For businesses looking to optimize working capital and cashflow, leveraging a card program can provide a powerful solution. By strategically using card payments, companies can extend payment terms and generate rebates from their card provider. This unlocks substantial benefits to help hit cashflow targets while freeing up capital to invest in growth opportunities.
At its core, a card program enables payment of supplier invoices via virtual credit card rather than traditional check or ACH. The card number is provided to the supplier, who processes it like any other card payment they receive. The main benefit for the buyer is that they don’t have to pay right away. The card transactions get added to a monthly statement. At the end of the billing cycle, the total statement amount is due for payment after a set period of time, like 15, 30 or 60 days.
For example, let’s say your credit card billing cycle is for one month (31 days) and there is 30 days to settle the balance at the end of the period. If you make a purchase on October 1, the business would not have to pay that money back until November 30.
This delay to payment provides a free lending period to improve cashflow and working capital metrics. Businesses that use cards to extend payment timing out can often get use of that cash for a number of additional months.
To accept a virtual card payment suppliers have to pay a fee, typically 1.5-3.0% of the payment value. Therefore, to encourage suppliers to accept card payments costs, buyers often offer to settle invoices early using the card. This helps to improve the suppliers cashflow whilst still providing benefit to the buyer. It has been consistently proven that early payment incentivises many more suppliers to accept card payments (see our research), leading to more spend on care and bigger cashflow benefits for the buyer.
For example, if an invoice is due on 01 December but the buyer offers to pay 30 days early on 01 November. This transaction would appear on the November credit card statement and cash not would leave the account until 30 December, if there are 30 days to settle the billing cycle balance.
Leading card programs will automatically analyze supplier payment terms and offer to calculate the optimal date to pay on card for each supplier. This ensures companies can extend terms as desired and offer maximum incentives to the supplier via early payments.
By extending terms, businesses can realize working capital improvements in the tens millions or even hundreds of millions annually. The capital unlocked can be reinvested into growth, shored up for economic uncertainty, paid out to investors, or any other strategic need.
Card program fees from providers are easily covered by just a small fraction of the benefits. For many companies, the value delivered from cashflow maximization makes card a no-brainer strategy for healthy working capital management.
