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Transform Your Supplier Payments: Harnessing Untapped Benefits with Commercial Cards

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As originally featured in TMI, September 2023

Cards are rarely a go-to option when it comes to accounts payable, but advances in card solution design, rapid digitalisation globally and pressure on corporate treasury departments to improve cashflow are creating fresh momentum for the practice. In this article, part of a collaborative series between HSBC and Visa, two experts consider common misconceptions associated with the use of cards for supplier payments and outline how their deployment can support working capital strength for both buyers and sellers.

The use of corporate cards as an accounts payable (AP) tool has lagged significantly behind their application in streamlining employee expenses, notably business travel, where they have long been a standard solution. But economic turmoil, digital transformation, and increasing pressure on AP teams to cut costs and help boost cashflow are changing attitudes towards leveraging cards for making supplier payments.

Erwan Le Grand, European Head of Commercialisation & Account Management, Corporate Cards, Global Payments Solutions, HSBC, says there are several reasons why corporates have historically been reluctant to deploy card solutions for AP. First and foremost, the misconception of cards being ‘just for travel and entertainment’ (T&E) has been hard to dispel. Many corporates also have concerns that card deployment in the already complex world of supplier payments would be too massive an undertaking to merit the benefits.

But Le Grand believes it is time for corporates to reconsider this mindset. He says: “Cards are currently not the immediate go-to solution when considering, for example, extending payment terms and facilitating access to financing for suppliers. But we truly believe cards can be a viable supplier financing solution.”

A key factor supporting this conviction is the dramatic acceleration in digitalisation globally that Covid-19 triggered and that has impacted the market for cards, he says, adding: “Corporate cards are now being used much more globally and from our conversations with clients, it is clear there is greater interest in broadening their application from just T&E.”

Sibel Sirmagul, Regional Head of Product & Propositions, Global Trade Solutions, HSBC Europe, echoes Le Grand’s upbeat outlook for utilising cards for AP. She explains that in the past cards have been avoided for general procurement activities because they are – incorrectly – seen as difficult to integrate into existing procure-to-pay flows. That has meant their potential impact on working capital or payment process optimisation has often not been properly assessed solely focusing instead on the tail end of the supply chain.

She adds: “The situation has evolved. Card specialists in issuing banks are now more experienced at defining and designing solutions that deliver tangible benefits, not least when it comes to leveraging cards in tandem with supply chain finance [SCF].”

Foundations for success

Deploying any new solution for AP is always a sensitive issue for corporates, and they are likely to be even more cautious when it comes to using cards in new ways. Bringing the potential of cards as an AP tool to the corporate table is, therefore, something HSBC approaches with great care.

Sirmagul says: “Ensuring SCF and supply chain mechanisms are fit for purpose and resilient has never been more important for companies. That in itself is an extremely vital, sensitive conversation internally for the company. Getting it right from the very beginning of any major review of supplier payments, however, is critical.”

Le Grand also stresses the importance of thoroughly preparing the ground for any card solution. He says: “It is vital that the working capital challenge is clearly understood and articulated internally within the organisation ¬– and that this is reflected in the problem statement. Getting clear foundations in place from the start is essential. This is something your banking partner can help you with.”

As part of that process, Sirmagul strongly urges corporates to go to their bankers and invite their card experts in to run a workshop to help educate internal teams on potential solutions and the pros and cons for the organisation. This can also help treasurers and procurement managers to frame their business case to the board.

As well as helping the corporate to understand the benefits of deploying a card solution for AP, a bank like HSBC can also run an analysis of the organisation’s total supply chain. This enables an overview of where other opportunities exist alongside cards, such as synergies with SCF programmes. The bank can also quantify the working capital benefits and detail potential advantages over any legacy programme and process.”

Steps for assessing cards as an AP tool

There are many important discussions to be had before deciding on cards as the right solution for supplier payments. Key steps in this initial discovery phase include the need to:

- Establish a problem statement to pinpoint and detail the working capital challenges in the organisation.

- Invite bank and card experts to present to the company on the potential benefits and considerations of using cards for supplier payments.

- Work with bank specialists to complete an analysis of the company’s entire supply chain looking for inefficiencies which could be addressed through cards, especially alongside an SCF programme.

- Examine supplier acceptance to help address the long tail of small suppliers that are often unable to access SCF programmes. This involves ensuring suppliers accept credit card payments and educating those that do not around the benefits versus costs.

- Explore seamless technology – from using supplier payment portals to direct integration between the card provider and the corporate’s ERP. Automation can also be considered at this step.

Of course, the rolling out and maintenance of a card programme is a different matter altogether. And we will address these concepts in further articles in this series.

Financing the long tail

A key question for corporates, however, with any new AP strategy, and one that will certainly be top of mind for their boards, is whether it can address the entirety of spend. Will it include consideration of the company’s many smaller suppliers, for example? Especially those that SCF typically does not manage to capture?

Sirmagul says: “Most large corporates will have a long tail of small suppliers that they cannot onboard onto an SCF programme – but who could benefit from working capital support. As a bank, we can certainly help here. One of our biggest advantages, as opposed to a fintech or other third-party solution, is that HSBC can offer organisations the opportunity to use cards, which are much more palatable and accessible to many smaller suppliers than traditional supply chain financing tools.”

Built-in protection

Elsewhere, Le Grand highlights another major benefit of switching to a card solution: payment protection. He points out that all purchases on a corporate card would be protected against not only fraud but also any issues regarding delivery or the quality of the goods received. “That protection is built-in to our card solutions,” he says. “It provides additional peace of mind for buyers, especially when working with newer suppliers.”

Another plus of leveraging cards for supplier payments is access to a whole new universe of rich data that can be analysed and used to make processes even more efficient. Indeed, Le Grand says that corporate card users can count on more than 100 data elements which are automatically provided for each purchase made using a card helping the reconciliation efforts for both buyers and suppliers.

A world of efficiency opportunities

The deep data insights provided by cards, which cannot be derived from other payment channels, offer insights for long-term cash projections and can also prove integral for short-term cash flow management. From a treasury perspective, therefore, the control and transparency over this data can yield significant benefits in terms of working capital.

Meanwhile, procurement teams can engage in negotiations with frequently used suppliers, paving the way for category consolidation and additional cost reductions. Moreover, the information sourced from cards can pinpoint inefficiencies in corporate buying processes, identifying areas with excessive or inconsistent costs.

Through a detailed examination of this data, corporates can also discern instances where expenditures have diverged from preferred vendors, or detect emerging spending patterns which could become problematic. Having such a mine of information at their fingertips can also help corporates to rationalise their supplier base, perhaps cutting down the number of contracted suppliers purely thanks to the additional insights delivered through a card programme, says Le Grand.

Cards for digital alignment

Finally, Le Grand notes that cards can also play an important role in enabling a corporate to become as digital and automated as possible across its operations. HSBC has already started to make it easier for corporates, embedding card as a payment method in several platforms through alliances and this is due to grow significantly over the coming months.

He adds: “Our ambition for all our clients is that they seamlessly harness the benefits of the latest in card technology and solution design. We believe it can make a positive, tangible difference by helping to remove organisational siloes. The technology that card solutions are now built-on, which can easily be plugged into existing processes, can also help to overcome friction between internal stakeholders involved in AP processes, while reducing the number of touchpoints and applications involved in supplier payments.”

Sirmagul echoes these thoughts, concluding that: “Just like SCF, digitally-driven card solutions – when leveraged appropriately for supplier payments – really can be a win-win for all parties. But it is up to corporate treasury departments and procurement teams to start the internal discussions around rethinking cards as an AP tool. Only once that discussion is underway, can banks like HSBC add additional firepower to the business case for cards and bring the latest digital solutions and data analytics to bear.”

The benefits of using cards for supplier payments

The advantages of corporate cards over cash or cheques, as well as traditional SCF solutions, include:

- Cash flow management: using corporate cards can extend the period before cash leaves the business, effectively offering short-term credit and helping with working capital management.

- Enhanced security and protection: corporate cards often come with advanced security features such as fraud alerts, making transactions more secure than other traditional payment methods. Moreover, insurance is built-in, meaning there is recourse on all purchases. As such, if there are discrepancies in goods or services provided, cards can provide additional peace of mind and easier dispute resolution.

- Detailed data: cards offer treasury departments valuable data insights that can aid both long-term projections and short-term cash flow management. Procurement teams can also leverage this information for cost-saving negotiations and to pinpoint inefficiencies in corporate spending.

- Digital efficiencies: unlike physical cash or cheques, cards are natively digital. As such, cards can assist corporates in achieving further digitisation and automation. Cutting-edge card technology can also eliminate process bottlenecks and seamlessly integrate with corporate ERPs, smoothing out interactions among internal and external AP stakeholders.

Erwan Le Grand

Erwan Le Grand

European Head of Commercialisation & Account Management, Corporate Cards, Global Payments Solutions

Sibel Sirmagul

Sibel Sirmagul

Regional Head of Product & Propositions, Global Trade Solutions