Credit cards: The working capital tool for the digital era

by Corpay from the Special Edition Newsletter April 2022

By Matthew McGrath, Director, Corpay

The push for digital transformation and the rise of remote work are bringing the era of paying vendors by paper check to an end. In that era, check float was a time-honored tool for increasing working capital. In the digital era, we have a much better tool: credit cards.

Working capital isn’t the first thing people think about credit cards in the context of vendor payments, but maybe it should be. The concept is the same as with check float: Extend your days payable outstanding and hang on to your cash longer. Credit cards let you do that with much more flexibility and control, and the rebate is a cherry on top.

With the breadth of products in the market today, there’s a card that can support any working capital goal. The key is to think strategically.

More acceptable than you think

Most AP departments have a plastic card sitting in someone’s drawer that they use to pay a few vendors. It’s convenient and it generates some cash back for them.

They’d maybe like to pay more vendors via card, but reaching out to vendors to ask them to accept card payments is a big effort. They’re busy, and they’re sure their vendors will freak out about the extra cost, so they don’t ask.

The reality is, an increasing number of vendors accept card payments, for many reasons. Card payments are secure–they don’t have to expose their bank account number. They get their money faster and don’t have to worry about collections. And, it’s just good business to offer customers convenience and choice. Most companies could pay a lot more vendors by card.

The easiest way to borrow

There’s no easier way to borrow money. Depending on your costs of borrowing, it could be less expensive than tapping a credit line. There are no fees or interest charged for the money borrowed with a card unless payment terms are not met and you can take advantage of early pay discounts and earn a rebate. You get all these benefits and hold on to your cash longer.

Card products fall into two categories: Plastic and virtual. Plastic P-cards and T&E cards are great for ad hoc and departmental expenses where vendor acceptance is already high (think hotels, restaurants, office supplies, etc.) and the dollar amounts are low enough that it doesn’t make sense to require a purchase order. You can customize them with category and vendor restrictions, and spending limits that automatically keep people within company policy.

If keeping more of your cash on hand for longer is your goal, there are card programs that could allow you to extend DPO out as long as 45 days. The tradeoff is that your rebate will be a bit lower. If you have great cash flow, a card with weekly or biweekly statements and terms, or even a prepaid card might be the way to go.

The best kept secret

Virtual cards are completely digital and are best for paying invoices. They may be the best kept secret in B2B payments. According to the 2022 AFP Payments Cost Benchmark Survey, just 25% of organizations surveyed said they used them.

Extended terms are less common, but since these are used to pay invoices, you probably have a PO, negotiated payment terms and cash set aside. The dollar amounts are usually higher, so there’s more rebate potential.

Virtual cards offer unparalleled protection against fraud. The number can only be used once. There is no physical card that can be stolen or have the number copied and misused. Similar to a check, it is “paid to the order of” a specific vendor, in an exact amount. But it can’t be processed without the unique details associated with a specific virtual card (16 digit card number and CVV Code, etc.).

A B2B acceptance network

The biggest challenge with card programs has been vendor enablement. Card companies have spent decades building out their merchant acceptance networks, and plastic cards are now widely accepted for consumer purchases. They haven’t put the same amount of effort into B2B card acceptance networks.

If you do a card program through a bank, they may help enable your top vendors. But to really take advantage of any card program, it has been up to each business to reach out to their own vendors to find out who will accept cards.

What we’ve been doing at Corpay is building a vendor network that we pay regularly via card. We are approaching 1 million vendors in our network. This network allows us to better estimate the benefits of one of our card programs for your business. When you use Corpay as your payments provider you are able to take advantage of our robust vendor enrollment team whose sole job is to maximize card acceptance to increase your rebate and add efficiencies to the payment process.

Over the past couple of years, we’ve seen a lot of movement off of checks and toward electronic vendor payments. Most of that volume has shifted to either ACH or card payments. Credit cards remain underleveraged. They offer benefits that no other payment type can match, and should be a key part of your payments and working capital strategy.

Other articles from this Special Edition Newsletter

Corpay is a global leader in business payments, helping companies of all sizes better track, manage and pay their expenses. Corpay provides customers with a comprehensive suite of online payment solutions including Bill Payment, AP Automation, Cross-Border Payments, Currency Risk Management, and Commercial Card Programs. As the largest commercial issuer of Mastercard in North America, Corpay handles over three billion transactions each year. Corpay is part of the FLEETCOR (NYSE: FLT) portfolio of brands.