As procurement function has to deal with many small transactions, corporate cards provide distinct benefits for at least five different functions within a procurement department: treasury, accounts payable, financial systems, audit/compliance and budgeting/planning, explains Virginia Miller, Business Leader, CPS Product Development of MasterCard in this month’s SmartProcurement.
This white paper sets out the advantages for each of them:
• Treasury—Improved liquidity, lower payment costs, improved banking relationship, better visibility of cash flow, and elimination of cash advances;
• Accounts payable—Efficient payment, internal assignment of costs, and lower administrative costs;
• Financial Systems—Streamlined processes as companies can extend their Days Payable Outstanding (DPO) from the typical 30 days from date of Travel and Entertainment invoice to 46 days for payment by corporate card;
• Audit/Compliance—Control through proactive enforcement of travel policy and control through reporting; and
• Budgeting/Planning—Budget tracking and forecasting also explains the vital services cards perform for other key company stakeholders:
o Strategic sourcing, supplier negotiation, and tracking contracted spend
o Human Resources—Non-compliance deterrent, duty of care, temporary staff, and employee induction
o Travellers themselves – convenience and safety
When considering strategic options to help grow company revenues and increase customer loyalty, companies often neglect to consider changes to revenue collection methods in favour of product innovations and brand-awareness campaigns. This is potentially an oversight, as changing a company’s collections process can provide strategic advantage over its competitors.
For example, card acceptance at the point of purchase for business-to-business (B2B) transactions is a cost-effective way to manage collections. New research conducted by MasterCardwith Kaiser Associates studied the buying habits of corporate purchasing managers to evaluate the effect of card acceptance on corporate purchasing. The findings indicate that card acceptance can lead to increased revenues for card-accepting suppliers.
In fact, MasterCard found four revenue benefits for suppliers namely increased volume per customer; greater revenue consistency; increased likelihood of initial vendor selection and decreased customer churn.
REVENUE BENEFIT #1: Increased volume per customer
Many suppliers already know that buyers appreciate the value that cards offer. However,many suppliers don’t appreciate the extent to which buyers would alter their spending habits to realise this value. Customers are more likely to increase purchasing volume with a previously non-accepting supplier once it starts accepting cards. Data from the study indicates that this increase in volume results from three key drivers:
1. Buyer interest in consolidating suppliers: Card acceptance is a significant decision driver for buyers considering vendor consolidation opportunities.
2. Buyer willingness to substitute card for early pay discount: Suppliers lose top-line revenue when offering early pay discounts to incentivise speedy payment. By accepting cards at the point of purchase, even faster payments can be achieved, and without a reduction in price for the supplier.
3. Facilitation of ad-hoc purchasing: Cards provide a level of control and fraud prevention that’s often beyond what traditional payment methods can offer. An example of de-centralised purchasing occurs when a manager circumvents the traditional procurement processes, most often in the case of a time-sensitive purchase. By accepting cards, suppliers make themselves more available for this type of purchasing.
REVENUE BENEFIT #2: Greater revenue consistency
Paying with cards enables a more streamlined purchasing process for buyers. The streamlining effect comes from removing multiple manual processes such as the need to write a cheque or match an invoice to a payment. Data suggests that cards streamline the payment process so much that they encourage buyers to purchase more fre¬quently from their suppliers.
REVENUE BENEFIT #3: Increased likelihood of initial vendor selection
Buyers’ preference for using cards leads them to seek out card-accepting suppliers. This effect was observed across all spend categories, and was strongest in non-strategic spend categories. The top four spend categories with the greatest supplier selection effect due to card acceptance were fuel, travel, office equipment and printing services.
MasterCard has witnessed an increase in buyers using MasterCard’s Merchant Match Tool (MMT) – a database listing all MasterCard accepting B2B vendors. Adding card acceptance to a firm’s capability list – and thus gaining representation on MasterCard’s MMT – has proven to be a simple way to increase competitiveness.
REVENUE BENEFIT #4: Decreased customer churn
Suppliers appealing to buyers’ preference for using cards for purchases may see an increase in customer satisfaction. Managers in the study indicated that an increase in satisfaction would increase relationship longevity by over 60 percent. Card acceptance can thus facilitate considerable growth in the lifetime value of customers.
Why do buyers prefer cards?
• Purchasing control: Cards provide for protection against unintended and fraudulent purchases, errors, and misuse by employees.
• Level 3 data: Data provided at the line-item detail level allows for efficient reconciliation, tracking of purchases, and oversight of compliance.
• Payment float: Card billing cycles lengthen the gap between the time of purchase and the time of cash disbursement, helping to achieve lower working capital requirements.
• Streamlined enrolment: Eliminating trade credit mitigates the need for a vendor-sponsored background credit check thereby streamlining the vendor enrolment process.
The research conducted in this study reveals that buyer decision-making and purchasing habits are influenced considerably by the card acceptance status of a supplier. By opening up card acceptance as a payment option for business customers, suppliers can position themselves to earn higher revenues and better compete against their non-accepting competitors.