Using credit cards for food, paper costs does not add up 

Purchases of food and paper is a significant and ongoing expense for restaurant owners, so it is natural that McDonald’s owner/operators would be looking for alternative ways to pay for the product without compromising cash flow.

American Express offers a program that at first glance would appear to offer some valuable perks. For instance, it allows an owner/operator the ability to “float” payments or pay later in the month. This is especially tempting for an owner/operator who may not have a lot of cash on hand.

The other enticement with American Express is users can accumulate points for personal or business use. This too can sound appealing, especially for those who travel a lot and who want to build up airline or hotel points.

An additional incentive is the promise of increasing your cash savings with the option for a percentage of the distribution costs (example 1.25 percent) to be funded into an investment account.

While at first glance those incentives may sound reasonable, the reality is the use of American Express – or any credit card – for these kinds of purchases add additional costs to the profit and loss statement.

The first thing to bear in mind is that to participate in this program, you would have to maintain a significant level of cash on hand to pay an entire month’s food and paper costs. This requires tremendous discipline and may even necessitate opening a separate bank account to squirrel away enough money throughout the month to pay the Amex statement. Any payments that are not made timely or not paid in full would be subject to interest. This can be an especially dangerous trap if the date of the Amex payment falls around the same time of the month as rent, payroll or other loans are due.

The cash reward option is likewise not attractive since the cash reward is taxable income.

Below is a snapshot of how the Amex program would work for an owner/operator who moves a percentage of the processing fee into an investment account:

Assume sales of $2.5 million Assume sales of $17.5 million
Food and paper = 30 percent Food and paper = 30 percent
· $750,000 in distribution purchases

· $13,125 for processing fees (assume fee is 1.75 percent)

· $9,375 into investment account (1.25 percent)

· $1,312 in tax savings (35 percent)

· $2,438 cost to operator

· $5.25 million in distribution purchases

· $91,875 for processing fees (assume fee is 1.75 percent)

· $65,625 into investment account (1.25 percent)

· $9,188 in tax savings (35 percent)

· $17,062 cost to operator

Assuming the Amex fee is 1.75 percent, this one-store owner/operator would be paying $13,125 for the processing fee to purchase food and paper. The tax deduction is limited to the net of the $13,125 processing fee less the interest earned of $9,375. This net amount of $3,750 will generate a tax savings of approximately $1,312.

The bottom line is the operator is spending nearly $2,500 more to use the American Express card.

That may sound like a small sum to pay for the convenience, but most operators have more than one store. As you can see from the example of our seven-store operator, the cost to this larger operator is in excess of $17,000.

But what about those travel points that you can earn? The primary question you need to answer is whether you would actually travel enough to make it worth your while. In most cases, that is a “perk” that is never fully cashed in.

We understand that some operators are in a position where they may be willing to pay a little more for the convenience of using a credit card for large purchases. While we do not recommend using credit cards for distribution center purchases because of the processing fee, we will be happy to discuss your individual situation with you to make sure you are in the strongest financial position.

Karen Couch is Team Leader and Accounting Manager with Antares Group, Inc. She can be reached at

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