Corporate treasury professionals are focused on improving cash flow, managing working capital and increasing operational efficiency. A significant part of this process involves optimizing payments and accounts payable (AP) to ensure liquidity while also maintaining strong relationships with suppliers. Using corporate credit cards for supplier payments is fast becoming an effective strategy for achieving that aim.
Here are six key ways treasurers can better manage cash flow and working capital by leveraging credit cards as a financial tool:
1. Extend Payment Terms without Straining Supplier Relations
Suppliers often require prompt payments to maintain their own cash flow, but businesses may prefer to hold onto their cash longer to improve liquidity. Using credit cards for payments can be a win-win solution. Buyers can extend their payment terms by utilizing the 55-day grace period built in to a corporate card, without delaying payments to suppliers. This improves working capital management for the buyer while ensuring the supplier gets paid promptly, fostering stronger relationships.
As getting paid on time is becoming less normal, most buyers with a corporate card are choosing to leverage the extra 55 days, by paying suppliers early – a counter-intuitive yet positive move, securing a preferred customer status with suppliers.
Pro tip: Split the 55 days with the supplier – use your credit card to pay suppliers early and extend your own cash retention, at the same time.
2. Increase Cash Flow Flexibility
Cash flow forecasting and management are top priorities in the treasury game; and particularly so in volatile economic environments. By integrating credit cards into the AP process, companies can gain more flexibility in managing outflows. Instead of paying suppliers directly from cash reserves, which impacts liquidity, companies can consolidate payments through credit cards and settle the balance later, helping preserve cash reserves for longer periods.
This also aids in aligning outgoing payments with incoming revenues, creating a smoother cash flow cycle, which is crucial for treasury management.
Pro tip: Align credit card payment dates with revenue inflows to optimize liquidity cycles and mitigate potential shortfalls.
3. Automate and Streamline Accounts Payable
Automation is a major driver of efficiency in corporate treasury functions. When credit cards are used for supplier payments, it simplifies the AP process by consolidating multiple payments into a single monthly transaction. This reduces the administrative burden of handling numerous invoices and processing multiple bank transfers, which can involve time-consuming manual entry and reconciliation.
B2B payment solutions can integrate with ERP and treasury management systems (TMS), enabling automatic reconciliation, reducing errors and enhancing visibility into payment data. This not only saves time but gives treasurers more control over their cash flow forecasting too.
Pro tip: Integrate a card-to-bank solution into your ERP system to fully automate AP processes and reduce reconciliation times by up to 80%.
4. Maximize Working Capital with Rebates
Many corporate credit cards offer cash-back (or rebates) on purchases. While treasurers may traditionally view credit cards as a mere payment tool, leveraging these benefits can turn routine transactions into an opportunity to optimize working capital. These rebates effectively reduce the cost of goods or services, freeing up additional capital that can be reinvested into the business or be used for other treasury objectives.
In most cases, cash rebates earned on supplier payments can be used to offset operational expenses, ultimately improving the company’s bottom line.
Pro tip: Track and strategically utilize cash-back earned through supplier payments to offset future costs or reinvest in your working capital pool.
5. Enhance Payment Security and Mitigate Fraud Risks
Treasurers are always concerned about fraud (and rightfully so!), particularly as the digitalization of payments grows. Paying suppliers via credit cards introduces additional layers of security, such as encryption and tokenization, reducing the risk of fraud compared to traditional payment methods like cheques or bank transfers. In addition, most credit card issuers offer fraud detection tools and protection policies that minimize liability in case of unauthorized transactions.
This higher level of security can save companies from costly breaches and provide peace of mind, enabling treasurers to focus on strategic financial planning rather than worrying about potential fraud losses.
Pro tip: Use your credit card provider’s fraud detection software to monitor and flag any suspicious activity, preventing costly breaches before they escalate.
6. Improve Supplier Relationships through Payment Certainty
While suppliers value certainty in payments, delayed payments can strain business relationships. Credit cards provide a reliable and predictable payment method that helps strengthen supplier relationships. Suppliers are paid into their bank account, sometime within hours, when using a credit card, reducing their payment uncertainty. This reliability can also position your company as a preferred customer, leading to potential advantages like more favourable terms, pricing and early access to products and services.
Similarly, suppliers benefit from lower financing costs, as credit card payments eliminate the need for them to rely on expensive invoice discounting, factoring or short-term loans to bridge cash flow gaps.
Pro tip: Use a B2B card-to-bank solution that enables you to pay suppliers by card (even if they don’t accept cards) to secure better payment terms, reduce financing costs and access discounts.
Unlock Treasury Efficiency
For corporate treasurers, the primary goal is to ensure effective cash flow management while maintaining strong relationships with suppliers. By incorporating credit cards into the AP process, treasurers can achieve both goals simultaneously. Corporate credit cards provide the flexibility to extend payment terms, streamline AP processes, reduce costs through rebates, enhance security and improve supplier relations – all of which contribute to more efficient working capital management. As treasury functions continue to evolve in an increasingly digital and real-time payment environment, credit card payments offer a practical solution for businesses looking to optimize their cash flow while driving operational efficiencies at the same time. For treasury professionals, this represents a key strategic opportunity to future-proof their payment process and enhance the overall financial health of the organization.
