NEW YORK, Nov. 14 /PRNewswire/ -- American Express OPEN citing a new study of capital sources for small business, identified trade terms as a popular and effective financing tool for delivering significant cost savings to small businesses, including $11.8 billion annually through early pay discounts. In order to make trade terms more accessible and easier to use, OPEN presents the PlumCard(SM) as one opportunity for small business owners to optimize the use of trade-like terms in the transaction simplicity of a Card.
The study, "Trends in Small Business Growth and Capital Sources," was commissioned by American Express OPEN and conducted by Arduin, Laffer & Moore Econometrics (ALME) to demonstrate the impact small business has on the overall economy and identify trends in small business financing. The study highlights savings generated by trade terms through early-pay discounts, enhanced financing terms, and improved efficiencies in accounts receivable expense management.
"At American Express OPEN, we understand that continued innovation in financing will unlock further opportunities for small businesses to grow and help stimulate the economy," said Raymond Joabar, senior vice president and general manager, American Express OPEN. "The PlumCard presents an efficient way to access the benefits of trade-like terms, an important method of small business financing, as evidenced by the 'Trends in Small Business Growth and Capital Sources' study."
Impact of Trade Terms on the Small Business Environment
According to the study, approximately 60% of small businesses have access to some form of trade terms, making trade terms - along with credit cards - one of the most widely used form of small business financing.
One aspect of trade terms, early pay discounts - typically 2% for payment within 10 days - save small businesses billions of dollars each year, but are not available to all small businesses or on all purchases. Of the 60% of small businesses who use trade terms, only 38% are offered the cost-saving benefits of the early pay discount. According to the study, US small businesses save an aggregate of $11.8 billion annually through early pay discounts.
Trade terms balances, on average, must be repaid within 30 days. Although late payment penalties as a percent of total costs are not particularly high for many small businesses, they aggregate to $2.9 billion annually. The majority of these penalty costs, $1.8 billion, are incurred by the construction industry, which is the leading small business contributor to the US economy. Extending the time period for repayment on trade term financing beyond 30 days could help many small businesses more effectively manage the flow of incoming receivables and outgoing payments and help reduce overall late payment expenses, particularly during slower economic times.
Cash flow is a significant concern for small businesses, especially among those who offer trade terms. In fact, two-thirds of small businesses report frequent or periodic cash-flow challenges, and 30% cite collecting money as the main reason.(1) For sellers, the PlumCard(SM) can help reduce accounts receivable risks and generate goodwill among customers who benefit from favorable trade-like terms as a result of using the Card.
"Our research indicates that small businesses recognize the benefits of trade terms and the economic value it presents when used optimally," said Wayne Winegarden, senior economist and study author, Arduin, Laffer & Moore Econometrics.
The PlumCard(SM)
The PlumCard(SM) is the first OPEN product exclusively designed to help deliver the economic advantages of trade-like terms in the transaction simplicity of a Card for small businesses with high materials costs and variable cash flow.
"The PlumCard breaks through the market barrier of restricted trade terms to enable more business owners to benefit from the economic advantage of early-pay discounts, extended payment terms and the choice to manage cash-flow based on individual business needs," said Joabar.
The PlumCard(SM) taps this opportunity by offering small business owners flexible trade-like terms - the option to receive an early pay discount of up to 2% on virtually everything they buy with the Card or the ability to defer payment up to two months, simply:
-- pay the bill in full within 10 days of the billing cycle and receive a
2% discount on new spending when it exceeds $5,000. Any month the
charges total $5,000 or less receive a 1% discount for early
payment.(2)
or
-- defer payment up to two months interest-free by paying 10% of the
balance by the date indicated in the billing statement.(3)
Cardmembers have the flexibility to choose which cash flow management option is best for their business each month.
"Managing cash flow is a big challenge for small business owners. Trade terms are a widely used form of small business financing, but it isn't universally available and the trade terms aren't consistent," said Joabar. "OPEN understands that for the average small business owner, better financing and more efficient use of terms goes straight to the bottom line. We have introduced the PlumCard(SM) to help small business owners better manage cash flow and free up working capital through the optimal use of trade-like terms."
Applications for the PlumCard(SM) are available at http://www.plumcard.com/.
Role of Credit Cards in Small Business Financing
The launch of the PlumCard(SM) takes into account additional key findings from "Trends in Small Business Growth and Capital Sources" including the growing use of credit cards and an increase in availability and access to financing as a direct contributor to small business' robust growth.
Small business' share of the private economy is 50.7%, and small businesses created 60% of new jobs from 1997-2004.
The use of credit cards and lines of credit by small businesses has increased significantly since 1993. For the first time, small business owners' use of business credit cards (48.1%) has eclipsed their use of personal cards (46.7%) and is expected to grow. The majority (74%) of small business owners use credit cards as 'charge' cards for transactional purposes and pay their balances in full each month. Approximately one-in-four use credit cards as a source of interim or long-term financing, incurring interest costs.
"Trends in Small Business Growth and Capital Sources" Study Methodology Arduin, Laffer & Moore Econometrics (ALME) examined the small business' financing environment with particular attention to small businesses' use of trade credit and credit cards. The analysis examined these areas based on data from the U.S. Census Bureau, the Small Business Administration, the Federal Reserve Board of Governors Survey of Small Business Finance, the Federal Deposit Insurance Corporation, the National Federation of Independent Businesses, and other public data sources.
About Arduin, Laffer & Moore Econometrics
Arduin, Laffer & Moore Econometrics (ALME) represents the culmination of the economic, government, and corporate careers of Donna Arduin and Dr. Arthur B. Laffer. Individually and now collectively, the principals of ALME have advised private and government entities on long term economic decisions for nearly four decades. ALME's distinctive research and solid reputation are based on the expertise of the firm's founders, as well as the staff of well trained economists and analysts. Through the application of decades of economic and budget research at the government, private, and academic levels, ALME is able to provide proprietary analysis, investment models, and unique perspectives on global macroeconomic workings including in-depth analysis of specific industry sectors, states, countries, companies and projects.
About American Express OPEN
American Express OPEN is dedicated exclusively to the success of small business owners and their companies. OPEN supports business owners with unparalleled service. With tailored products and services, the team delivers purchasing power, flexibility, control and rewards to help customers run their business. Specifically, business owner customers can leverage an enhanced set of products, tools, services and savings, including charge and credit cards, convenient access to working capital, robust online account management capabilities and savings on business services from an expanded lineup of partners. To obtain more information about OPEN, visit OPEN.com, or call 1- 800-NOW-OPEN to apply for a card or loan. Terms and conditions apply.
(1) National Federation of Independent Businesses (2001) National Small
Business Poll: The Cash Flow Problem Volume 1, Issue 3
(2) Early Pay Discount - If payment in full of the New Balance on a
billing statement is credited to your Account within ten (10) days
after the Closing Date of the billing period covered by that billing
statement, then you will receive an Early Pay Discount ("Discount") on
the amount of your Eligible Purchases (as defined below) made during
the billing period covered by that statement as follows: You will
receive a Discount of 1% if your Eligible Purchases during the billing
period covered by that statement are less than or equal to $5,000, and
you will receive a Discount of 2% if your Eligible Purchases during
the billing period covered by that statement exceed $5,000. This
Discount, if any, will be reflected as a credit on the billing
statement for the next billing period. You will not be eligible to
receive the Discount if on the Closing Date of the next billing period
your Account is not active (cancelled) or your Account is in default.
"Eligible Purchases" are Charges to your Account for goods and
services made in the previous billing cycle that have not been
returned or otherwise credited to your Account. Eligible Purchases do
not include fees or the purchase of American Express Travelers Cheques
or American Express Gift Cheques or other cash equivalents. Previously
deferred payments are not eligible to receive an Early Pay Discount.
If a credit is posted to your Account for a purchase, we will adjust
the amount of Eligible Purchases at the time the credit is posted to
your Account. If a Charge is in dispute, it will not be considered an
Eligible Purchase until the dispute has been resolved and the Charge
remains on the Account.
(3) Defer Pay Option - You may be eligible to defer payment of a portion
of the New Balance on a billing statement. If you pay at least 10% of
that New Balance (plus the entire amount of any previously deferred
amounts) by the Please Pay By date on your billing statement, you may
defer payment of the remainder of that New Balance until the Please
Pay By date shown on your next billing statement. Your Account must be
in good standing and active (not cancelled) in the month in which you
exercise the Defer Pay Option.
Contacts: Shaunn D'Alessandro
American Express
212-640-1627
shaunn.m.d'alessandro@aexp.com
Rosa Alfonso
American Express
212-640-1712
rosa.m.alfonso@aexp.com
Martha Cid
M Booth & Associates
212-481-7000
marthac@mbooth.com
American Express OPEN
