Corporate cards popular as working capital solution


Kimberley Long
Published on:

The use of corporate and virtual cards as part of a working capital management solution has become a defined strategy for some treasurers, who are also seeing the benefits of having an additional level of data.

Treasurers looking to optimize their working capital are exploring adding corporate cards to their arsenal, thanks to the extended payment terms and increased efficiencies they offer.

When clients are looking to start a card programme, Steve Robson, head of commercial cards EMEA, at Citi, explains that the bank wants to be clear about what it is they are trying to achieve. Clients now also have the choice between physical cards or virtual cards.

Steve Robson-160x186

Steve Robson, Citi

Robson says: “When speaking to clients about cards, we ask what their aim is. Is it to optimize their P2P [procure to pay] process and improve the efficiency of payment and procurement? Or is it simply to replace payment mechanisms and improve working capital? Or is it both?”

The spend on corporate cards is significant. Citi found the average transaction value on its virtual cards to be $4,727. It also found that 9% of payments are paid immediately when cards are used, and 37% paid within 10 days of receiving the invoice.

Robson explains that having the flexibility to pay the bank at a later date can expedite the payment of suppliers.

“Today a treasurer could be paying a supplier at say 30 days via ACH [automated clearing house],” he says. “With a card payment, they can still pay on day 30 and have the rest of the payment cycle – statement period plus card repayment period – to pay off the card, which could be another 30 days or more.

“So their supplier gets paid as usual, but the buyer gets additional cash-flow benefits.”

The working capital benefits can also come from the reduced cost of transaction fees.

Robson says: “The different elements of the end-to-end P2P transaction can be slow, admin heavy and costly. From moving to cards, the average cost can be reduced from $64 to $20 per payment.”

Corporate card usage has been evolving for a number of years in the US, but the advantages are now being recognized in other regions.

Jennifer Petty, BAML

Jennifer Petty, head of global card and comprehensive payables, at Bank of America Merrill Lynch (BAML), says: “The reason for adoption of using card for B2B payments varies by region. 

“In the US, where there are still a large number of cheques in the payables process, cards have found a role in processing high volume, low dollar purchases, and additionally as single use accounts for invoice payments. This has helped drive payments efficiency and helps cash-flow strategy by providing 30 to 45 days float on average, compared to one to two for ACH.”

The requirements and expectations of cards varies between regions. It is also influenced by how advanced electronic payments are in particular countries.

Petty says: “We have seen an uptick in cards being used for B2B payments in Australia and India as part of the cheque-replacement process.

“In Europe, where electronic payments are already present, over the past four to five years it has become more of a play to increase working capital to stretch out days payables while getting suppliers their remittance quicker.”

She adds: “Buyers are able to make their payments earlier, which can bring favourable terms with the suppliers. As well as potentially getting discounts for early repayment, they have the funds on their books for up to 60 days longer.”

Primary concern

Maria Parpou, product director for commercial payments, at Barclaycard, says being able to hold on to working capital for as long as possible is the primary concern of many of its customers.

“Paying with credit enables a business to hold on to working capital, while still fulfilling its obligation to settle bills promptly,” she says. “At the same time, suppliers will reduce the number of days they have to wait before getting paid.

“This will help to take the risk out of their accounts receivables process. As a result, the funds that might have been used to ensure outstanding invoices may be reinvested into something more beneficial for both sides, such as reducing the unit cost of products.”

Citi’s Robson says there are other methods of working out benefits that can benefit both sides of the transaction, adding: “The supplier may resist paying the merchant fee, but the buyer could pay earlier and share the working capital benefits with the supplier to offset the fee.”

Paying by card also increases the visibility over what is being spent. At a time when companies are concerned about the risks of both external and internal fraud, the cards give a level of granularity in payments not seen though ACH or wire transactions.

It is also possible to put limits on how much can be spent per transaction, and even which suppliers the card can be used to make payments to.

The level of data obtainable is proving to be a key point for card adoption.

Maria Parpou,

Barclaycard’s Parpou adds: “Each card transaction comes with detailed financial and vendor information. This means purchase records can be accessed and reconciled quickly for greater visibility. 

“Our payment solutions can connect into existing ERP systems for faster reconciliation. As soon as purchases are made, the data is transferred into the system and with one card, one value and one transaction, it’s easy to see exactly where spend is going.”

The innovations are also coming from the supplier side. In April, Amazon collaborated with Visa and BAML, Citi and PNC Bank to provide Amazon Business customers in North America with detailed information on each purchase made by card.

The cards will allow customers to understand which department, or departments, the transaction costs need to be allocated to. Line-by-line detail also allows for clients to compile evidence of their spending patterns with certain companies, and enter discussions about receiving discounts or preferential terms.

The benefits are extending beyond working capital. In some cases, cards are proving to be most helpful to clients with limited treasury resources who need to make a small number of payments to one supplier.

Robson says: “For some clients, it is more convenient to use a card when they have one-off payments. When there is a smaller supplier it can be arduous and costly to upload them onto the ERP for just one or two payments a year.

“With cards they can lock down and control the usage both before and after the payment via upfront controls and post-transaction reporting, and take the additional admin out of the loop.”