Business-to-Business (B2B) transactions by credit card have doubled in the past two years by U.S. companies to their suppliers. While still not high, B2B credit card usage is expected to represent 10% of all payments in 2014; and those numbers should grow with nearly 70% of business executives predicting an increase over the next three years and 90% anticipating a change from traditional paper check payments. With the rise of credit card usage, along with its added efficiencies and benefits, businesses should position themselves to take advantage of commercial cards.
Why use Commercial Credit Cards for B2B Payments?
Benefits of commercial cards are plenty and reasons to exploit their potential are growing. For one, commercial card programs help lower operating costs. These commercial card programs can help reduce the costs of purchase-to-pay processes, require less manual intervention and eliminate paper waste compared to checks.
Companies that switch to commercial cards have the opportunity to cut their cost of invoicing and processing payments by 50%. The automation of electronic invoicing combined with electronic commercial payments reduces administrative overhead by reducing the time spent processing paper payments and reconciling them to proper accounts under the traditional purchase order (PO) system, improving productivity. According to Visa®, the traditional PO costs about $90.20 per transaction compared to $20.38 per transaction with a purchasing card (P-card), a savings of nearly 80%. Commercial cards also allow businesses to get paid sooner, become more efficient and improve revenue cycles, as well as save money on a per transaction basis.
With robust reporting features for tracking activity, payments made through commercial payment cards have customized reports and detailed vendor data that enable the business to negotiate more favorable terms with their preferred suppliers. These reports will help a business identify inefficiencies and spending trends, which increases its ability to make informed purchasing decisions. Reports can also produce accurate expense tracking, utilizing fewer resources.
Risk management and control are areas where B2B credit card payments work extremely well. Issuing P-Cards to employees will help empower them to become more accountable and efficient. Every commercial card issued can come equipped with comprehensive transactional controls to limit and safeguard against unauthorized use of the card. Criteria for each card can be pre-set and will limit the card’s use to only specific merchant and SKU categories. For example, a card pre-set for office supplies would decline purchases of food or alcohol. The business can also establish dollar limits per transaction and an overall spending cap, further controlling and mitigating risk from the cards.
An additional benefit is the global acceptance of major credit cards. Whereas some companies struggle invoicing or other traditional accounts receivables payment methods when crossing borders, cards face no such barrier and can allow a business to search for competitive pricing anywhere.
Commercial cards possess the ability to increase workforce productivity while reducing a company’s costs and maximizing rebates. Should they replace checks? Leave a comment with your thoughts.