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Unlock working capital and support your suppliers with commercial cards

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Repurposing existing corporate card programmes may provide a working capital lifeline for companies at a challenging time.

by Nicki Bull Bisgaard

Created: 30 September 2020

The Covid-19 pandemic has hit the global economy amidships, leading to supply chain fragility and subsequent cash flow challenges that are threatening businesses worldwide.

For businesses everywhere, cash flow is everything. CFO’s are looking at all the tools available to them to maintain working capital in these turbulent times. One knee jerk reaction may be to simply delay payments to suppliers, and it does have an immediate impact. However, it is also a pretty blunt instrument if the consequence is that the problem is transferred to suppliers who are themselves put under greater pressure. The interconnectedness within the economy where buyers are suppliers and vice versa, means that finding the right balance between cash flow and supply chain can be challenging.

Governments around the world are urging all businesses to act responsibly and not throw their suppliers under the bus through slow payment. Many are are showing the way themselves by advocating the wider use of Procurement Cards for public sector purchasing. For them the emphasis is not their working capital, but a realisation that their suppliers need liquidity and this is one way they can inject cash into the economy much quicker. In the private sector, some large companies such as supermarkets have also committed to do the same in order to protect their supply chains and keep their suppliers afloat.

Nicki Bull Bisgaard, Founder & Chairman, PayTech Group

For most private sector companies, commercial cards (such as Procurement Cards), can also be used to offer much needed working capital. However because these cards are frequently not administered by Treasury in the company, these credit lines are simply not in the line of sight when working capital financing tools are considered.

Whilst Procurement Cards have not gained significant traction in many countries, their counterparts, Corporate, Business and Virtual Cards are very widely used globally. However, for the most part, because business travel has now almost totally ceased, these credit lines are largely unutilised. And since this is in effect ‘free’ credit to companies they should act now before banks start to reduce these unutilised lines.

Whilst setting up new fully functional Procurement or Virtual Card programmes from scratch takes time, corporates should consider the possibility to re-purpose their existing corporate and business card programmes. In so doing they can maximise their working capital potential from these free credit lines through re-directing these purchases from business travel to indirect purchasing of goods and services.

As a result, businesses can utilise existing credit lines, improve their working capital at no cost to themselves, and at the same time significantly improve the cash flow of their suppliers. Each large corporate that adopts this approach could help themselves, and thousands of their long tail suppliers.

In deployment, companies should consider two different approaches based on their priorities:

  1. Pay on order – decentralised purchasing to designated employees to purchase – will deliver immediate supplier payment and modest working capital improvements
  2. Pay on invoice – centralised approach to pay approved invoices via Accounts Payable – maximise working capital, with suppliers paid on time

I would suggest that companies speak to their bank/ card issuer to discuss these approaches, and how they can assist. Your card issuer may need to change certain programme settings like merchant category blocking, cash access limits and single transaction limits to ensure that purchasing is still well controlled for tactical use immediately.