Travel Payments

Turning Commercial Card Credit Lines Into SMB Cash Flow Lifelines

Although commercial card products can offer working capital benefits on both ends of the B2B transaction, adoption lags behind other digital payment methods in accounts payable (AP) departments.

In Asia, the persistent challenge of vendor acceptance results in corporate cards being used mainly for travel and entertainment (T&E) spend, a category in which vendors like hotels and airlines are accustomed to card payments. And with the pandemic all but wiping out business trips, the commercial card could be at a crossroads.

While one route sees use of the corporate card fall by the wayside, there is another path to promote adoption across Asia, said Sanjiv Razdan, global head of commercial payments at Nium. The key, he told PYMNTS’ Karen Webster, is to approach the challenge of vendor acceptance from a new angle.

“As you look at Asia, acceptance [of commercial cards] is very limited to small payments and, more broadly, to the travel and entertainment space,” he said. “General acceptance is not there. So how do you break that acceptance paradigm?”

Overcoming The Acceptance Barrier

In an effort to drive commercial card spend into other categories like supplier payments, Nium recently introduced its BizPay offering, a solution that enables businesses to pay suppliers via commercial cards without requiring beneficiaries to modify behavior or infrastructure to accept card payments.

Razdan explained that by acting as the master merchant, Nium is able to accept funds from a card payment initiated by the buyer. Those funds are then passed through to the intended supplier predetermined by the buyer at the time the transaction was initiated. Nium then facilitates an electronic funds transfer to the supplier and can support either domestic transfers or cross-border transactions in the currency of an invoice.

In effect, the solution overcomes the barrier of a lack of supplier card acceptance by circumventing that need altogether. But the question still remains: What is the incentive for a company to use a card solution whose initial intended purpose was for business travel spend?

“When you talk about relevance, the fact still remains that there is a credit limit available on the company card product — it’s just not being used,” Razdan noted.

In addition to heightened visibility and access to reconciliation data, corporate cards connect businesses to a valuable line of credit. When it goes unused, companies could be missing out on a valuable opportunity to optimize working capital by paying vendors in a timely fashion while still taking advantage of extended payment terms — without the need for an external financing source.

Retooling The Revenue Stream

For both buyers and suppliers, the incentives for commercial card adoption continues to gain steam — particularly as the pandemic has added even more pressure on firms to optimize cash flows.

The economic challenges resulting from the pandemic are likely to have a material impact on bank lending as well. With T&E spend plummeting, banks are now finding it unprofitable to maintain high-value credit lines for corporates that don’t use them. As a result, said Razdan, some banks are either lowering firms’ credit limits or requesting additional collateral against existing credit lines.

For small- to medium-sized businesses (SMBs), the threat of reduced access to credit means ensuring that commercial credit card lines remain in place today, and opens up the ability for these firms to demonstrate their creditworthiness to banks for the future, said Razdan. Meanwhile, banks and card issuers also have a key motivation to promote commercial card adoption to preserve that revenue stream.

By overcoming the vendor acceptance barrier, the commercial card can foster a value chain for the B2B payments ecosystem, from buyers and suppliers to banks and issuers.

Suppliers have an opportunity to receive payments more quickly, while corporate buyers often gain the option of early payment discounts that they can access via card payments. Meanwhile, Razdan added, “the networks are happy because they see spend volumes increasing, and the issuers are happy because their credit limits are being used, rather than lying stagnant for the next six or eight months.”

In many markets, Asia included, the evolution of the commercial card has historically revolved around T&E spend, whether it is plastic or virtual. Although the pandemic has introduced significant, painful volatility for many firms, it has also opened up opportunities. Driving commercial card adoption through avenues other than T&E — and optimizing working capital for buyers and suppliers in the process — is one of them.

“The fact remains that issuers and networks have always wanted to address this opportunity beyond travel and entertainment,” said Razdan.


New PYMNTS Report: The CFO’s Guide To Digitizing B2B Payments – August 2020 

The CFO’s Guide To Digitizing B2B Payments, a PYMNTS and Comdata collaboration, examines how companies are updating their AP approaches to protect their cash flows, support their vendors and enable their financial departments to operate remotely.