In response to a weaker global economy, corporate leaders are focusing even more closely on the efficiency of their business operations and cash management processes. Many companies are implementing strategies that migrate accounts payable activity from paper-based transactions to card-based solutions in order to more effectively manage working capital.
The flexible functionality of card programs can meet the needs of both buyers and suppliers much more easily than with traditional paper-based payment and reconciliation methods, says Jeff Felser of PNC’s Treasury Management Group. The inherent challenge for buyers is to figure out how to encourage suppliers to switch to the preferred method and guide them through the card acceptance process.
And while Web-based card management solutions provide a structure for managing the use of commercial cards internally, it is also critical to include suppliers in the implementation process of a successful card program.
Smart Business spoke with Felser about how to incorporate cards into your payment mix and how to communicate the benefits to suppliers and assist them with card implementation.
How can suppliers benefit from a card program?
In a difficult economic environment, better payment terms take on added importance for suppliers. Your suppliers will benefit from faster and more reliable payment methods, consistent cash flow, a more streamlined accounts-receivable process, potentially reduced credit and collection expenses, and reduced credit risk. The challenge for you will be providing a clear explanation of all of this to help them through the card acceptance process.
How do you approach suppliers who associate card acceptance with increased cost and effort?
First, ask your suppliers some simple questions about their day-to-day operations to begin to help quantify the value that purchasing cards can bring to their businesses. Inquire about current Days Sales Outstanding (DSO) and any bad debt they may have, and determine their current credit exposure and the cost of collections for all of the payment methods they accept now.
Hopefully, the long-term opportunity to expand by leveraging millions of cardholders will offset reservations about any short-term time and expenses they may incur.
What are some specific ways you can work with suppliers through the card implementation process?
- Make sure suppliers understand the potential for increased sales volume if they choose to allow customers to use the payment method that works best for them. With the acceptance of purchasing cards, millions of cardholders become potential customers, and as more companies focus on implementing electronic purchasing and payment options, your suppliers will be more prepared to meet the needs of those companies.
- Help suppliers determine whether their merchant service fees are market competitive and provide recommendations for how they can reduce their card acceptance costs.
- Encourage suppliers to use ‘ghost’ cards or virtual accounts. Ghost cards are virtual purchasing accounts that do not require a physical card and are associated with a single department, supplier or spend type, regardless of the individual making the purchase. Ghost cards can be particularly effective for e-procurement purchases because they eliminate the need for the invoice generation and payment reconciliation associated with traditional paper-based invoice and check processing.
- Identify the opportunity for suppliers to jointly negotiate payment terms with their customers to achieve the mutual benefits of card acceptance, which may include shortening pay terms.
What are the secondary benefits to companies that focus closely on supplier relationships during card implementation?
As a buyer, your company wants the assurance that key suppliers will stay in business. Therefore, you may be increasing your focus on these strategic relationships to make sure your suppliers get paid in a timely manner to help them better deliver the goods and services you need. In addition, data available through electronic reporting from card issuers helps you better analyze what you’re buying and from whom.
This allows you to more easily consolidate purchases with a smaller number of key suppliers. Your suppliers can benefit from this increased loyalty that may translate into greater business revenue for them and you could enjoy higher levels of strategic sourcing and more favorable negotiated pricing.
This article was prepared for general information purposes only and is not intended as legal, tax, accounting or financial advice, or recommendations to buy or sell securities or to engage in any specific transactions, and does not purport to be comprehensive. Under no circumstances should any information contained herein be used or considered as an offer or a solicitation of an offer to participate in any particular transaction or strategy. Any reliance upon this information is solely and exclusively at your own risk. Please consult your own counsel, accountant or other adviser regarding your specific situation. Any views expressed herein are subject to change without notice due to market conditions and other factors.
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