Cash & Liquidity Management
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Extending the Working Capital Toolkit

by Kevin Phalen, Head of Global Card and Comprehensive Payables, Bank of America Merrill Lynch

Managing working capital effectively is an essential task for every treasurer, but often there are limited tools at their disposal. One element of this is to enhance payments and collections, with a view to extending the period between collecting cash and making payments. However, every treasurer recognises that paying suppliers late may damage relationships and, in the case of strategic suppliers, jeopardise the stability of the supply chain. Consequently, a vital tool in treasurers’ inventory to optimise payment processes and working capital, whilst also enhancing payment information, is the use of commercial card programmes.

Commercial cards are familiar to many companies for managing travel & entertainment (T&E) expenses, and increasingly for purchasing both small and larger ticket items. Historically, the reasons for implementing these programmes were twofold: to increase convenience for employees, and to increase control over expenditure and approval processes. Companies that have adopted card programmes have also experienced a range of additional advantages. Notably, the access to detailed spend-related information has allowed travel and procurement managers to negotiate more favourable arrangements with suppliers. Treasurers and finance managers have also benefited considerably from card programmes by replacing a large volume of individual payments with a single payment to the programme provider. This results in huge cost savings, and a major working capital improvement, which is perhaps the single most compelling value proposition of commercial card programmes for treasurers.

No longer, therefore, are commercial card programmes exclusively the domain of travel and procurement managers. As a result of the significant working capital benefit, which could be up to 45 days, treasurers are recognising that commercial card programmes are powerful solutions in their working capital toolkit that can be applied effectively on a global basis. Since 2008, when liquidity constraints became more severe and risk and cost management became higher priorities, companies of all sizes have sought to extend their card programmes globally. Sometimes this involves just a few countries, and in other instances, a complete global solution.