Modernize payables with commercial cards
We recognize how important your insights are to driving your business forward and that you are always looking for opportunities to add value through the initiatives and activities you lead. As you reflect on how your organization operates, we recommend that you take a fresh look at new opportunities to modernize electronic payments and the Accounts Payable (A/P) department with commercial cards.
Card Payments Improve Process Efficiency
Reduced budgets have forced companies to do more with less, while the volume of payments continues to rise as suppliers seek to be paid more frequently. Despite a corporate culture shift toward electronic payments, 47% of payables are still paper-based1 and each check costs, on average, $39 per item to process and handle.2 The move toward electronic payments is an important goal for most senior managers, but with constrained IT resources, operational areas like A/P may not receive needed support for development and maintenance needs. A/P teams need to be creative by leveraging banks and the latest technology to streamline the payments process. This is why company leaders are looking to commercial card programs.
The commercial card is no longer viewed as just an efficient payment method for travel and entertainment (T&E) expenses. In fact, card payments are made for low-dollar purchases as well as for inventory and capital expenditures. Card programs provide significant benefits—from efficiency and control over payment timing to spend visibility and extended payment terms. These benefits not only provide better cash forecasting and the opportunity to help make investment decisions, but also allow A/P to evolve from being an administrative-heavy overhead department to an efficient, progressive operating area with revenue capabilities.
A/P Can Transform From a Cost Center to a Profit Center
Card is universally recognized as a tool that provides greater internal spending control through visibility into spending and cash positions across enterprise resource planning (ERP) systems and A/P departments. T&E has been consistently identified as one of the largest controllable expenses in any organization. By gathering card data, companies can negotiate discounted rates with key travel providers. For example, if employees consistently travel to a client location throughout the year, the company can show spending data to hotels, airlines, and rental car companies to negotiate discounts for that destination. When a company’s travel spend is extensive, this data can be used to negotiate overall travel discounts.
Another important card benefit is the up to 30 days of float gained from consolidated billing of card payments. Payments can be made to vendors on the due date; however, payments to the bank are made monthly with typically an additional 15 days to pay. The float provides increased liquidity and improves the ability to optimize company funds. When paired with a rebate program on card purchases, A/P departments can move from being cost centers to self-funded operations with the potential to even become profit centers.
While mobile and digital wallets have dominated the press coverage of payments in recent years, commercial card has actually transformed how companies view Accounts Payable.
Beyond T&E and Purchasing: ePayables
ePayables have substantially expanded card use by enabling control over large-dollar payments.
Transactions are generated through a payment file from the ERP or A/P system, similar to ACH and wire payments. Because card transactions are initiated after final approvals for payments, controls remain in place and payments simply change from check to card payments. The ePayables program creates virtual card numbers that can be single-use—specific to a single payment—or multi-use where the ability to use the card number is turned on or off each time a payment is made.
Forward-Thinking Leaders Look to ePayables Card Programs to Support Supply Chain Relationships
Progressive leaders looking to take greater advantage of card opportunities are implementing ePayables programs that benefit both buyers and suppliers.
Card payments have historically benefited buyers, so buyers must give suppliers a compelling reason to accept cards.
Buyers increasingly view card acceptance by suppliers as a strategic decision factor when choosing between suppliers.
Suppliers are paid much faster and eliminate the credit risk of the buyer when paid with card. The lower Days Sales Outstanding (DSO) improves supplier working capital by reducing the need to borrow funds and enables faster reinvestment of funds for increased return on investment (ROI).
However, the supplier benefits of accepting card payments must be weighed against the discount fees associated with card acceptance. If the supplier has strong working capital, and the buyer poses little credit risk, the benefits of card acceptance may not justify the discount rate.
Commercial Cards and the Supplier Partnership
Establish partnerships to support your card payment strategy:
- Evaluate the benefits versus the costs paid by the supplier for accepting card payments
- Influence discount rates paid by suppliers through effective interchange management
- Reduce supplier DSO with reduced payment terms on card that are offset by the extended billing by the bank
- Take advantage of turnkey supplier enrollment to leverage ePayables-specific merchant rates
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