B2B Payments

How Commercial Cards Can Deliver On The Promise Of Faster Supplier Payments

How Virtual Cards Can Deliver Faster Payments

The creation of the credit card infrastructure 60+ years ago initially had only the consumer in mind, but recent history has shown that investments in card technology have helped the card-based ecosystem to capture a growing share of the B2B payments market.

Initially, this came in the form of purchase cards that gave managers the ability to allow their employees to make purchases on behalf of their companies, whether in the form of a quick office supply purchase or travel and expense spending. The latest evolution of commercial card technology, however, aims to position cards as an alternative digital treasury tool for accounts payables teams to make significantly larger supplier payments.

Dean M. Leavitt, founder and CEO at Boost Payment Solutions, recently told PYMNTS’ Karen Webster that the successful deployment of this virtual payment technology was largely dependent upon a unique value proposition for both buyers and suppliers: expanding days payable outstanding (DPO) for the buyer, while reducing days sales outstanding (DSO) for the supplier, coupled with the possibility of a revenue incentive back to the buyer when payments travel across card rails.

“That’s the magic of commercial card products that’s really begun to take off in B2B,” he explained, “especially among larger enterprises.”

Tackling Supplier Misconceptions

Undoubtedly, the biggest hurdle in commercial card adoption in accounts payable is vendors’ reluctance to accept the fees associated with receiving payments that way. Leavitt says suppliers are indeed more difficult than buyers to convince of commercial cards’ value proposition. Much of the pushback, he said, stems from some “knee-jerk” misconceptions that suppliers hold about payment via commercial card products — and how they were used by buyers to make those payments.

Among the most pervasive is that wire, ACH and check acceptance are free, whereas cards, and the fees associated with them, are expensive, particularly when such payments do not come with a corresponding acceleration of when they are received.

While there are certainly scenarios in which wire and ACH, and even checks, may be an appropriate payment method, commercial cards can in fact help suppliers save money when they serve as an alternative to the even more expensive tactic vendors use to access working capital in a timely manner.

Leavitt offered the example of suppliers reliant on factoring to accelerate cash flow. With card acceptance, vendors can get paid “significantly sooner” on a cost structure that is more affordable than the cost of factoring their outstanding invoices, while allowing clients to maintain their current DPO.

In another scenario, he pointed to some suppliers’ use of early payment discount programs.

“You may have a supplier that readily offers a 2 percent early pay discount for anybody that’s willing to pay in 10 or 15 days,” he said. “Yet when we talk to that same supplier about commercial cards, their knee-jerk reaction might be, ‘I’m not taking cards, it’s too expensive.’ In most cases, we can have them trade in their 2 percent early pay discount for commercial card acceptance that is actually less than 2 percent.”

The Value-Add Proposition

The promise of getting paid more quickly (and affordably) without forcing customers to shorten their DPO is far from the only value proposition for suppliers considering commercial card acceptance. Particularly as enterprise digitization progresses, payment data has become ever more important to reconciliation and accounting – and, as Leavitt explained, traditional ACH and checks cannot typically provide the volume and quality of remittance data that cards can provide.

Further, that data is easily integrated into vendors’ ERP and accounting platforms, a feature Leavitt said is “incredibly important and often overlooked when you’re looking at commercial card products.”

And contrary to other payment rails, commercial card transactions can support the need for payment dependability and predictability.

“Once a supplier knows a transaction has been authorized by a card network, they view that as guaranteed funds,” he said. “That’s a huge advantage for the card rails versus other options such as ACH, where there are claw-back provisions and other considerations such as fraud and even data breaches.”

Delivering What was Promised

By “bending” the card rails developed decades ago for consumer payment purposes, commercial cards can deliver faster payments to suppliers in addition to a range of value-added features. And yet, some suppliers remain skeptical of card acceptance.

Leavitt said that while vendors indeed hold some misconceptions about the payment tool, until recently, they were not necessarily wrong to resist getting paid via the card rails.

“There’s no question that, over the last several years, especially in the earlier years of adoption, suppliers did not get what they were promised,” he said. “Buyers would pitch: ‘Take my card, and I’ll pay you much quicker.’”

Buyers may have followed through with that promise for the first few payment cycles, he continued, but gradually, they would revert back to longer payment terms — meaning suppliers saw no improvement in DSO, and yet were stuck bearing the cost of card acceptance.

Today, commercial card technology has evolved in a manner that now offers many more value propositions to both buyers and suppliers. For Boost Payment Solutions, an example of that is corporate buyers utilizing its Dynamic Boost platform to enforce the rules that have been established between the commercial trading partners – such as not allowing card payments to be processed after the mutually agreed-upon timeframe for acceptance between the buyer and the supplier has been exceeded. Card technology today can also handle the need for flexibility and choice in terms of dynamic pricing, with the capabilities of adding value that other rails can’t provide — for both the buyer and supplier.

But it’s up to the commercial card industry, Leavitt said, to clear those misconceptions, educate the B2B community and help expedite that process, Boost has established itself as a bridge between buyers, suppliers and commercial card issuers.

“From the supplier’s perspective, they can enjoy a less expensive way to manage their working capital, while at the same time receiving detailed remittance data in a format that can be easily ingested by their accounting system,” he noted. “That’s the big ‘a-ha’ moment that suppliers are now experiencing.”

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Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.

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