as you pay off your balance each month.

In comparison, the average credit card comes with an APR above 15%. Given that construction margins are often 10% or less, carrying a balance on a credit card could make your business unprofitable.  

Accelerate business growth

If you solely rely on debit cards to make purchases for your business, then you’re limited by what’s currently available in your account. That means you could have to turn down bigger projects because you don’t have the cash flow available to fund them.

That’s why charge cards are a great way to manage your finances and accelerate business growth. You can take on those larger projects with a charge card because you can delay payment for 30 days.

And one of the most overlooked advantages of charge cards is that you can earn rewards on your purchases. You could earn generous travel, cashback, and rewards points for your purchases. These rewards can add up quickly if you regularly purchase expensive equipment and other project materials.

Improve your business credit score

When you use a charge card, you’re building payment and trade credit, which will improve your business credit score. And unlike credit cards, large purchases won’t hurt your credit since they don't affect your credit utilization rate.

Your business credit score measures the creditworthiness of your business. A good credit score makes it easier to qualify for a business loan and secure the lowest interest rates. You can read more about business credit scores here.

Plus, other companies may look at your business credit score when deciding whether or not to do business with you. A good credit score could help you get bigger commercial projects in the future.

The Bottom Line

For too many contractors, business growth doesn’t feel very feasible. Either you have to sacrifice cash flow to fund customer projects or rely on expensive, high-interest credit cards or small-business loans. Using a business charge card gets you away from all of that.

A business charge card is a flexible form of financing and a great way to manage your construction business. Using a charge card can help you improve your cash conversion cycle, take on those bigger projects, and begin to see real growth in your business.

And when you apply for a charge card with Toolbox, you won’t have to give a personal guarantee or go through a lengthy sign-up process. Toolbox charge cards are built specifically for contractors and have rewards targeted at construction, maintenance and repair businesses.