Credit Cards: The New Normal for Working Capital Financing?

By Pixie Sartang
Teaming up with various card issuers in the industry, Billhop provides enterprises with customised commercial cards that have extended credit lines.
Unlock financial flexibility with credit cards—extend payment terms, preserve cash, and manage cash flow effortlessly.

All businesses, regardless of size or industry, share a common objective: to extend Days Payable Outstanding (DPO) and reduce Days Sales Outstanding (DSO). 

Receiving payment before settling supplier invoices enables businesses to strengthen their financial position and concentrate on revenue-generating activities. Nonetheless, as is often the case, this is much easier said than done. 

In today’s increasingly interconnected and globalised world, corporations cannot escape the whims and volatility of the supply chain. 

Now, more than ever before, no man - or in this case - no corporation is an island. 

Overcoming payment delays 

Late payments set off a chain reaction that leads to more delayed payments. Extending your DPO is no longer an option but an absolute necessity as you grapple with late payments from your own buyers. 

Studies have shown that around 67% of companies intend to extend their supplier payment terms as a means to improve their working capital.

Due to the uneven power dynamic between smaller suppliers and their larger, more resourceful buyers, many suppliers find themselves in a tight spot.

There’s very little they can do without straining their relationships or putting their payments at risk. 

Traditional financing methods 

Traditional financing methods, such as bank loans and supplier chain financing, typically demand a strong corporate credit rating. 
Supply Chain Financing 

In supply chain financing, the buyer's credit rating must exceed the supplier's, as suppliers seek funding for their invoices from a bank or third-party provider.

This effectively limits the number of corporations that are eligible to apply for these loans.

Invoice discounting and factoring

Invoice discounting and factoring may also provide a quick alternative to bank loans for businesses with imperfect credit. 

However, they are not without significant risks, one of which includes late fees. Simply put, the later your customers pay, the more you will be charged. This is on top of the initial percentage fee that the supplier has already charged. 

For recourse factoring, corporations are liable for their customer’s debts and will have to buy back any unpaid invoices from factors. This could push them deeper into debt. 

In most cases, customers are aware that a factor has taken over the collection of their invoices, which might affect relationships and present a less-than-favourable image of a business. 

The case for corporate credit cards 

The case for using credit cards as a working capital solution is plain and simple: On top of accessing higher credit limits to pay suppliers on time and in full, corporations can provide up to 120 days of interest-free credit. 

It’s a short-term financing solution that does not appear as a debt on the balance sheet. 

By providing a means to unlock cash flow and improve working capital, credit cards effectively allow corporations to bridge the gap between when they have to pay their suppliers and when they get paid.

Unlike other financing options, card payments could be treated like accounts payable. Corporations can easily leverage their credit cards to foster a healthier balance sheet.

Most suppliers also offer early payments discounts. In fact, research has shown that suppliers typically provide a 4.1% discount for early payments. 

Honouring timely payments can cultivate robust supplier relationships, especially in the face of supply chain disruptions.

Card payments can be easily automated, unlike the time and resource-intensive nature of traditional purchase order processes.  

Low card-acceptance rates 

In contrast to the B2C landscape, card acceptance is abysmally low in the B2B sphere. 

This is largely attributed to the steep card processing costs, which cut into the already razor thin profit margins of many companies. 

This could explain why commercial card payments constitute less than four percent of the total value of B2B cheque transactions.

However, with the advent of new technologies and more strategic partnerships within the card payment rails, commercial card payments are becoming more commonplace. 

How Billhop works

Teaming up with various card issuers in the industry, Billhop provides enterprises with customised commercial cards that have extended credit lines.

Equipped with these credit cards, corporations can pay their suppliers by credit card - even those who do not accept card payments - and free up their cash flow.

Suppliers will receive payment by means of regular bank transfer so they do not need to be onboarded or make changes to their existing accounts receivable set-up.

This convenient solution provides a win-win for both buyers and suppliers, streamlining financial transactions and enhancing overall efficiency in the B2B landscape. 

Contact Billhop today to embark on a smoother and more efficient path to managing your business payments.

About the author  Pixie Sartang is Chief Product Officer at Billhop. Sartang has more than a decade of experience in both brand and strategic product development. Her background spans extensive work with both international and Nordic-based organisations across multiple global industries, with a key focus on the business-to-business (B2B) sector.​​​​​​​

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