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.
Taking a global approach to commercial card solutions creates a new set of requirements beyond those of an in-country or regional programme. Firstly, companies require consistent experiences, common processes and standardised reporting across every country. Secondly, companies demand that their provider has the capacity and global reach to extend the programme into new countries as their requirements evolve. Thirdly, they want to be confident that the programme complies with local regulatory requirements in each country. Bank of America Merrill Lynch’s Commercial Card group delivers on all these aspects.
Our solutions are available in multiple countries in Asia, Europe, Latin America and North America and we are adding new countries continuously. By the end of 2012, we will offer solutions in more than 70 countries, including cross-border payment solutions.* Our global approach also applies to technology and service delivery. With our commitment to excellence, we continue to make a significant investment in our platforms and our operational centre in Chester, UK. This ensures a consistent approach to solution and service delivery, something that is much more difficult to offer if outsourced. Additionally, at Bank of America Merrill Lynch, our commercial card team is integrated within treasury services, which means we are perfectly positioned to advise companies on how commercial card programmes can operate in tandem with the other working capital solutions at their disposal. Consequently, with our local presence, bespoke working capital advisory expertise, and a centre of excellence for co-ordinating the design and delivery of our programmes, we deliver local services and regulatory compliance without compromising on global consistency in processes, technology or reporting.
Commercial card programmes have been transformed over recent years, with cross-regional and global opportunities, and significant advances in process automation, controls and security, and data richness. In many cases, plastic cards themselves have been superseded by virtual card numbers, further enhancing security and convenience. Whether implementing a commercial card solution for the first time, such as a T&E programme, or rolling out a sophisticated purchasing solution across regions, there is considerable value to be gained in terms of managing costs, automating processes, enforcing controls and enhancing data and reporting. Perhaps most importantly of all from a treasurer’s perspective, the resilience of the supply chain is increased by delivering substantial working capital benefits to both the company and its suppliers.
*Some of Bank of America Merrill Lynch's solutions are offered through local issuing banks.