Key Takeaways

• Business credit cards offer the ability to buy now and pay later, which can improve business cash flow.
• Many cards also offer the option to pay in full to avoid interest, or carry a balance over time and pay interest. 
• Statement balances, current balances and utilization can affect business credit and/or personal credit scores. 

“I’m a big proponent of credit cards for my businesses,” says entrepreneur Brooks Conkle. “For one, using a credit company adds a layer of safety to our purchases,” he says. 

In addition to convenience, he appreciates the rewards he earns. But he’s careful to avoid debt. “We set up our cards on auto-pay to pay off the statement balances in full each month,” he explains. “This allows us to reap the benefits of points and cash back but not incur high-interest expenses.”  

Why SMBs Need To Understand the Mechanics of Credit Card Balances

If, like Conkle, you like the idea of using credit cards to pay for business expenses, you’ll also want to understand how balances and payments work. 

Understanding what to pay when can help you maximize working capital and cash flow while avoiding interest charges (or not, depending on your business needs). 

When you pay may also affect your business credit scores (and sometimes even personal credit scores). Paying on time is the number one way to boost business credit scores, but balances can also be important. 

Here we’ll explain how credit card balances work, and how you can use them to your advantage. 

First, you need to understand the differences between the numbers you’ll see listed on your statements. 

What Is Current Balance vs Available Credit

Think of your credit card like a gas tank. The current balance shows how much gas you’ve used, while available credit is how much room is left in the tank. 

If you have a $10,000 credit limit and have an outstanding balance of $3,000, your current balance is $3,000 and available credit is $7,000.

What Is Statement Balance vs Current Balance

These two balances often differ, which causes confusion for many business owners. 

First, here is an example of a credit card statement balance vs current balance on a business credit card payment page:

So here, the cardholder owes a total of $1347.75 at this moment in time. But they can pay the last statement balance of $1226.43, the current balance, or even a minimum payment. 

Let’s detail how this works. 

Current balance

This is the total amount you owe right now, including recently approved purchases that may not appear on a statement yet. It updates in real-time as you make purchases and payments.

Statement balance

This is a snapshot of your balance on the last day of your billing cycle, also called the statement closing date. (The billing cycle  is the period between your credit card statements, typically around 30 days. It includes all transactions made during that time frame.) 

When you get your monthly statement, the statement balance will be listed, usually as “new balance” on your credit card bill. 

Available credit

This amount represents how much more you can spend on your card. It’s calculated by subtracting your current balance from your credit limit. New charges that you’ve made but that haven’t yet been posted to your statement are usually referred to as pending charges, and they can reduce your available credit.

When Should You Pay

Many business owners try to pay in full to avoid running up credit card debt and the interest charges that result. If your credit card account offers a grace period, you should be able to avoid interest charges by paying the statement balance before the due date. (Check your cardholder agreement or talk to your card issuer to confirm.) 

But there may be times when you want to pay sooner than the due date:

Your credit utilization is getting high

The credit utilization ratio compares the balance reported to the credit bureau against the credit limit. 

Let’s say you have a credit limit of $1000 and your balance is $3500. In that case, you are using 35% of your available credit. 

While there’s no specific credit utilization rate you must stay below to have good credit scores, but FICO does note that consumers with the best credit scores tend to have very low utilization of less than 10% of their available credit, on average. 

Someone with a long established credit history of on time payments may find that a higher utilization is not a problem, while consumers who are new to credit (often called “thin files”) may find they need to keep their debt utilization on the lower side to maintain their good credit scores.

Business credit cards often report to business credit bureaus, so they offer a great way to establish business credit. But credit utilization can affect credit scores. (It’s a factor in some business credit scores, though not all.) Keep an eye on credit utilization to see whether it is affecting your credit scores. If so, you may need to pay sooner. 

You need to free up available credit for upcoming expenses

Let’s say you only have $2000 in available credit, but you want to make a larger purchase on your credit card. Perhaps you want to charge it to earn cash back or reward points (including a welcome bonus), or you want to take advantage of a low-rate balance transfer to pay that purchase off over time. 

Either way, you may want to pay down your balance to make room for that purchase. (You can also try calling your credit card company to find out whether they will give you a credit limit increase.) 

You need to apply for a loan

If credit utilization is negatively affecting your credit scores, or if your debt-to-income ratio is high, you may want to pay down that balance before you apply for a small business loan. 

When Should You Hold

You may have strategic reasons to hold a balance until the due date. (Always pay at least the minimum due before the due date to avoid late payments and/or late fees). These may include:

Maximizing cash flow for immediate business needs

Small business owners run into cash flow crunches all the time. Whether it’s a client that pays late, expenses that are higher than expected, a slump in sales, or even just the seasonal nature of many businesses, you may find that you need to keep cash on hand for immediate needs. 

With most credit cards offering an underlying line of credit, you can tap that credit as needed during cash flow shortages. Just pay attention to the cost: your card may have a higher interest rate than other types of small business loans or financing. 

Taking advantage of the interest-free grace period

Most business credit cards offer a grace period. (Business charge cards, on the other hand, typically require payment in full, either daily or monthly. And business debit cards will withdraw purchases from a linked bank account as they are made.)

This interest-free window typically extends from the end of your billing cycle until your payment due date (usually 21-25 days). When used strategically, you can get up to almost two months worth of interest-free financing on your purchases.

Here’s how:

• Make major purchases early in your billing cycle. A $5,000 equipment purchase on day one of your billing cycle gives you nearly two months before payment is due.
• Time bulk inventory purchases with your cycle start date to maximize your interest-free period.
• Stack grace periods with vendor payment terms. If a supplier offers net-30 terms, use your credit card to pay them on day 30, effectively extending your payment timeline to 85 days. (Note that some vendors may offer a discount for paying early; 2/10 net-30 terms means you get a 2% discount if you pay within 10 days). 

Just remember: this strategy typically only works if you pay your statement balance in full by the due date. Paying even one day late with a payment can wipe out the benefit of the grace period and trigger interest charges.

Get 0% intro APR financing

Some business credit cards offer 0% intro APR financing. With one of these offers, you may be able to make purchases and pay for them several months later without paying interest. These offers can make business credit cards a very attractive option for short-term financing. 

But you must pay your balance in full by the time the intro rate expires to avoid interest charges. Read the terms and conditions carefully so you understand how it works.

Timing payments with accounts receivable

Many businesses strategically align their credit card payments with their accounts receivable cycles. For example, if you purchase inventory with your credit card at the beginning of a billing cycle—let’s use July 1st as an example. Then let’s say your  customers typically pay their invoices within 30 days. You may decide to wait to pay off that credit card balance until the due date (around August 25th). 

This gives your customers time to pay their invoices, which you can then use to pay off your credit card balance, while avoiding interest charges if you pay the statement balance by the due date and your card carries a grace period. This approach effectively lets you use the credit card’s grace period to bridge the gap between when you need to pay suppliers and when you receive payment from customers.

Keeping cash reserves available for emergencies

Again, though, you’ll want to make sure to pay at least the minimum payment by the due date. And if you want to avoid interest charges, you’ll need to pay the full statement balance by the due date. (That’s assuming your card has a grace period: many do.) 

Questions You Might Have

Do I pay the current balance or available credit? 

Pay the statement balance by the due date each month to avoid interest. (Again, if your credit card offers a grace period.) You don’t need to pay the current balance in full, though you can if you want to free up available credit.

Why is my available credit different from my current balance?

Your available credit is your credit limit minus your current balance and any pending charges. For example, with a $10,000 limit and $3,000 current balance, you have $7,000 available. Pending charges of $500 would temporarily reduce available credit to $6,500.

Can I spend my current balance?

No, your current balance (or total balance) represents what you owe your credit card issuer at that moment in time. Your available credit is the credit you have available to spend. Using the earlier example, if you have a $3,000 current balance and $7,000 available credit, you can spend up to $7,000 more on the card.