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Flipping a Cost-Center into a Profit-Center via Card Payment

In Business We Can Choose to  Play Smart, not Play Hard

Everybody knows that payment comes with a cost, especially when using financing facilities to prolong the payment term. The cost of financing will be expensive using unsecured loan products. Therefore, financing and payment infrastructure are made to serve the payor better in terms of security, speed, and price (relative to the payment speed or tenure). Whoever players can provide payment and financing at ease, with fair prices and trusted rails, will be preferred by the market. 

A 4PL company has successfully leveraged technology to turn payment from a cost center to a profit center. A 4PL company outsourced some 3PL players depending on their specialty in logistics industries. Their 3PL utilizes their fleet and outsources some from the local transporter. The local transporter must be paid in advance to perform deliveries, but the 3PL companies offer a term of payment to their client to fulfill the requirements of their clients. This condition has shaped the best practices in the logistics industry. Therefore, 3PL companies must balance their assets and cash flow. 

The Opportunities That Lie in Payment Terms within B2B Transaction

For the 3PL companies, investing in more assets is risky in the long term; not only will their business process be more complex due to maintenance and depreciation, but it will also increase the fixed cost of their business. But, in some cases, they cannot handle the required cash flow to ask local transporters to perform deliveries for big projects. They need flexibility in receiving cash and are willing to reduce their profit margin. Applying for financing facilities from a bank is not an option due to the lengthy process, and using multi-finance and peer-to-peer lending is also not feasible due to the high cost of funds. What can be done is simply: (1.) provide an early payment discount to their buyer, and (2.) pay in advance to the local transporter but with credit card payment to prolong the payment term. Unfortunately, they don’t know that option two is available, although the local transporter does not accept card payments. 

The 4PL companies, acting as clients of the 3PL business, leverage this situation. They are willing to pay in advance just before delivery if the early payment discount matches their requirements. By doing this way, the 4PL companies pay around 14 to 30 days in advance, depending on the 3PL. Although they have no cash in hand, they perform the payment with a credit card and pay a percentage of a service fee. The discount offered by 3PL is higher than the service fee, leaving some percentage of the spread that acts as a profit for the company. By doing this, the more volume they pay in advance, the more profit they get without sacrificing anything, including cash flow. Moreover, by adjusting the payment date, the companies can enjoy a prolonged payment term from banks of up to 45 days, resulting in an additional 15 - 31 days of payment term enjoyed by the 4PL.

Leveraging More Bonus on Supply Chain Digital Platform can facilitate card payments to your suppliers even if they are not accepting card payments. Multiple invoices can be paid at once, ensuring seamless and scalable payment processes. Our technology enables automatic payment reconciliation and real-time notification for the payor and receiver. Therefore, the supplier will know their invoice has been paid and settled into their bank account in time. 

Not only helping on the payables side, invoicing and payment solutions can be adopted to the receivables side, where the invoice sent to the customer can be paid by multiple payment methods, including most major banks in Indonesia and credit cards. Hence, a user can provide additional payment terms to their customer by leveraging credit card payment. 

All of these commercial benefit is also wrapped by intelligent technology that ease the finance, procurement, and sales operations by ensuring seamless and automated procure-to-pay and order-to-cash, resulting in faster invoice processing, reduced operational effort, decreased Day Sales Outstanding (DSO), and minimized fraud. We believe that each business is unique, along with its complexity. That’s why we built our modular product and complement our solution with experienced business consultants ready to tailor our solution based on your primary needs. Learn more about how can streamline your procure-to-pay and order-to-cash process and book our time now.

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