Bending Card Rails For B2B Payments Optimization

When the commercial card first came on the scene, executives thought of the payment tool in limited terms: a piece of plastic their employees could use to make one-off purchases at the office supply or hardware store, buy a coffee while on a business trip or take a client out to dinner.

Today, however, a sudden shift in the market has seen corporates thrusting the commercial card into the center of the conversation about how to optimize their supplier payment practices.

It’s a change that can be attributed to an alignment of a multitude of industry trends, as Boost Payment Solutions Founder and CEO Dean M. Leavitt recently told PYMNTS’ Karen Webster.

“Until five to seven years ago, commercial cards were never anywhere near center stage for large companies paying their supplier base,” he said. “Now, it’s a completely different mindset as to how they can use the card payment rails.”

Recognizing Commercial Card Advantages

Traditionally, the cost and administrative burden of card acceptance has kept the tool from gaining traction in accounts payable. But shifting priorities among buyers and suppliers have elevated the opportunity for cards to meet changing cash management needs.

Among the largest benefits of commercial cards, Leavitt explained, is their ability to guarantee funds for a supplier once a payment has been submitted by the buyer and authorized. At the same time, unlike ACH, funds may not actually leave the company coffers for 30, 60 or even 90 days after the payment has been made, providing valuable capital float on the buy side. Together, this represents a dual-sided advantage that is key for vendors who are struggling in a climate of late payments and a lack of predictability.

Further, Leavitt added, the commercial card sits nicely within the B2B market’s demand for data.

“There is an insatiable appetite for data on both sides of the transaction,” Leavitt said. “The data requirements now are so much more than they were in the past, and cards fit that bill beautifully because of the limitless nature of what you can send along with a transaction.”

As buyers and suppliers begin to view these commercial card advantages as more important to their overall cash management strategies – and as businesses become more sophisticated in their expense analysis tactics – Leavitt noted that they are gaining an increased awareness of the drawbacks of other payment methods.

Paper checks have long been praised for their perceived low cost and the ability to include limitless information along with that payment, but Leavitt said that data does not come to the supplier in an ingestible form, and businesses are becoming well aware of the hidden costs of capturing such data.

“While you can send unlimited remittance detail with a check, it’s going to be on paper. It’s going to be in a format that is very cumbersome for the supplier to bring into their systems,” he noted, adding that lockbox services and manual data entry costs hit businesses hard.

And when it comes to ACH, in addition to the fact that funds leave company coffers when a transaction is initiated, Leavitt also pointed to the hidden costs of that rail’s inability to move a high volume of data along with a payment, limiting reconciliation capabilities for suppliers that receive a high-value transaction for multiple invoices.

Bending the Card Rails

No payment rail is perfect, of course – and historically, commercial cards certainly have their drawbacks in the use case of supplier payments.

These disadvantages stem from the fact that the card rails were never intended to support large-value B2B transactions, Leavitt said.

One hurdle for the rail revolves around data. While Leavitt noted that card transactions can include a “virtually unlimited” amount of data, a lack of standardization means sending the right data in the right way isn’t always a guarantee. Further, he said, while cards enable a business to pay a supplier sooner, late payments remain a reality – meaning a vendor may absorb the cost of accepting cards without the benefit of getting paid sooner.

According to Leavitt, these challenges create opportunity for the B2B financial services market to sit in the middle of the buyer-supplier relationship and wield the card rails to address these points of friction.

“In order to serve larger transactions between commercial trading partners, that’s where technology comes in to bend the rails a little bit, and have them accommodate these larger transactions, the data, the size and frequency of the transactions that, in most cases, the card rails were not built for,” he said.

Companies like Boost can facilitate the movement of a high volume of data with a card transaction and present it in the necessary format for both a buyer and supplier, as an example. Leavitt also said Boost can address supplier friction by not only allowing vendors to accept cards in exchange for quicker payment terms, but by actually enforcing the arrangement that has been established between the buyer and supplier. They can do this by either preventing a company from paying by card if they have exceeded the established time frame and/or by converting that transaction from a card payment to an ACH transaction.

And while commercial cards won’t work for every industry’s B2B payment needs – Leavitt pointed to garment manufacturing as an example of a market in which they may not work with current business models – a significant mindset shift among buyers and suppliers continues to drive adoption across industries and borders.

“A combination of many factors contributes to this mindset shift of buyers and suppliers to think of cards as not something that’s a piece of plastic, but as a true treasury product that allows them to optimize the manner in which they pay and get paid as well as manage their enterprise,” he said.