01 December 2014

Cards strategy: an integral part of effective payments management

Historically corporate cards have fallen under the purview of the Travel Manager, with specific programmes and providers being chosen via a standard tender process overseen by Purchasing. However, as businesses continue to look for simplified payments processes and the ability to gain more control over working capital – cards-based payments are increasingly becoming a more logical fit within Treasury and Finance to support a holistic payments and cash management agenda

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By moving beyond travel and entertainment (T&E) and other day-to-day business expenses, cards can be a vital tool in a company’s payment mix for reducing costs and improving supplier relationships.


Peggy Yankovich is Global Head of Corporate Cards for HSBC’s Global Payment and Cash Management Group. She leads the global strategy, development, commercialization and optimization for Corporate Card Products and solutions.

Over time, cards have evolved from T&E to purchasing and more recently to virtual card buyer-initiated payments. This evolution has brought with it a critical enhancement to cash flow management in the form of increased controls, streamlined processes and reduced costs.

Today’s treasuries are looking for partners who can deliver full-service, one-stop-shopping for a wide range of payment types – from traditional payments including SEPA, BACS and ACH, to cross-border settlements with built in FX pricing and supplier financing, to file-based card payments.

“Savvy CFOs have begun to recognise the cash management benefits cards can offer,” says Peggy Yankovich, Senior Vice President and Global Head of Corporate Cards for HSBC’s Global Payments and Cash Management Group. “Today’s treasuries are looking for partners who can deliver a full-service, one-stop-shop for a wide range of payment types – from traditional payments including SEPA, BACS and ACH, to cross-border settlements with built in FX pricing and supplier financing, to file-based card payments.” In addition to this, Yankovich adds, companies want solutions that offer a consistency of service for easy integration into existing processes and financial management platforms, and greater efficiency and economies of scale in markets around the world.


An effective cash management tool

Cards work as an effective cash management tool for all types and sizes of business, and at all stages of growth and development. For example, when a company’s cash position is low they can push a wider range of purchases through cards in order to defer payments. This includes regular business expenses such as employee travel and office supplies, as well as any vendor or service provider that will take a credit card – from advertisers and printers, to utilities and global suppliers.

With a typical 30-day billing cycle and payments due 25 days after the statement date, using cards to make payments can help companies hold on to cash longer with as much as a 55-day float. Alternatively, cash rich businesses can design card programmes that offer rebates or reinvestment at various spending benchmarks to continue building on liquidity reserves.

For payments not initiated by a corporate card, virtual card programmes deliver similar benefits with increased float and potential rebates. These programmes manage the final phase of a transaction – payment and settlement only. All other purchase order and invoice processes remain the same. With this, payments that would traditionally be made by cheque are converted into card transactions to further streamline processes and reduce costs. There is also no physical card. Instead, individual account numbers are generated for each transaction, which adds security.

Savvy CFOs have begun to recognise the cash management benefits cards can offer.

Whether traditional or virtual, cards-based payments can also strengthen supplier relationships by giving them access to payments earlier than typical purchase order and check processes. This is an ideal solution for companies that might not qualify for supplier finance programmes through normal channels as it effectively reduces Days Sales Outstanding (DSO) for suppliers while also helping businesses maintain or in some cases even lengthen their own Days Payable Outstanding (DPO).

Link to diagram 1: Purchasing Cards are used for procurement spend and offer enhanced data details supporting client payables reconciliation process


Card Payment Solution Overview

As a cash management strategy, cards-based payments can:

  • Help reduce the number of POs that need to be processed.
  • Increase savings by replacing hundreds of invoices with a single payment per month.
  • Reduce the need for petty cash altogether.
  • Increase control over outgoing cash with the ability to set transaction and monthly limits, as well as implement supplier and MCC blocks.
  • Further support the move from paper-intensive operations to more automated, electronic environments.

Enhanced visibility adds control

Cards are quickly becoming a significant component of larger treasury initiatives, effectively supporting everything from cutting costs and negotiating better deals with suppliers, to enhancing cash flow and improving working capital.

According to Yankovich, the key here is gaining knowledge through easy access to reporting. “Card programmes by their nature capture more data at the point of payment, much more than is available in a check-based environment,” she explains. “Global, summary level transaction reporting consolidates information across all business locations, giving companies much deeper visibility into spending and outgoing payments by country and supplier.”

To simplify expense management further, reports can be delivered in daily transmission files that are formatted for seamless integration into third-party applications such as Concur, SAP and Oracle, among others. This, Yankovich says, provides treasury with the critical insight necessary to realise their primary objectives.


Stakeholder involvement critical for success

When part of a total solution, cards can enhance a company’s ability to monitor, manage and reconcile payments – ultimately helping them gain more control over outgoing cash to improve working capital. Implementing a global B2B cards programme designed to realise these goals, however, requires getting the right stakeholders involved from the outset. These include representatives from the following departments:

  • Procurement:

Contract Negotiations and Project Management: These teams perform internal project analysis, validate supplier and end user criteria and define the programme administrator’s role and monitoring processes as well as support end user/supplier enablement.

  • Accounts Payable:

To provide input into the set up of ERP data feeds content and designate a process owner for handling ERP data integration and supplier payment detail maintenance.

  • Systems and IT:

Giving additional input into the set of up ERP data formats and content, and supports export routine of validation tables for GCMs and import routine for ERP data feeds.

  • Compliance and Audit:

Here, specialists offer guidance on compliance and audit process requirements and identify a person responsible for programme auditing (if it does not already reside within the Programme Administrator role).

  • Finance:

To provide input to project scoping, compliance and audit processes, and finance reporting requirements.

  • Treasury:

Adding input on project scoping and other functions specific to the particular business.


A holistic view of payments processes

This type of cross-functional support for a B2B cards programme is pivotal to its success, say Yankovich. “In HSBC’s experience, programmes that take the conventional path of a Procurement led tender process followed by an introduction to the wider business only at the point of implementation typically under perform.”

To achieve this, it’s important to move away from the view that cards are a standalone solution. While cards do offer the benefits of simplified expense management from an employee spending perspective, the streamlined flow of information can deliver much more to a company’s cash management processes and the overall working capital strategy.

As a result, the right provider must offer a full suite of payments solutions from local and regional, to international and multi-currency; as well as high and low value, bulk or single payments, and in paper, plastic and electronic formats. The ideal cards solution would deliver one seamless process that integrates easily into existing payments flows and minimises the complexities and financial impact of foreign exchange.

Card programmes by their nature capture more data at the point of payment, much more than is available in a check-based environment.

For a multinational payment solution, it is advantageous for companies to look to a full service international bank – one that not only has the suite of products necessary, but also offers superior connectivity across all markets to support global initiatives. And since no two businesses are alike, a partner with the expertise to provide a consultative approach to each situation will help ensure success. This involves gaining a greater understanding of the businesses’ unique needs and objectives across all functional areas and fully analysing existing processes and inefficiencies to recommend a mix of products and services to create a holistic payments and cash management solution.

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