Corporate cards: why extended payment terms are just placebos

But is it so advantageous?

A few (decades) years ago, maybe. But it definitely isn't today. Extended payment terms are only placebos, they do nothing to improve a company's cash flow.

Clearly, corporate card issuers have no interest in offering excessively long payment terms. However, they are not the only ones to benefit from short payment cycles! Other stakeholders also benefit:

  • Employees who incur expenses
  • Merchants and suppliers
  • And the companies!

We explain why renegotiating payment terms with your corporate card issuer should no longer be a priority.


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Long payment terms are not the solution to business problems.

On the contrary.

Companies that demand long payment terms send a very bad signal to their contacts and partners.


Long credit is more often used to hide problems than to solve them.

By giving your cash flow an extra few days' respite, you cover up possible management problems but do not solve them. This is common enough that a request for a long payment term will tarnish your image with your business partners.


Asking for a delay is admitting that you have a cash flow problem.

By asking for 90 days of credit, you are making a confession to corporate card issuers and other partners. You are implicitly admitting that :

  •    You have little control over your spending and savings...
  •    You don't feed your Travel & Expenses (T&E) management tools with data flows from your corporate
       cards on a daily basis.
  •    You do not have true T&E processes in place or do not take advantage of them.
  •    You are not in a logic of improvement of your management procedures

Of course, in reality, a credit application can show a willingness to use one's capital and improve one's working capital requirements. However, for corporate card issuers, it is more likely that the request will come from a company that still processes expense reports on an Excel spreadsheet and only reimburses its employees once a month.

Why is this?

Because companies striving to optimize their T&E procedures know that they have much more to gain from improving their management than from getting a few extra days of credit.

The corporate card is an opportunity to make real savings and performance gains - which is far better than just a delay in payment.

In short, longer payment terms are just a placebo. It serves to cover ailments without dealing with them. Even partially cover, because your contacts are not fooled: a company that demands longer than average payment terms is rarely a company that is doing well.


Benefits of short payment cycles for employees

Many companies assume that the later the employees are debited, the better.

Why don't we ask their opinion?

  •    Would they prefer a deferred debit, with expense reimbursement once a month?
  •    Or a short payment term, with refunds within a few days?

Business travelers rarely choose a long payment term. It is imposed on them by the company. But they are at the heart of the T&E process, their opinion counts!

In theory, obtaining a long payment term is like offering a free line of credit to employees. As long as they issue their expense reports on time, they are reimbursed before being debited.

In reality, it's not that simple.

Using this line of credit requires extra rigor and management effort. It is difficult to force business travelers, who are increasingly demanding more flexibility when it comes to business travel, to use the appropriate means of payment and to keep business expenses separate from personal expenses.

Old-fashioned expense management does not promote employee productivity. With each business trip, employees spend time managing their expenses and issuing expense reports. Is it really up to them to manage the company's expenses?

On the other hand, a single monthly reimbursement does not help employees manage their personal cash flow. Business expenses interfere with personal expenses. Travelers are exposed to card blocking or refusal of payment due to exceptional business expenses.


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Advantages of short payment cycles for issuers and vendors

When purchasing a service with a corporate card, the provider is paid by the card issuer. The issuers therefore bear the advance payment of the costs until the payment is made by the client company.

Would it be enough to pay merchants later to grant longer credits to corporate customers? No, that would not be possible. The very model of the corporate card is based on the suppliers' guarantee that they will be paid quickly after the service has been provided and in a secure manner.

Thus, only the issuer bears the cost of a long credit. This is because the advance payment is not free of charge and depends on current interest rates. The agreement of a long credit is then invoiced to the client company:

  •    Either directly, at cost price
  •    Or indirectly, via repercussions on the other payment conditions (increase in costs, no premiums, etc.).

Negotiating credit extensions with issuers is therefore of little benefit to the company. It is a source of additional costs, whereas optimizing expense management with the corporate card is a savings opportunity.


The (real) advantages of the corporate card: alternatives to the long payment cycle

What is the ideal credit period?

So what payment term should you choose? Is the shorter the better?

References and payment term surveys, such as Atradius', indicate that standard corporate card payment terms generally meet the expectations of all stakeholders - i.e. 20-30 days credit.


What are the real benefits of the corporate card?

Negotiating payment terms longer than 30 days is not a sustainable solution. If interest rates rise, corporate card issuers will no longer be able to meet this demand without significantly increasing the bill.

So what should be negotiated? What are the benefits of the corporate card that you should take advantage of? Today, there are many alternatives that are more advantageous than longer payment cycles.


Improving expense and travel management

The credit period granted by the corporate card issuer has little impact on the problems concerning the management of expenses and business travel. On the other hand, simple optimizations are sufficient to resolve most of them.


To improve your Travel & Expenses (T&E) management, start by auditing your internal procedures.
  •    Interview all stakeholders involved in spending, including employees.
  •    List the problems encountered
  •    Identify adjustments and optimizations needed to improve the payment experience

The following optimizations address the most common T&E needs:
  •    Implementing an expense and travel management tool
  •    Setting up a lodged card or virtual cards
  •    Corporate cards can be backed by a company bank account or a travel account rather than employee accounts.
  •    Daily injection of corporate card data into the T&E tool
  •    Automate the reimbursement process after validation of expenses - so that employees are reimbursed within two days of expense approval.
  •    Configure and customize corporate cards according to the company's travel policy, employee profile and usage: create spending limits, define authorized geographical areas, limit cash withdrawals...
  •    Adopt a solution for dematerializing receipts and expense reports

Leveraging payment data
Data is the new black. Payment data is a gold mine for your expense management. And that's a good thing, because with the corporate card:
  •    Payment data is visible in real time (providing an immediate source of information).
  •    Payment data is dematerialized and automatically integrated into expense reports or reporting.
  •    Data quality standards are such that the storage of paper invoices may become obsolete.

By opting for short payment cycles, you align the travel data with your bank data. The statement of your travel expenses reflects the reality of your financial flows. Real-time visibility of your cash flow is essential to manage your business travel budget.

Modernize the business travel experience

Employees' expectations are changing. This is evidenced by the emergence of new players, particularly in Fintech, who focus on the user experience, the fluidity of their solutions and dematerialisation.

No solution is based on granting additional credit days.

As you will have understood, companies have less and less interest in delaying the payment of corporate card transactions. By providing an experience that meets employee expectations, they are promoting the adoption and proper use of the corporate card. The result: less non-compliant spending, more reliable data and greater control over corporate spending.


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