Paying your suppliers by credit card is a smart financial move that is good for cash flow, financial management and overall expense reduction. But to access these gains, your vendors must first agree to accept your card payments.
Your bank can help facilitate credit card expansion through a process called “supplier enablement,” but you can help get your suppliers on board by finding common ground with them.
Persuading suppliers will be easier if you understand the challenges from their perspective. Review the three areas below where they may see significant payoffs from the change, and use this information to support your conversation.
1. Guaranteed Funds, Shorter Terms
Your suppliers will incur processing fees for taking credit card payments, which often make them hesitant to accept cards. Offering to shorten payment terms, however, provides a strong incentive that can help overcome any reluctance on their part. Instead of paying by check 60 days after invoicing, for example, offer to pay in 14 days by card. Getting cash faster provides a significant working capital boost to the supplier, allowing them to put those funds to use immediately. With shorter payment terms, the overall value of accepting cards may offset the expense of fees.
What’s more, these funds are guaranteed and the payment will typically be funded in 24 to 48 hours — as opposed to paper checks, which can take more time to receive.
2. Simplified Accounts Receivable
Accepting payments and reconciling accounts is a far more efficient process for credit cards than for other forms of payment. When a business is paid by paper check, for example, that means someone must open envelopes, reconcile payments by scanner or by manual data entry, endorse the checks and, finally, deposit them. Credit card acceptance eliminates that paperwork, freeing up the supplier to focus on more strategic efforts.
When payments are made with virtual card numbers — unique, 16-digit numbers generated for specific transactions — it’s easier to identify and reconcile each payment. That helps both parties to more easily access and analyze payment data.
3. A Safe, Reliable Payment Process
Paper checks are the type of payment most frequently targeted for fraud — 71 percent of companies experience check fraud or attempted check fraud, according to a 2016 report from the Association for Financial Professionals. Your suppliers aren’t at risk of financial losses when fraudsters obtain your checks, but they will have to wait while you deal with the theft and issue re-payment. It’s in their best interest to be able to rely on secure, fast payments, and virtual card numbers deliver superior control compared to other, more traditional forms of payment.
Putting a faster and more secure payment process in place may contribute to a stronger relationship between your suppliers and your business.
Your bank may offer services to help facilitate credit card acceptance, including reviewing your vendor list, contacting suppliers and explaining the benefits. Whether or not you use such a service, it’s important for you to be able to explain the advantages that credit card payments will offer to your suppliers.
To learn more about supplier enablement services available via SVB’s Commercial Card program, contact your SVB Global Treasury and Payments Advisor.
Read more in our series about how to optimize your company's payments tools and processes on SVB's Payments Trends & Insights page.
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The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. You should obtain relevant and specific professional advice before making any investment or other decision. Silicon Valley Bank is not responsible for any cost, claim or loss associated with your use of this material.