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What happens when businesses start ordering goods and services again?


Commercial cards may play a vital role in helping small and medium sized businesses emerge from the current crisis.

by Nicki Bull Bisgaard

Created: December 15th 2020

Think forward a little while if you can. The scenario of a rapid build-up of activity in certain sectors once the current Covid-19 restrictions are lifted is both likely and welcome. Businesses and consumers will be rushing to get back in action to compensate for the long days of inactivity: to book overdue repairs, build up stock, bid for new contracts, organise events, or perhaps just to go out and celebrate with friends and colleagues.

This growth will not be without challenges of its own, however. In particular, working capital constraints will hold back cash starved businesses from taking new orders and providing their services. For certain sectors (such as hospitality, home repairs, small manufacturers, etc.), the ability to take advantage to sudden demand will depend on the company’s access to funds; to buy inventory and pay staff before they get paid themselves.

In particular, the SME sector will be restricted here if they don’t find ways of bridging the working capital gap – effectively the difference between their accounts payables and receivables. With cash and credit lines depleted at this stage, it will take time to rebuild a healthy business.

Small companies may find it difficult to do much about their payables situation; their suppliers will be in the same boat and not likely to be able to extend credit terms. One option is to pay using a corporate credit card, allowing you to pay on term and then take advantage of an average 45 days before settlement.

But it will be important also to look at ways to at least collect payment from your own customers as quickly as possible. There are several ways to improve the days-sales-outstanding (DSO) – the number of days it takes to collect an outstanding accounts receivable. If possible, companies should try to negotiate better payment terms with their customers now – perhaps against priority service or deliveries once trading starts up again. Meeting demand from customers who are willing to pay promptly helps build working capital and get a business restarted. It is, of course, also critical to be on top of the billing and make sure there is an efficient invoicing solution in place to get the right invoice out, with the right details, as soon as possible to reduce any delays in payment.

I would argue that using commercial cards can have a big role to play in helping the economy back on track, particularly in the small and medium enterprise market. If companies start taking card payments where this was not accepted before, they can reap some benefits quickly with minimal change or outlays. The card issuers and acquirers need to make the arguments clear and articulate the benefits of accepting payment via cards vs the cost of accepting.

In my experience, the winning arguments for card acceptance as:

  1. Payment is received within a day or two, vs 30-90 days with invoice-based bank transfers;
  2. Receipt of payment can be directly linked to the accounting system for easier reconciliation and reduced admin;
  3. Payment is separated from the invoicing, so not dependent on how efficient your accounts receivable function is; and
  4. Risk of fraud or non-payment is greatly reduced via the card networks.

I believe the cost of accepting card payments is often outweighed by savings in admin cost alone. However, it is the working capital benefit that should be the main driver of accepting cards when the world resumes trading. Paying an average 2-2.5% of the cost to be paid promptly and securely, should be easily compensated by the gross margin a company will make on the additional sales it can absorb with better cash flow.

So I would encourage banks and their clients to discuss how to get ready for a world without the brakes on and gear up now to capture as most lost ground as quickly as possible.


Nicki Bisgaard is CEO of PayTech Group