Commercial Cards: Unlocking Opportunities in B2B Supply Chain Finance

In today's fast-paced business environment, efficiently managing cash flow and working capital is crucial for any enterprise's success. With their ability to enhance operational efficiency, optimize financial management, and ensure secure transactions, commercial cards are fast emerging as a valuable tool for accounts payable (A/P) and transforming supplier payments. Commercial card offers ‘Buy Now, Pay Later’ solution which makes a commercial card a good fit in the B2B payables financing space.

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Commercial Cards: An Opportunity

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The size of the small and medium business credit gap is often touted to be valued at $350 billion by various studies. Commercial cards provide businesses with the opportunity to extend payment terms, earn better discounts, optimize cash flow and allocate resources more effectively. Historically underutilized outside travel and entertainment (T&E) expenses, recent advancements and digitization are making cards more appealing for supplier payments. Commercial card offers a great opportunity to embed financing in the B2B account payables (A/P) and the account receivables (A/R).

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Overcoming Challenges for Growth of Commercial Cards

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With an estimated commercial card spends of ~$45 billion, which is less than 1% of the total business-to-business (B2B) payments by value. The low penetration is an opportunity for growth. The ecosystem stakeholders (card networks, lending institutions, fintech) need to solve for the below challenges:

1. Limited Issuance: Commercial credit card issuance is concentrated among a few private and foreign banks. The Public Sector and the Co-operative banks and the Non-Bank Finance Companies (NBFCs), who are amongst the large lenders to businesses, are not participating on the commercial card rails.
2. Low Acceptance: More investments need to flow into building card payment acceptance for B2B purchases and to drive adoption through improved customer experience for B2B payments made using a commercial card.
3. Credit Underwriting: To create attractiveness of commercial card the banks must allocate higher limits in line with corporate lending for other financial products and thus cover a larger value of B2B purchases such as inventory, spares, packaging, along with the SG&A expenses on commercial cards.

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Unlocking the Potential of Commercial Cards in Supply Chain Financing

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In a B2B purchase, the supplier (of goods and services) raises an invoice on the buyer, usually the B2B purchasing terms involves a deferred payment term of 30-45-60 days. In the real world these B2B payments are further are further delayed for various reasons, creating a financial stress in the supply chain for the small suppliers. By subscribing to a commercial credit card program, the buyer is able to make an early payment of their invoices using the bank credit line in lieu of the trade credit from the supplier. For the buyer their cashflow remains intact while for the supplier the commercial card payment becomes an alternative source of finance.

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A significant opportunity exists in B2B payable financing to embed commercial cards in the Invoice-Based Flows by investing resources in the below key areas:

1. Elevate Product Positioning: Transitioning the perception of cards from being retail payment tool to also serving as B2B products delivering efficient supply chain financing solutions to businesses.
2. Create a Holistic Value Proposition: Developing innovative and cost-efficient B2B card products and solutions which will deliver a safe and a straight through experience for card-to-account payments.
3. Collaborate to Win: Synergizing the technology agility of fintech-led supply chain financing platforms with their financial prudence, the banks (and NBFCs) can unlock new opportunities in supply chain flows.

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Conclusion

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Commercial cards are a powerful tool in the arsenal of supply chain finance, offering numerous benefits that can significantly enhance financial operations. From improved cash flow management to enhanced security and integration capabilities, commercial cards provide a robust solution for businesses looking to optimize their supply chain finance strategies.

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I believe that Commercial Cards will have a transformative impact and a crucial role in the future of supply chain finance.

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About the Author

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Currently, working with Cashinvoice as Head Partnerships and Initiatives. Has over two decades of rich experience in transaction banking and commercial card with reputed organizations.

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