Prompt Payment

Purchase cards (agency credit cards):
Calculator and formula for knowing when to pay

If your agency uses a government-wide commercial purchase card, you must pay the bill for that card on the date that is most economically beneficial to the government.

To figure out when to pay the purchase card (credit card) bill, you can use either

• an Excel spreadsheet that automatically calculates an answer for you
• a manual formula

Using the Excel spreadsheet

On the spreadsheet, you will enter

• the total amount the agency owes to the card issuer
• the maximum discount the card issuer offers
• the basis points the card issuer offers
  (You will find this in your contract with the card issuer.)

Excel will then show you

• what the government will save if you pay as early as possible
• what the government will save if you pay as late as possible – at the due date

If paying early will save more money than paying at the due date, you should accept the card issuer's rebate and pay early.

If paying at the due date will save more money than paying early, you should wait and pay as close to the due date as possible.

The spreadsheet also has an example to help you.

Download the Excel Rebate Spreadsheet

Using the formula

To find the best time to pay your purchase card (credit card) bill with the formula, you need to know

• the basis points that the card issuer offers, which you get from your contract with the card issuer
• the government's Current Value of Funds (CVF) rate
  (For 2014, the rate is 1.00 percent. In decimals, that is .01)

The formula is
(CVF/360) * 100

An example for the formula

Agency X uses a card where the card issuer offers 1.5 basis points. That means that every day the agency delays paying, the agency loses 1.5 basis points in savings.

The 1.5 basis points equals a maximum discount rate of 1.06%.

With a CVF rate of 6%, the daily basis points of the CVF rate equals 1.67.  That is, the government earns the equivalent of 1.67 basis points for each day it delays paying the card issuer.

Here's how the formula gives us the government's basis points:

(CVF/360) * 100

We write the CVF rate of 6% as the decimal .06)

(.06/360) * 100 = 1.67

Divide .06 by 360.

Multiply the result by 100.

That gives .0016666 = 1.67 basis points

Agency X must now compare the card issuer's basis points to the government's basis points from the formula.

Card issuer's basis points: 1.5

Government's basis points: 1.67

Because 1.67 is more than 1.5, Agency X should not pay early. It should pay as close to the payment due date as possible so the government continues to earn interest on its funds.

However, in another situation, the formula might show that the government's basis points are less than what the card issuer is offering. In that case, the agency should pay as early as possible to maximize savings.