To forge new markets and foster growth within their industry, card networks such as Visa, MasterCard and American Express have made a concerted effort to provide businesses with products and services that enhance a business’ supply chain, whether through procurement or as a supplier. Examples of these products are the corporate credit card and the corporate purchasing card.
Corporate credit cards have evolved into more than just a way to track travel and entertainment expenses. They are being widely used as procurement tools that allow a business to track purchases, assign expenses to specific cost centers and eliminate the costly and time-consuming purchase order process.
Purchasing cards take the efficiencies and cost savings one step further by enabling businesses to receive line item detail, down to the SKU level, so that many purchasing, reconciliation, payment and inventory tasks may be automated. Research provided by the card networks has shown that utilizing purchasing cards may result in the following benefits.
* Substantially reduced processing costs, administrative cost savings and lower system file maintenance and operating costs
* Strengthened cash management and simplified bank reconciliation practices
* Enhanced management control and reporting, with the opportunity to frequently access transactional data in partnership with automated posting to the general ledger
* Improved supplier management via enhanced and readily available MIS tools
* Controlled empowerment and accountability to the business unit/cardholder to procure goods and services as required
Businesses are rapidly moving to the use of credit/purchasing cards in order to take advantage of their benefits, and those suppliers that are unable to accept credit/purchasing cards may be left behind.
For example, the federal government, as a result of the Paperwork Reduction Act, is moving more of its procurement activities to strictly purchasing cards. Many businesses face the dilemma of either accepting the government’s purchasing card or losing the business. This trend is permeating the private sector as well.
After analyzing purchasing practices and the cost of resources, one company found it had more than 80,000 suppliers spread over 80 lines of business. it developed an initiative to consolidate its supply chain and move as much of its procurement activities to purchasing cards as possible.
Not only would this enhance its buying power by buying in larger quantities from fewer suppliers, its inventory control systems would be automated to more efficiently determine critical inventory levels and the most efficient reorder points. If a supplier elected not to accept credit cards, it was no longer considered an approved supplier and thus lost the business.
The advantages of accepting credit cards or purchasing cards in business-to-business environments include:
* Improved cash flow through the routing card settlement process. It can take 30 to 60 days to receive payment from commercial customers through the “invoicing-accounts receivable-bank deposit” process. Accepting cards, may reduce that to two to three days.
* Reduced administrative cost of managing an accounts receivable activity for purchases made with a credit/purchasing card. Cards eliminate the time and paperwork associated with requisitions, approvals, purchase orders and invoice processing. Accepting credit cards can offer a competitive advantage and enhance customer satisfaction.
* Reduced accounts receivable follow-up activity
* Elimination of the credit approval process and the avoidance of collection costs. Since immediate payment is received, the costly, time-consuming process of researching credit history and establishing credit approval is eliminated.
In the past, many businesses avoided credit card acceptance because of the misconception that it was too expensive. In many cases, credit/purchasing card acceptance can actually lower overall costs while offering additional benefits over other payment methods.
If your business is looking to create efficiencies, increase cash flow and reduce outstanding receivables, it’s time to start accepting credit/purchasing cards. If you’re already accepting credit/purchasing cards, consider expanding your program and promoting their usage to your customers. BOB BALOGH is regional merchant sales representative for Fifth Third Bank. Reach him at (614) 744-7545 or [email protected].
