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Create a Best-in-Class Commercial Card Program—the Not So New Payment Channel

July 07, 2017
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By Geri Westphal

Commercial card programs have been around for many years, but in most cases these programs historically included T&E expenses and a select number of procurement transactions. Now, as key stakeholders across the buyer’s organization realize the benefits associated with commercial cards and with the increase in fintech innovation, commercial card programs are being structured to capture more, if not all, payment transactions across the entire organization. These new programs have gained status as a feasible payment channel and are worth a second look.

iTreasurer recently sat down with HSBC’s Jim Lewis, Global Head of Commercial Cards, and Erwan Le Grand, Global Head of Account Management & Commercialization of Commercial Cards from HSBC, to discuss the changing payment landscape and how commercial card programs could add significant value to your organization.

“A commercial card program can unlock significant benefits,” says Mr. Lewis. “New procure-to-pay and supply chain management applications combined with the benefits of a card program are driving growth in card usage and adoption. Cards are now being thought of as a viable payment mechanism for a wide array of spend categories. Commercial card solutions are well-positioned to round out an organization’s payables and working capital strategies.”

The New Payment Landscape

Q: How do card solutions make improvements to financial flows and what new and innovative developments are accelerating usage?  

Jim Lewis: To increase efficiencies and reduce the resource strain caused by manual processes, many companies have streamlined procure-to-pay procedures by implementing a commercial card program. This strategy could have an immediate effect on reducing costs by improving data integration, reducing transaction costs, and enhancing control over spending, which in turn reduces time spent on manual processes and allows the reallocation of accounting resources to more value-added activities. From generating savings across business units to rationalizing the supply chain and improving an organization’s working capital position, best-practices companies have seen the benefit of encouraging card usage.

In addition to improving operations, commercial cards have also had significant influence on vendor relationships. By implementing card accounts for targeted vendors or establishing departmental cards for purchase on order or on invoice, companies could improve timeliness of payment, ensure sales and tax compliance, and automate data gathering, which provides visibility to support discount negotiations with preferred suppliers. Additionally, commercial cards can help provide payment continuity during buyer systems outages or natural disasters.

Cards could also provide benefits to suppliers. Some of the most commonly described supplier benefits include:

  • A rise in customer satisfaction and expanded relationships with strategic buyers.
  • A reduction in cost associated with invoice creation, handling and mailing, and depositing payments and collection activities.
  • An improvement in cash flow through electronically deposited funds and faster receipt of payments.
  • A lower staffing requirement within Accounts Receivable and the ability to redirect staff to more value-added activities.

Erwan Le Grand: Card payment solutions are not new, but they are more innovative. The ecosystem and customer behavior are changing, with solutions that achieve straight-through processing with e-procurement and e-payable applications becoming more commonplace. The pace of innovation is greater than we have seen in some time and it is exciting to see the possibilities that these new solutions can offer to generate efficiency and cost savings on both sides of the equation.

For example, there are cloud-based solutions now available that help automate the procure-to-pay process supporting all types of financing options, including commercial cards. By utilizing a buyer-supplier platform, companies can optimize payables for both local and global suppliers. Benefits of these buyer-supplier solutions include optimizing your working capital position and reducing the friction in the procure-to-pay process. Suppliers receive faster payments and treasurers can widen the scope of the card program to make more eligible payments part of the rollout.

A robust card payment solution will improve cash flow, extending days payable outstanding (DPO) by up to 56 days. Rather than adhering to suppliers’ typical 30-day invoice payment terms, paying via card on invoice can extend the float by a minimum of 25 days. Depending on how the payment for the goods or services is timed, it can also decrease days sales outstanding (DSO) for the suppliers by allowing them to receive payment faster.

This is of course in addition to the increased savings that card programs could deliver by replacing hundreds of invoices with a single payment per month. In addition, a card program provides further support for the move from paper-intensive operations to more automated electronic environments, which helps provide better visibility into expenditures and increased control over spend.

Compare and Contrast


Q: Describe how adopting new automation solutions can create significant improvements in many areas, including higher speed of settlement with suppliers, cost savings, higher DPO, lower DSO, and more reliable and predictable financial flows. 

Erwan Le Grand: Banks and card providers have focused on developing products and solutions designed to optimize card payment processing for many years. So today, creating a strategic program has become less about implementing a single type of commercial card and more about tailoring solutions to fit seamlessly with the procure-to-pay process and minimize potential disruptions.

Integration into procurement/payable portals helped by virtual card technology and the rise of payment aggregators offers an opportunity for corporates to capitalize on all the benefits of card payments without experiencing some of the complexities traditionally linked to a process change project. Whereas in the past, corporates were looking at cards in isolation and only for the purpose of supporting visibility over travel spend, they nowadays look to cards to access a suite of comprehensive solutions offering benefits helping them deliver against the organization’s goals. Benefits include:

  • Provide another financing option to indirect suppliers relying on the buyer’s business to support their cash flow. Accessing an alternative means of financing could be key to sustaining a healthy supply chain. Traditional financing options often focus on the large-spend items at the top end of the supply chain with little focus on smaller suppliers. These smaller suppliers could be as strategic to the customer because they are key to the added value of the delivery of goods/services in the customer’s operation. In many instances, these smaller suppliers are in need of cash to support further investment or ongoing activities.
  • Improve cash flow through extended DPO if a card is used for payment with suppliers without a change to the current payment terms.
  • Reduction in the need for petty cash and one-off supplier on-boarding and a reduction in the number of purchase orders that need to be processed by moving all these out of the traditional process and onto a consolidated card program.

All of these benefits are realised in a controlled environment within a trusted network providing protection against potential fraud and misuse.

Perfect Timing

Q: How are leading companies managing their card programs to achieve significant savings with the implementation of advanced payment alternatives? 

Jim Lewis: Commercial cards are an appealing investment for the value they bring in reduced processing costs, improved cash flow, eliminated payment transaction costs, increased supplier discounts and better visibility, all of which lead to better negotiated terms with strategic suppliers.

To achieve significant savings from your card program, you should spend time with your card provider optimizing the program. To optimize a card program, organizations should make sure they are using it on as many applicable purchases as possible. Financial incentives can create returns and with the correct policies, cards can be used for a variety of spend types and high-dollar purchases.

Q: What makes this the perfect time to allocate resources to this type of project?  

Erwan Le Grand: Corporates that operate card programs have understood the benefits in capturing T&E spend for a long time, and this has subsequently driven their appetite to explore ways to address other types of spend with a commercial card. Penetrating B2B spend categories has become more attractive with the evolution of the card product set, including virtual cards and the fast-evolving e-procurement and e-marketplace applications.

The benefits of a card program, including the automation, access to rich data content and the interest-free credit period it offers, naturally weave into these applications and further help corporate users achieve their financial and process performance objectives.

How to be the Best

Q: What activities constitute best-in-class card solutions and supply chain management? 

Jim Lewis: Several key undertakings will drive a best-in-class card solution. First, make sure all relevant stakeholders are engaged up front to understand the full extent of the goals and objectives of the program. Important stakeholders include the treasurer, procurement manager, finance manager, and the travel manager. Each stakeholder may be seeking different objectives from the program. For example, the treasurer will be interested in the working capital benefits from the program while the procurement manager will be interested in a reduction in out-of-policy spending and savings from purchases through improved supplier negotiation. Second, the organizations should create a robust business case that shows an improvement in AP costs, lower payment transaction fees, greater supplier discounts, improved cash flow (extended DPO) and improved compliance with better program controls (to eliminate rogue spending). Third, the organization should have dedicated resources to manage the program. Finally, there should be regular reviews covering the program’s performance vs. the objectives and benefits in the business case.

According to statistics from PayStream Advisors, in 2017 nearly 46% of respondents still use checks as a primary payment method, while only 10% utilize commercial cards as a payment source.

To understand best-in-class execution, it is important to understand the objectives of the organization, which will differ from company to company, and to put rigor around understanding the value of a commercial card program. It can be utilized as a working capital optimization tool; it can bring greater cost efficiency to the invoicing process and lower the cost per invoice; it can enhance payment control and lastly, it can help unlock supplier negotiation opportunities.

The partnership between bank and corporate is critical. Having the right provider will ensure that your program is optimized, and not just up and running.

Supplier Payment Processing Methods 

Erwan Le Grand: Each corporate must ask themselves, “What are the primary objectives for the card program and how are these aligned with the organization’s goals?” Then, they should think about how they will get to the desired outcome. Spending time defining these objectives early on is important and will help the program manager articulate the value of the card solution, which will enable them to more likely get buy-in from stakeholders.

Best-in-class card program managers have regular reviews and seek provider assistance to ensure the original program objectives are still a priority and that they are being achieved as originally proposed.

Transaction cost reduction, settlement efficiency and user convenience are some of the top reasons organizations decide to implement a commercial card program. Best-practices companies develop specific, achievable, short- and long-term goals for their card programs. They align these goals with their overall business strategy and ensure that they are consistent with their procurement and travel policies.

Best-practices companies strive to achieve end-to-end procure-to-pay process automation. These companies implement tools to streamline and automate the requisition, approval routing, and order placement activities, and seek the integration of card solutions as a payment mechanism for all qualifying spend categories within this ecosystem.

Best-in-class programs are led by companies that have selected a card provider who can provide initial consultation and ongoing support to optimize their program during its lifespan. They would have gone beyond the traditional use of cards for T&E and have ensured the following points are covered, which are key to the success of any card program:

  • Develop a robust initial business case for the card program aligned with the company’s general objectives and reviewed on a regular basis.
  • Introduce card at the core of their organization’s procurement strategy.
  • Dedicate resources to the program.
  • Secure a strong mandate from senior management to facilitate the acceptance of the program by staff company-wide.
  • Engage and have regular reviews on the card program’s performance with the card provider.

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