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Cards Strategy: Improving cash management and working capital

  • Article

Over time, cards have evolved from travel and entertainment to purchasing and more recently to virtual cards and buyer-initiated payments. This evolution has brought with it benefits to cash flow management, making cards a vital tool in a company's payment mix for improving working capital.

Improve Cash Flows

Cards work as an effective cash management tool for all types and sizes of business, and at all stages of growth and development.

Companies with a low cash position can push a wider range of purchases through cards to defer payments and increase their working capital for a given period. This includes booking travel and paying for office supplies and business services. Most of these suppliers take charge cards from companies to increase their B2B revenue stream. Cards such as department cards enable employees to make purchase decisions for low-dollar purchases quickly and conveniently. Individual cards such as corporate cards allow employees to book travel with pre-authorized travel agencies and booking sites, ensuring compliance to travel policy.

With a typical 30-day billing cycle and payments due 25 days after the statement date, for example, using cards to make payments helps you hold on to cash longer with up to 55-days in float. This float is the time difference between making the purchase with the charge card and when payment is due in full to the bank for the card charges. This can be viewed as an extension of pay terms from suppliers previously paid through more traditional checks and invoices. With virtual card programs on the other hand, where no physical plastic card is issued and where the card account is used for higher ticket items in a control purchasing environment, the potential for extended float is equally compelling.

Earn rebates on spend

Companies that deploy card payment strategies have the potential to share revenues earned from the program with their bank issuer. This rebate is typically a percentage of the annual spend transacted by a company, after minimum spend thresholds are met. Typically, companies may receive benefits in the form of rebate tiers – the higher the spend, the greater the amount of the incentive. These rebates are usually made annually by the bank and can easily benefit Treasury’s bottom line.

Reduce processing costs

Cards-based payments deliver significant savings in processing costs as well. By using cards for business expenses, you’ll effectively replace hundreds of invoices and individual payments with a single, automated process each month. You’ll also reduce the number of purchase orders that need to be handled and approved by multiple personnel in an organization.

Virtual cards can offer similar cost savings. When used as a method of payment, rather than as a procurement tool, purchase orders and invoices are still present in the payment flow. However, because payments that would traditionally be made by check are now converted into card transactions, the savings and cost efficiencies can be significant. And because there is no physical card as individual account numbers are generated for each transaction, virtual card programs offer an added layer of security.

Most companies that deploy these card strategies see the benefits of improving cash flow, earning rebates, and reducing processing costs. They impact the bottom line significantly for Treasury organizations and empower employees to work more efficiently by using card-based payment tools on a daily basis.

To learn how you can use payment card strategies to work harder for your company, visit our website.

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