Have you reviewed your e-payments strategy lately? Chances are, your company could be leveraging commercial cards to a greater financial benefit. Let's take a look at the five key components of an ideal and comprehensive e-payments program.
Starting with the component that gives businesses the most return on the time and effort it takes to migrate to e-payments, the core products that make up a commercial card program are each useful for different reasons:
- A purchasing card (p-card) goes beyond a traditional business credit card with advanced features like virtual card numbers (VCNs). These are single-use, unique credit card numbers generated in real time for a specific purchase amount, date and supplier. VCNs enable a company to use a p-card with greater confidence for larger purchase amounts. In 2007, the average p-card purchase was under $1,000; in 2013, many companies used p-cards for purchases up to $2,500. In addition, p-cards are being used for a wider variety of purchases, with some companies using p-cards to pay for goods and services in 59% of purchase categories. A big part of the reason for growth is improved efficiencies: p-card use eliminates the requisition, purchase order and invoice parts of the purchasing process.
- Travel and entertainment (T&E) cards are effective for companies that don't want their employees to purchase items on their own credit cards or for employees who don't want to worry about receiving timely reimbursement. According to RPMG, 68% of corporations expect travel card spending to increase through 2015. Spending controls, continuous monitoring and detailed reporting are key program features that improve employee compliance and curtail misuse.
- Electronic accounts payable (EAP) accounts are non-plastic purchasing accounts used to pay for invoiced goods and services. EAP accounts can be integrated with a direct file transmission platform which centralizes all payments processing (virtual card numbers, ACH and wires). EAP accounts can also enable different departments to issue distinct credit card numbers (through the use of ghost card accounts) that roll up to one corporate account. This allows finance to easily assign costs to departments and allows suppliers to charge the account directly (e.g., when a plastic p-card can't be used), while providing the company with payment float, insight and controls. EAP accounts also allow you to set dynamically adjustable spending limits that are assigned to match the transaction amount. According to RPMG, the number of companies using EAP accounts is expected to rise from 18% in 2013 to 43% in 2016. RPMG also revealed that the average EAP transaction was $4,727 in 2013, over 10 times larger than a typical purchasing card account transaction. Research shows that EAP use complements p-card spend, with 73% of EAP-using organizations indicating that EAP spending will not cannibalize purchasing card spending.
The automated clearinghouse (ACH) network was originally established in the 1970s to provide an alternative to using paper checks. The ACH uses a batch process, in which the individual transactions are created/initiated and then batched as one or many for release to the bank. These transactions typically take a few days to process. Today ACH payments are used for large volumes of credit and debit batched transactions, including regular direct deposit payroll and vendor payments. In fact, in 2013, $38.7 trillion was transferred over the ACH Network, an increase of nearly 5% over the previous year. According to the Electronic Payments Association (NACHA), the types of ACH transactions seeing increased use include online payments, business-to-business (B2B) payments (CTX and CCD transactions), consumer-initiated payments (CIE transactions) and recurring payments (PPD transactions) such as direct deposit via ACH.
A bill payments solution makes sense for regular or one-time small to mid-sized payments managed and distributed online, including recurring expenses, such as rent and equipment leases. Conveniently, web-based bill pay enables companies to view, manage and pay bills online and set up future and recurring payments from anywhere, any time. Companies also can define multiple users and establish various approval limits.
Wire transfers are used to make domestic and international high value and rapid direct bank-to-bank payments, including ad-hoc and one-time payments. Businesses typically use wire transfers to pay or receive funds same day—benefitting from nearly immediate and guaranteed availability of funds via secure, non-reversible transactions. This can be important for businesses that need to make an immediate purchase or cover an urgent business need.
5The backend stuff
Supporting all of these solutions are several essential backend systems, including an automated payment platform that integrates bill payment and accounting systems, a purchase control portal that securely generates virtual accounts for purchase requests, and a direct file transmission platform that centralizes all payments processing and that integrates with your ERP systems.
Why commercial cards make e-payments migration worth the effort
It's all about the data. Commercial card use provides companies with rich transaction data, as detailed as item description and quantity, which businesses can use to support various strategic initiatives. For example, many businesses analyze spending patterns across departments in order to negotiate better terms with suppliers. In fact, 27% of businesses leverage p-card data to get higher discounts for goods or services. Additionally, detailed reporting helps businesses identify account misuse and fraud quicker through automated reconciliation and the ability to monitor the spending patters of employees over time.
Although migration to e-payments (including commercial cards) may seem like a daunting process, the benefits are clear. There are many resources available to help your company transition as smoothly as possible. For example, at Silicon Valley Bank, we can analyze our clients' supplier base and provide a detailed roadmap on how to best convert from paper to e-payments. We handle the time-consuming supplier enablement process in close collaboration with our clients. We also work with our clients to design effective commercial card program controls and guidelines.
This is part one of our three-part blog series about e-payments and commercial cards:
- The 5 Components of a Comprehensive E-payments Strategy
- Top Ways to Improve Cash Flow and Grow with Commercial Cards
- 5 Keys to Successfully Implementing Your Commercial Card Program
Let Silicon Valley Bank help you realize the full potential of your card solutions.
Call 408 654-7400 or visit Commercial Cards.
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.