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The obvious benefit of commercial cards is that businesses can hold on to cash for longer.

When maintaining capital becomes more difficult due to declining access to credit in today’s tough economy, corporate financial executives are under even greater pressure to better manage internal cash resources. Ross Plant, European Product Manager of Global Commercial Cards, explains how commercial card programs can make all the difference, helping maintain higher levels of working capital and improving liquidity.

Commercial cards, such as Travel & Entertainment (T & E) and purchasing cards, are becoming the payment tool of choice as treasurers recognise that the functionalities offered with commercial card programs are vital for their cash management function.

With the implementation of a card program companies can achieve dramatic efficiencies through the automation of business processes and the elimination of paper, while improving spend management as a result of greater visibility through the provision of comprehensive financial data. 

“A commercial card program can have a far-reaching positive impact on how a business manages its working capital: it can help strengthen cash management functions, refine the focus on strategic supplier relationships, improve spending controls, enhance cash resources and streamline payment processes,” Plant sums up the major reasons why companies of all sizes turn their attention to commercial card programs.

Commercial card programs improve cash flow
“The obvious benefit of commercial cards is that businesses can hold on to cash for longer”, states Plant. Longer payment cycles are the result of consolidating purchases on cards with only one monthly payment to the card-issuer’s financial institution instead of paying separately and more frequently to individual suppliers throughout a month. For example, clients of RBS’ commercial card programs have up to 56 days before their payment to the bank is due while RBS pays the suppliers within four days.

Commercial cards combine T&E expenses and purchasing
While commercial cards started off with the sole purpose of catering to the expense management needs of any business with employees that travel regularly, today’s cards very often combine T&E functionalities and the purchasing of goods and services.  An HMRC-approved purchasing programme provides additional transaction data from VAT-enabled suppliers which can be used for VAT reclaim purposes. “Our onecard combines travel and entertainment expenditure and everyday staff-purchasing spend on a single card’, Plant gives as one example.

Visibility, control and reporting
Alongside improving liquidity, the major benefit of commercial card programs lies in the provision of comprehensive financial data which would be otherwise very difficult and labour-intensive to obtain. Sophisticated management information systems provide finance executives with a portfolio of reporting and monitoring tools which are vital to manage cash flows efficiently around the globe. Typical features include:

• Track spending over longer periods of time (up to and over two years) to discover trends or cycles
• Provision of company expenditure reports in order to identify key suppliers and use this information to negotiate better deals
• Detailed information on employee spending to effectively manage and control staff expenses
• Coded expenses that allow the tracking of costs against specific projects / cost centres
• VAT compliant reports which HM Revenue and Customs will accept as electronic VAT evidence

Policy control
During challenging economic times compliance with company policies becomes even more important. With a high percentage of a company’s spend in the hands of employees, increased employee accountability is vital. Card programs can play a significant role in this area by providing control functionalities which, for example:

• allow card holders to only buy from certain suppliers
• limit staff expenses to a pre-defined level
• block cash transactions from ATMs

Furthermore, today’s commercial cards – whilst still offering travel insurance – also provide fraud protection via employee misuse cover insurances. 

Implementation of commercial cards programs
Plant appreciates that implementing a commercial card program isn’t a matter of days. “When deciding on a global card program you need to make sure you have the commitment from senior management to Finance, IT, Procurement and others”, he points out, adding that it pays to work with an experienced bank or vendor to ensure that all goes smoothly and efficiencies are maximised.

Critical for success is a seamless integration with a company’s existing accounting system.

“Our team of experts’ project-manage the implementation. Obviously, the tailoring of the system is vital. Some businesses look to improve their financial reporting to senior management, others require more specific information to identify cash traps and improve liquidity and some might want to focus on data which helps simplify their supplier management”, Plant explains. “Flexibility is key”, he continues. “A good partner ensures that the information system behind a commercial card reflects the information requirements of a business at a point in time.”