Eliminating the sticker shock that can accompany card payments
May 20, 2016
by Steve Pedersen
From the April 2016 print edition
The steady recovery of the North American economy since the 2008 financial crisis has allowed many organizations to invest internally and scale-back austerity policies. However, to stay competitive in a fast-paced business landscape, companies remain focused on attempting to increase efficiency, and—as a byproduct of more effective practices—cut costs. Many organizations are realizing significant cost savings in the payables department, as more suppliers are beginning to accept corporate cards as a form of payment from their customers in an effort to streamline the payables process.
Despite the many benefits for companies, some suppliers are still hesitant to accept payment card programs because of the fees they incur with each card transaction, which can be more expensive than traditional clearing and processing. Many assume that cheques and automated clearing house (ACH) payments are the cheapest options to process without exception, and therefore cannot justify an amendment to their accepted forms of payment to accommodate payment cards.
While cheques and ACH may be appropriate for some accounts receivable programs, the sweeping assumption that corporate card acceptance is universally more expensive is unfounded, and causes suppliers to overlook the opportunities to reduce costs and increase productivity. Specifically, accepting corporate card programs can be beneficial in the long run by increasing productivity, security and loyalty.
Accepting payment card programs virtually eliminates the need to process cheques and payments with manual input systems such as Excel spreadsheets, which simplifies the process for both the end-user and the payment processing team. Transactions via payment card are stored electronically and tend to be recorded in an online platform that can be accessed at any time, which allows suppliers to have a better view of their expenses and pull data reports at the click of a button. Additional automation comes in the form of control and security. Corporate card programs enable centralized spend control, automatic fraud and card misuse protection, as well as providing visibility into spending. Paper invoices do not have these capabilities. When all of these processes are automated, companies can reallocate resources that were previously mired in these operations.
When clients are late to pay their invoices, the entire supply chain suffers from the withholding of funds needed to keep operations running smoothly. With a corporate card program, suppliers are given revenue assurance and can collect accounts receivable faster, reducing the days sales outstanding (DSO) and providing more cash flow for reinvestment.
In addition to increasing on-time payments, accepting payment cards could increase the frequency and size of orders, translating to an increase in the bottom-line. According to a 2012 study by MasterCard and Kaiser Associates, Acceptance Matters, and Now We Know by How Much, 49 percent of buyers indicated an intent to spend more with their current supplier if they started accepting cards, and 57 percent indicated that card acceptance would prompt them to order more often. Therefore, end-users benefit from corporate card acceptance by dealing with fewer vendors, and suppliers benefit from increased loyalty with their existing customers.
Instead of processing individual invoices, payments teams can easily process payments in large quantities electronically to reduce paper waste and administrative costs. This removes the need for potentially inefficient manual inputting, reduces human error and allows employers to reallocate the time and skills of their workforce. In fact, according to RPMG Research, companies see an average 77 percent cost reduction when moving from a manual invoicing system to a corporate card program.
When less is more
With many organizations increasingly leaning on corporate payment card solutions, especially now that Apple Pay is beginning to accept corporate payments, suppliers can stay ahead of the competition by accepting corporate cards. Although suppliers may assume that restructuring accounts receivable to accommodate payment cards is an effort that may not pay off, when weighed against the potential benefits of card acceptance, a shortsighted approach to payment management can dig suppliers into a financial hole. As demand for corporate card acceptance increases, businesses can build a streamlined, efficient program that reduces administrative burdens and strengthens the buyer-supplier relationship to the benefit of both parties.
Steve Pedersen is vice-president and head of North American corporate card products at BMO Financial Group.