The Economic – And Ergonomic – Value Of Commercial Card Optimization

Corporates of all sizes and verticals are taking an introspective look at internal operations to pinpoint areas of opportunity for working capital optimization. Often at the center of this initiative is the accounts payable (AP) department — and unsurprisingly for these volatile times, the strategy can turn toward lengthening the days payable outstanding (DPO).

But as businesses hold onto their cash in preparation for more disruption ahead, an increasing number of firms are also taking a closer look at a different AP strategy that can support working capital needs without creating cash flow issues for valued suppliers.

Dean M. Leavitt, founder and CEO of Boost Payment Solutions, said commercial card programs are now coming to the forefront of AP departments’ priority lists when delaying payments is no longer the most viable, or effective, cash management option.

“You don’t have to look very far to see all the news around corporates — large and not-so-large — hoarding cash and delaying payments,” Leavitt told Karen Webster in an interview. “On the buyer side, utilizing cards and shifting away from checks, wire and ACH provides a new credit instrument.”

As they explore commercial card opportunities, corporate buyers have plenty of room to either take their first steps toward implementing a card program or optimizing an existing card program to take full advantage of the opportunity, he said. At the same time, vendors are opening up to the benefits of card acceptance, allowing for extended DPO for their customers without compromising timely payments.

Optimizing Card Spend

Some businesses are only just beginning their commercial card journeys as part of a broader push to digitize B2B payments. But according to Leavitt, more often than not, a company already has a commercial card program in place, yet has failed to fully optimize the value of those cards, with much of their credit lines going unused.

Firms might already be using their cards for corporate travel spend or micropayments, but may rarely use the payment tool to settle supplier invoices. This gap in card usage is what’s driving the conversation, Leavitt noted, with financial service providers guiding businesses toward understanding how to expand card usage across their AP files.

“It’s about expanding that mindset to being able to use a commercial card to pay all suppliers, large and small,” he said. “We’re seeing a lot more of that mentality.”

The healthcare industry is one area where these conversations are happening more frequently. For buy-side firms like hospitals and clinics, a commercial card program may be in place, but only used for direct spend related to medical equipment and devices, for example. In this arena, optimizing card spend means expanding card use for indirect purchases like paying telecommunications bills or covering facility management costs.

As companies reach their limits with other financing arrangements, migrating more spend to the commercial card can offer the added working capital flexibility to delay payment without preventing suppliers from accessing the funds they’re owed. And with more businesses forced to invest in the rapid deployment of their digital migration strategies, commercial cards can be a valuable source of credit to fund that shift.

Finding the Win-Win Scenario

While taking full advantage of available commercial credit lines may support the working capital needs of buy-side firms, one of the biggest challenges that has historically stood in the way of expanding commercial card usage is vendors’ reluctance to absorb the costs associated with card payments.

That’s beginning to shift, too, said Leavitt, as more vendors consider cards with an open mind toward reducing days sales outstanding (DSO) and accelerating their own working capital.

“Suppliers who have historically been resistant to cards are now welcoming it in certain respects,” he noted. “They’re certainly welcoming a conversation about it.”

The card’s ability to find a win-win scenario for B2B payments — that is, reducing DSO for vendors while simultaneously lengthening DPO for buyers — is key to encouraging further card adoption. It’s also a significant opportunity for commercial card issuers themselves, Leavitt highlighted, as they explore how to drive up transaction volumes after plummeting spend in areas like consumer travel.

As vendors struggle with late payments and their own capital crunches, their consideration of card acceptance is motivated by the need to optimize working capital through accelerating their order-to-cash cycles — but it’s not only the financial benefit they’re after.

Straight-through processing capabilities like those offered by Boost ensure that vendors deciding to accept cards never have to manually interact with the transaction. In addition to ensuring PCI compliance and the protection of sensitive transaction information, straight-through processing also means vendors gain access to valuable data to automate reconciliation, integrate information into ERP and accounting platforms, and analyze trends to drive more accurate forecasts.

“It’s not only the economics that are being optimized” by accepting cards, Leavitt said. “It’s also the ergonomics of it. Once suppliers realize cards are an intelligent way to accept payment, they also realize the ergonomics are far superior to other payment methods — especially now.”