When in doubt, watch what the big dogs do.
And feel free to shamelessly copy their behavior.
In business, the rule is simplicity itself: Maximize every opportunity to accelerate receivables, while lagging accounts payable to the outer limits of sloth and late payment penalty.
When we submit payment to financial institutions, they deposit the funds on the same date received. But when we make payments to individuals and small merchants, I’ve noticed they lag cashing in these deposits, sometimes as long as 45-60 days.
This is inexplicable. Money has utility, and even earns its keep in a wide variety of interest bearing accounts. This would be like dragging a dead weight behind you all day. It proves your stoicism, but calls into question your alertness and alacrity.
You can also squeeze out efficiencies on the other side of the ledger, dealing with your recurring accounts payable. Our decision tree works like this…
1. Any payable that qualifies will be processed on a credit card.
This gives you a built in lag that bankers call float. You earn interest on the funds until paid, and there is generally a 20-40 day lag between the date a charge is placed on your card and when actual payment is due.
There is a double bonus for consistent, on time payment in full. Your FICO score goes up, and your banked air miles are invaluable for emergency, unexpected travel.
We earn a free round trip for every $15,000 in charges, and just this year cashed in two rewards on just 2 days notice. The out of pocket costs would have been over $1,000.
2. Any payable that does not qualify for credit card processing should be paid via on-line bank transfer, at the latest possible penalty free date.
The best example would be the credit card balance you run up each month. There will be usually a 12-20 day window when payment is due after your receipt of the bill. To ensure payment on time, at the last possible date, you simply enter the future payment date and submit online.
Keep your funds in a high yielding money market fund and transfer into checking a day or so before your advance payment is processed.
3. Only as a last resort do you pay via paper check and snail mail.
Let’s do the math. You should have free checking and not be charged for printing of checks. But you must pay 42 cents postage. Not much. Just $5.04 per year per monthly recurring payment.
Watch as these tiny rivulets gather into a mighty stream.
Assume you have 15 recurring vendors to pay monthly, and as a Luddite you avoid online payment. The postage is $75.60 per year. Now assume postal rates increase with inflation at say, 3%.
In ten years you will be running up a tab of $101.60 per year. Not counting the inevitable adverse float for payments made prior to the final due date.
You may righteously protest that your time is too valuable to worry over such a small sum. And you are wise to place a value on your precious time.
But payment online is not only less expensive…it is much quicker once you have initialized the setup. Just a few keystrokes and you are home free.
This all goes back to a concept I had earlier introduced called money consciousness.
Once you start thinking of yourself as You, Inc., you will search out all the economies and savings at your disposal.
Money for nothing.