Illustration of credit cards and presentation board

Just like in any other industry, credit card companies bombard construction businesses with offers. From zero-percent financing, to balance transfer and industry-specific rewards programs, these offers often seem great. While credit cards might be enticing, how construction companies should use credit cards doesn’t always jive with the offers.

If a construction business uses credit cards properly, they can be tremendously beneficial — game-changing, even. Credit cards can improve cash flow, buffer lean times, and provide benefits like points and cashback. So, if you’re wondering how construction businesses should use credit cards, kick back and keep reading.

Are credit cards “good” for construction companies?

Here’s the thing about the construction industry: It’s pretty old-school. For that reason, many company owners might be wary about using credit cards. While owners are right to question any significant financial decision, credit cards aren’t necessarily the root of all evil society sometimes makes them out to be. 

Credit cards can be great for construction companies. They can help fund expansions and new jobs. Some cards offer cashback or points for purchases that businesses are already making. Some offer promotional rates as low as zero percent, which is obviously even less than you’d get on a personal loan from a bank. 

Any of those reasons might be compelling enough to open a new business credit card. 

That’s not to say that credit card companies are angel investors. They’re banking on you building up and carrying a balance each month — and they expect to collect interest on that balance. 

Paying interest isn’t necessarily a bad thing. It’s actually fine if you factored that interest into your financial estimate. But if you didn’t factor it in, the interest rate will take sizable bites out of your profit every month. 

Read more about construction business financing options: Contractor Loans & Financing Options: The Pros & Cons for Construction Businesses

7 tips for construction contractors to best use credit cards

There’s more to using credit cards than paying off your balance every month. The following tips will paint a better picture of how and when to use credit cards wisely to grow or sustain your business.

1. Don’t spend money you don’t have

When it comes to credit cards — business or personal — this is the golden rule to follow. Credit cards can help extend your buying power, but construction companies will be wise to use them for money they’re already spending. 

Hopefully, you can already afford your overhead each month. If that’s the case, you can use a credit card to earn points, rewards, discounts, or cash back for those purchases. Simply use the credit card to make the purchase and then pay the balance off with the cash in your account. 

What about floating jobs, you ask? If your customer won’t agree to a down payment, you can use a credit card for materials to get the job off the ground.

But a word of caution: Don’t spend a dime without a signed contract. Most states require a contract to leverage your lien rights, which means you could be stuck with a large credit card bill and no recourse if you don’t play your “cards” right.

2. Factor interest charge into your estimate

If number one was the golden rule, consider this one silver. If you’re using a credit card, you need to factor the interest you’ll be paying into your project estimate. This is a point many small or new contractors overlook — and it’s hindering their growth.

Maximizing your profit should always be the goal, but cash flow and profit are two different things. If you don’t factor interest into the estimate, the job becomes less and less profitable each month, regardless of progress payments coming in.

If you are factoring the interest into your estimate, using a credit card won’t have any negative bearing on your profitability. On the contrary, you might get discount rates at some retailers like Lowe’s and Home Depot, which could actually increase your profit margin.

3. Plan out your credit card use according to the payment schedule

If you really want to leverage your credit card usage, you’ll plan it according to the payment schedule. It takes some careful planning, though.

Most credit card companies offer a grace period between 21 and 25 days when purchases will not accrue interest. This grace period occurs from the day your monthly statement comes out to the day your payment is due.

If you’re looking to avoid interest, you’ll want to make purchases and pay them off entirely within that window. To pay them off completely, you’ll probably need the cash from your payments. By simple math, your payment date is likely to fall within your grace period, so be sure to use it and wipe the credit slate clean.

4. Reap the benefits

No one likes to pay interest, but there are times when using a credit card simply makes more sense than using cash.

Many credit card companies offer promotional rates when you first open a card. These rates are often zero percent for the first few months. If you have a zero percent offer, it might make sense to purchase materials or equipment with it. You’ll be able to bank the cash each month, possibly accruing positive interest, and pay off the entire balance before the promotion wears off.

You might also be able to get discounts at specific retailers. Opening a business credit card with Lowe’s, for example, entitles you to a 5 percent discount on every purchase. That can lead to significant savings over the course of an entire project. Just be sure to pay the balance off within the grace period, or you can kiss that discount goodbye after your first interest accrual.

Some cards offer points or cashback on specific purchases that you’re already making. For example, there are cards that offer 5 percent cash back or 5x points on marketing costs. You’re already paying for marketing services so you might as well earn points or money back for them. There are cards that offer the same deals for cell phone service, internet service, and office supplies.

5. Transfer the balance

Sure, if you follow the golden rule of credit card usage, you won’t have a balance to transfer, but we’re realists. Things happen. Problem-laden jobs or difficult customers could be holding up your payments. It’s not always possible to pay off a balance in 25 days or within the promotional period.

If you’re facing an interest rate that’s going to tear your profit margin apart, you might consider opening another card and transferring your balances to it. You can often receive promotional interest rates as low as zero percent for a few months, which could be just enough time to get your cash flow under control and pay off your balance.

6. Protect your lien rights

If you follow no other rule on this list, follow this one: If you’re putting materials, overhead, or other expenses on a credit card, you need to protect the payment that’s going to cover them. 

The first step to protecting your payments is to send a preliminary notice on every project. In many states, a preliminary notice preserves your lien rights. But, they can also serve as a paper introduction to the people cutting the checks.

Hopefully, they’ll recognize that you know your rights and you’re serious about getting paid. They’ll be sure to cut checks on time, and if you plan it right, you can pay off the credit card balance before the interest accrues.

7. File a mechanics lien to get paid (and get your balance paid off)

When you’re carrying a credit card balance, time is of the essence. Compound interest accrues every day that you’re carrying a balance, so slow payments can be killer on your bottom line.

Filing a mechanics lien is the best way to speed up the amount of time it takes to get paid. While the lien is on the property, it’s far less liquid and the owner could struggle to secure more financing. Filing a lien will help put the cash you need in your hands so you can pay off your credit card balances and free yourself from compound interest.

Want to know more about which credit card you should choose? Check out 8 Credit Cards for Contractors to Earn Rewards They Actually Want.

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