How to maximize the money you make from payments

Individuals can use similar methods employed by businesses to monetize payments made to vendors. For individuals that diligently optimize payments the results can generate hundreds, and even thousands, of dollars in extra cash with the same level of budgeted spending.   

How does a business do it?

As you may know, businesses staff professionals who are responsible for paying bill’s from vendors on behalf of the company. This department is called Accounts Payable, or AP. The goal of the AP department is simple:  Manage the payment process as efficiently as possible while following company policies and maintaining strict controls. I spent many years helping these departments, and the financial service providers that support them, optimize payment processes to reduce operational costs. We improved operational tactics by lowering vendor on-boarding and maintenance costs, switching from paper to electronic solutions, and monetizing payment flows.

To monetize payments, businesses typically use the combination of early payment discounting (EPD) and commercial credit cards (CCC). EPD’s are offered by vendors to speed up payment from buyers. For example, a paying  business can take a 2% reduction on the invoiced amount if payment is made in 10 days instead of 30 days, also known as “2% 10 net 30” in AP lingo. Some businesses even take EPD to the next level by offering vendors dynamic discounting opportunities, where the discount amount is tied to payment timing. In addition to EPD, businesses will often use CCC to pay vendors, with more sophisticated companies embedding virtual credit card accounts into AP workflow. Like consumers, businesses also receive cash rewards for the amount of spend made on CCC.

How can you do it?

While vendors don’t typically offer EPD’s to consumers, some will offer discounts for paying in full and many more accept credit cards for payment. These credit card programs offer different reward programs, including cash back. Cash back programs are now the most popular form of reward program per creditcards.com, and cash back discounts on purchases at specific merchants is the most important feature (see exhibit below).

There are also other benefits to using a credit card for payments. First, although the vendor is paid in a few days when you use a credit card, your money is still in your bank account collecting interest until you pay back the credit card issuing bank.  Second, you control the timing of the payment to your issuing bank, so that you can manage your cash flow better.  Just make sure you pay the bank in full every month, or the interest charge will wipe out your reward benefit.

While there are a few tools out there to help you identify the best card programs based on spending in specific categories, such as gas and grocery, they often fall short in also helping you find new categories to use your credit card.  Only by combining both category (existing and new) and card program identification can you fully maximize your cash back opportunity.  Also, some of the sites I’ve used have dated information about newer cash back card programs (and bonus deals) or have affiliate marketing programs with specific card issuers so you may be directed to a card program that isn’t the best option for what you are trying to achieve.

For these reasons, I created a solution that helps consumers figure out how to fully maximize cash back rewards programs.  By using this guide for my own payments I will be increasing cash-back benefits by more than $1,150 in one year’s time while maintaining my overall budgeted spending levels.  To find out more about this solution, click here.

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