When savvy consumers find a great credit card that allows them to accumulate points or earn cash back from their issuer, they look for every reasonable opportunity to get the most out of this benefit—at the grocery store, at the gas station, at restaurants, and wherever they shop. Some people are even more creative, using their cards to pay for home renovations, college tuition, or even a tax bill from the IRS. When you are being rewarded for using your credit card, every dollar counts.
Many corporate credit cards offer similar incentives for their customers. They may provide reward points, cash back, or even discounts with specific merchants—which raises an important question: Why aren’t more smart, well-run companies taking a proactive approach to maximizing these benefits from their corporate cards?
Middle-market companies (those with annual revenues below $500 million) spend an estimated $7.8 trillion on business-to-business expenditures each year (Dun & Bradstreet, 2012). According to MasterCard, nearly $1.8 billion of these payments could be made with corporate cards, but on average companies use cards for less than 5 percent of their payments. In an increasingly digital world, where most middle-market companies have adopted corporate cards, more than 50 percent of business-to-business payments today are still made by check.
MasterCard’s research also shows that compared with the cost of paying by check, corporate cards deliver a savings of nearly 63 percent. Corporate cards reduce the time and resources involved in administering and tracking invoices and moving checks through the accounts payable (A/P) process. When a company uses a check, the payment must be created and approved, and then the check must be printed and sent via mail to the appropriate vendor. Paying with a corporate card significantly streamlines this process.
Corporate Card Efficiencies
Today, corporate cards represent an enormous opportunity for treasurers and A/P departments that are focused on maximizing the efficiency of their payments. Many banks are offering extended payment terms and are actively working to identify other opportunities to make their cards work well for small and middle-market companies. As a result, more and more businesses are beginning to view the corporate card as much more than a tool for paying travel and entertainment (T&E) expenses.
Every company, regardless of industry or size, has regularly occurring expenses, and many of these expenses could be paid for with a commercial credit card. These routine expenses range from the basics, such as office supplies, IT equipment, and leases, to spending on services, such as shipping, telecommunications, utilities, and health insurance. Organizations may also want to consider using a corporate card for larger transactions, such as lease payments on key pieces of equipment, technology upgrades and other infrastructure build-outs, advertising, or marketing and legal services.
Organizations that understand the value proposition of streamlining their A/P function are working with suppliers that do not currently accept card payments, encouraging them to change that policy. They are emphasizing that wise use of a commercial card can accelerate their payment cycle with suppliers, while at the same time generating additional float—up to 60 days, in some cases—and earning rewards or discounts.
Extensive use of corporate cards is a more natural fit in some organizations than in others. Small businesses with more easily manageable revenues and work forces—and manufacturing and technology firms that work with an unusually large number of vendors—may find that the benefits of beefing up a corporate card program are well worth the costs. In addition, companies that work in professional and business services, health care, property management, and IT software solutions tend to use corporate cards more extensively than do other businesses.
5 Steps to Expand Corporate Card Usage
Given the highly competitive nature of the commercial credit card space, an organization must be well-prepared and thinking strategically before it makes any adjustments to its payments approach. Before working to expand the proportion of vendor payments that it uses a corporate card to make, a company should take the following five steps:
1. Benchmark against your peers. Compare your corporate card program with those of comparable businesses and with your industry at large. Information on your peers and industry are available through Commercial Payments International; from the NAPCP, the commercial card industry association; or by speaking with your banker. Also, talk to your business partners to take advantage of their industry knowledge. Understanding the benchmarks for comparable card programs will help you define the size and scope of the opportunity for your company. Once you’ve collected and carefully analyzed this information, your company will be positioned to make a smart decision.
2. Quantify the opportunity. Determine which of the vendors that your company is currently paying via check could instead be paid by corporate card. A good place to start is with any regularly recurring monthly expenses—whether large or small—that are part of the day-to-day operation of your business.
3. Develop a plan for converting these vendors. Consider your strategy for converting vendors that could more efficiently be paid via corporate card. Be prepared to clearly explain the benefits and efficiencies that card payments can generate for both parties. Work with your accounts payable department to determine where to focus first. Some companies start by focusing efforts on their top 10 vendors in terms of transaction volume; others focus on transaction size; and still others consider both factors. For small businesses, this decision is usually a matter of personal preference. Larger companies that process a high volume of payments each month might make it a priority to convert as many vendors as possible, as soon as possible. Close collaboration between finance and the A/P department will help you develop the right approach for your organization.
4. Measure your progress. Keep accurate records of vendors, spending levels, card usage, and monthly progress on payment conversions. Smaller companies may want to track these data points using a simple spreadsheet, but companies with more complex A/P processes might require a more formalized approach to tracking the conversions. As with any initiative, communication is critical. You need to provide regular updates on your progress—and the value you are creating—to all partners in the project, as well as executive leadership.
5. Review payment policies and terms. As a company is evaluating its payment methods with different vendors, it may also take advantage of the opportunity to scrutinize its payment policies, perhaps identifying small adjustments that could lead to big efficiencies. For example, should your business expand transaction limits? What recurring, routine payments could your company by paying automatically? Should the organization broaden or shrink the number of employees who have corporate cards? Talk with your A/P and procurement teams to bring to light any opportunities within their cycles.
Shifting business-to-business payments from paper checks to a corporate card represents an enormous opportunity for companies to reduce costs and increase cash flow. By focusing on recurring expenses and identifying vendors that can be paid in this more efficient manner, you may help your company come to see its commercial card as a critically important business tool.
Jim Gifas is executive vice president and head of treasury solutions for RBS Citizens. Jim is an expert in a variety of banking and business areas, including sales, introducing innovation, and adjusting to changes in the economic climate. Prior to his role at RBS Citizens, Jim spent 13 years at Citibank and four years at Deutsche Bank.