Key Takeaways

  • A company can free up its cash flow, a crucial issue during the current crisis, by using credit card payments instead of other digital payment methods or paper checks.
  • SVB can help identify vendors that are a good fit for a card payments program. It can also onboard those vendors, saving a company’s AP team time and hassle.
  • Because SVB offers a revenue sharing model, companies that use its card can get back up to 1.5 percent of their spend and use it toward its bottom line.

Maximizing its corporate card program has helped the company’s payment flexibility

The global pandemic and quarantine lockdowns that have shuttered businesses and kept consumers from shopping have hit many companies hard. Sun Basket is not one of them.

In early May, two months into the crisis, the 6-year-old maker of oven-ready meals and meal kits had seen its sales nearly double with new customers, many of whom were under stay-at-home orders and hungry for its fresh, healthy and easy-to-prepare meals.

But that meant rising costs for everything from inventory to shipping, labor and TV advertising. With annual revenues over $200 million, the monthly spend was already hefty. The rapid growth could have easily created a liquidity crunch and disrupted operations. Fortunately, the company’s VP and Corporate Controller Todd Smith, a 20-plus-year veteran of the corporate finance world, had a plan.

Before the pandemic, Smith had started to transition significant amounts of the company’s monthly spend onto its credit card account, which, prior to his arrival in 2016, the company had barely used. The account could help to streamline operations, as well as offer strategic payment options and reduced costs in any environment. In today’s tough times, it offered a safety net.

Cash flow is more critical than ever

“The main reason we started to use our corporate card program more is to increase our credit capacity, improve cash flow, improve operational efficiencies and reduce costs,” says Smith. “It solves a number of business problems and provides a variety of payment and vendor management options.” Having payment options increases flexibility, and preserving investor capital is especially important at a venture-backed company like Sun Basket, Smith adds. “It allows us to expand our credit horizon and better manage the volatilities of an ever-changing working capital environment.”

With so many companies struggling to have sufficient cash on hand during the current crisis — not knowing how much they’ll need week to week as the pandemic wreaks almost daily havoc on their business forecasts — having a cushion is crucial. “Any time you have a payment that’s due today and can pay a month or two later, it’s a good thing,” says Smith.

Operational efficiencies

Sun Basket set up its corporate card program through SVB, which Smith says provides a number of operational benefits. For instance, when a company onboards a new vendor to its payables system, it performs a number of detailed administrative steps to ensure tax compliance, establish bank account and payment terms, as well as the storage of other vendor and accounting information. “Those vendor on-board steps take extra time and cycles,” says Smith. “It can be very disruptive, tedious and error prone. Using the SVB Corporate card lets us skip all that stuff. Our accounts payable team never has to touch the vendor, and all the compliance is handled by SVB.”

The corporate card program also increases a vendor’s trust in Sun Basket. Sometimes a new vendor will want to perform in-depth credit reviews, bank verifications and customer references, which may require the company to complete forms with proprietary information. “When we give them the corporate card to manage payments, there is no need for any credit review and revealing of confidential information,” says Smith. Using the SVB card also allows Sun Basket to avoid running up against low credit limits some vendors insist upon, and the resulting credit holds when those limits are breached. “It avoids vendor conflicts, which is very strategic,” Smith says.

The corporate card also brings other efficiencies to Smith’s operation. He gives each of his 30-plus department heads and managers a card tied to the company account, which allows them to charge things like office supplies, subscriptions and many other services, bypassing the accounts payable department. “We have a lean, mean, productive machine,” says Smith. “This allows us to scale so I don’t have to hire additional staff.” Because the transactions are digitally recorded in their monthly credit card statement, the AP team easily reconciles who paid for what and when.

This paperless system does away with unwieldy physical receipts and has all the information required for compliance. And managers who have questions about past payments can look them up on the SVB online portal, rather than having to request support from accounts payable. “We have even been able to customize the statement cycle to match our monthly fiscal close calendar, which is not on a calendar month basis,” Smith adds.

Changing Behaviors

It wasn’t always this way. When Smith first arrived at Sun Basket, the company had a very small credit limit. “The program was not really utilized in any strategic way,” Smith says. “It wasn’t really a focus.”

To integrate the card program into his team’s DNA, Smith had to convince a team accustomed to existing processes to start using the card to pay certain vendors. Some team members were hesitant, but Smith was able to explain the operational benefits and leverage it would give the accounts payable team. “Instead of resisting, let’s just get really good at this because credit cards are not going away,” Smith recalls telling them.

With the help of SVB’s Cards Team, Smith started by strategically identifying key suppliers that would be a good fit for accepting cards as payment, solving the biggest operational issues first. He first set his sights on one of the company’s largest vendors, a shipping and delivery partner. The vendor had strict terms that required payment every two weeks, and if payment was even a day past due, the company got hit with late penalty fees. “The vendor charged late fees on the late fees,” Smith says. “These aggressive late fees can really create friction in vendor relations.”

The friction could lead to endless cycles of trying to resolve disputes, lower credit limits or even a credit hold. “Sometimes the dollar amount might be small, but the hassle factor is high,” says Smith. “We might be ordering fresh mustard greens or almond milk that cost a few hundred dollars. They put us on credit hold and that brings our operations to a stop.” Now, all those hassles have gone away. “This eliminates all the friction around payments,” Smith says. “Having all our payments made on time gives us maximum leverage in the contract negotiation with the vendor. All the energy is on business substance.”

Sun Basket often uses the card to auto-pay essential services such as water and electricity in the company’s two national distribution centers. No late payments means no cuts to service, which could disrupt critical operations. And it uses the card to pay online for sales tax and city, state and county assessments, also avoiding potential processing hassles.

Contributing to the bottom line

Today, Smith estimates he has hundreds of vendors on the credit card. Many of them are small, the result of those department heads paying for things like ingredients for the test kitchen, the company’s AWS bill or spot purchases of capital equipment, replacement parts or emergency repair services.

He continues to add vendors, but he does it opportunistically building momentum on card volume. He often waits until something like a contract renewal comes up and then negotiates to put the vendor on card payments if it makes financial sense. While some suppliers said “no” in the past, either because of bank interchange fees or simply because they didn’t want to alter their normal process, many more are saying “yes” today. “The market has shifted, especially since COVID, because suppliers realize accepting card payments streamlines the process,” says Keith Erving, commercial card strategic accounts manager at SVB.

Sun Basket is also reaping the rewards of SVB’s revenue sharing model. The bank earns money from interchange fees on the cards and in turn offers cash-back rewards to Sun Basket on its overall spend. Smith looks at this as an investment in the AP team that helps offset costs. “The card is an extension and lever for the AP team,” Smith says. “It allows us to scale and grow the function without having to add heads in the future. Accounts payable may never be a net profit center. But this helps us scale our operations, reduce costs and enable the company’s objectives. All these things contribute directly to the bottom line.”

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