Payables Gets Carded: What You Need to Know about Today’s Innovative Card Solutions

01/01/2013

As treasury professionals continue their never ending quest to improve efficiencies and achieve greater cost savings across the entire payables process, the latest innovative card solutions hold tremendous promise for helping to attain these important goals. Cards are increasingly being seen as an effective tool for eliminating paper from payables, while enhancing efficiency and mitigating risk.

Commercial card solutions have long been established as a highly effective tool in the procurement and travel and entertainment (T&E) payment process, replacing cumbersome paper purchase orders with far more efficient electronic capabilities.

The emergence of new and innovative applications of the card solutions such as electronic cards payable or virtual cards is making dramatic inroads in payables and working capital management.

By leveraging commercial card programs more broadly to automate accounts payable processes, manage suppliers and improve working capital today’s treasury professionals have some powerful new tools to augment their payables arsenal.

Facilitating the Move from Paper to Electronic Payments

Electronic Accounts Payable solutions are optimal for a multitude of payment applications. For organizations that do a lot of manual processing, issuing large volumes of paper check payments to vendors through a batch-file process, card solutions can deliver significant back-office efficiency by eliminating the manual, time consuming paper processes.

Even organizations that don’t issue high volumes of payments can benefit from Electronic Accounts Payable. By transitioning from paper to electronic payments, virtually any business can achieve critical efficiency gains. Benefits of Electronic Accounts Payable include reduced check processing times, the ability to pay vendors faster, and the mitigation of fraud. Unlike check, ACH, or wire transfer payments, card payments carry no pertransaction fees and upon reaching spend thresholds, an organization can receive an annual rebate as a percentage of spend, representing a valuable new revenue stream.

In addition to the efficiency and cost savings made possible by Electronic Accounts Payable solutions, treasury also gains access to custom reports and data exports, which provide better visibility into an organization’s spend, putting treasury in a better position to more effectively manage the business.

Streamlining Both Ends of the Procure-to-Pay Process

Commercial cards are charge cards used by businesses to pay for business travel and the purchase of goods and services. They are designed to streamline both ends of the procure-to-pay process, while introducing greater levels of control and visibility to low-dollar, high-volume expense categories. According to the 2012 RPMG Purchasing Card Benchmark Survey, on average, commercial cards for purchasing result in processing cost savings of about $71 per transaction, a 76% improvement over manual transactions. From Winter 2013 Issue.

An effective commercial card solution should meet the needs of both buyers and suppliers. Depending on a buyer’s operating strategy, organizations are generally looking for a solution that will affect a positive improvement to working capital. By putting the right types of payments onto a card, a buyer can significantly extend their Days Payable Outstanding (DPO), thereby improving access to working capital. In the case of suppliers, the card solution must enable them to receive payments earlier so they can better manage inventory. Commercial card solutions can create a more holistic relationship between buyer and suppliers, helping both sides effectively manage their cash flow in the conversion cycle.

One of the most powerful benefits of commercial cards is their ability to provide automatic capture of transaction data at the point of sale, facilitating detailed reporting and vendor management. Treasury is able to monitor and control spending, checking to see if card-holders are going outside of policy and then ensuring they are spending with preferred vendors. This level of control would simply be impossible with paper-based payment processes. Card solutions are also of tremendous benefit to suppliers, enabling faster receipt of funds, eliminating manual processes such as invoice presentment and reducing exceptions and errors through access to improved remittance information.

A further benefit of commercial card solutions is the improved level of security they provide. Suppliers can be issued a virtual card number for a specific purchase, which in essence is a one-time use card, practically eliminating the chances of the card number being compromised. Fraud rates on commercial cards are significantly lower than those of checks or any other kind of commercial type payments.

Working With Your Banking Partner to Find the Right Card Solution

Treasury professionals should work with their banking partner to explore how the latest innovative card solutions fit within the scope of their overall treasury operation and how they can be utilized to achieve critical goals. At Fifth Third Bank, we’ve applied our intellectual curiosity to the development of a unique tool that analyzes client’s payables data, allowing the bank to work with treasury to uncover opportunities that are ripe for conversion to electronic payments, such as cards or ACH. Together, we map out an effective strategy for obtaining the return on capital that clients are looking for, achieving results through a build-out over time. This tool is part of a significant investment Fifth Third has made in enhancing its card platform over the past three years.

As organizations continue to expand their business on a global basis, treasury should consider the international capabilities of card solutions. Fifth Third offers chip and PIN card technology, which allows cardholders to use their cards internationally, so payments are processed with no delays. And at the same time, treasury can gain a single view of all payment activity from around the world. We provide clients with robust reporting and reconciliation information, enabling straight-through processing and posting to back-end systems.

Working closely with a banking partner, treasury can put together a holistic payables plan that will take them from strategy to execution to day-to-day operations.

Subject to credit review and approval. Fifth Third Bank. Member FDIC.

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