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Helping Your Clients Get Cash Back on Purchases

Jillian Straw
Posted by Jillian Straw on Apr 1, 2022 12:24:51 PM

When you think about your client’s business plan and financial health, you’re probably thinking about wide-ranging details, from sales forecasts to expenses. But what about the role that cash back programs can play in their (and your) businesses?

While it may be a relatively small portion of overall financial health, cash back can add up to be a significant, consistent source of funds over time. It is frequently overlooked as a revenue center for companies.

Here, we’ll explore how you can help turn Accounts Payable (AP) into a source of profit. First, we’ll examine how corporate cards work, including who pays for the cash back. Then, we’ll cover why the cash back from these cards can benefit both accounting firms and clients.

Cash Back with Card Spend

Most of us first become familiar with the concept of earning “cash back” through personal credit cards. The cash back perk refers to getting a refund of a certain percentage of what you spend on the card. While cash back is certainly a great reward for your personal credit card, it can be leveraged for a business as well.

Most businesses either use a debit or credit card for earning cash back. Both can be used to streamline vendor payments, employee spending, and the employee reimbursement process, but they come with different benefits and restrictions.

Corporate Credit Card vs Debit Card

Understanding the differences between corporate credit and debit cards is the first step to deciding which option is best for your clients.

A corporate debit card withdraws expenses directly from the balance of a business checking bank account. It allows your client to manage expenses without potentially accruing debt or paying interest, and you can also usually place limits or security controls on how funds are spent. A debit card also doesn’t require a credit check, so it isn’t reliant on verifying credit history or a personal guarantee as part of the application process.

Corporate credit cards may come with interest or annual fees. Just like with a debit card, you may also be able to control spending options with a credit card. Most significantly, credit cards require approval from a financial institution, which means they will require the scrutiny of a credit check.

For many businesses, the benefits of a corporate debit card allow them to issue cards across the organization. Employees can use the payment method for expenses without dealing with burdensome requirements of a certain balance or credit score.

As Jake Vandermeer, CFO of Clutch Coffee summarized, “Most corporate cards out there don’t work for us because of stringent cash balance requirements… corporate debit cards are way simpler. I can issue one with a single click, control the card’s rules myself, and monitor all of my purchase activity in real time.”

Who Pays for Cash Back?

Of course, for many clients, the first question that comes to mind is: well, cash back sounds great, but who pays for it? It’s easy to assume that the card vendor charges a fee or marks up services.

However, cash back rewards are based on a simpler idea: many vendors want to receive payment quickly and reliably — and they are willing to pay for those benefits.

“Days Sales Outstanding” (DSO) is a common metric for vendors, measuring the average number of days it takes to collect payments due from customers. Companies are constantly trying to optimize their DSO because it affects cash flow, liquidity, and cash reserves.

Especially in times of economic fluctuation, getting paid promptly is a priority for companies. In the past, many vendors even offered discounts on invoices in order to encourage faster payment and lower their DSO.

Manual invoice processing can take an exceptionally long time, even up to 90 days, especially if there are errors or mail delays, all while vendors lack visibility into cash flow. Now, companies have a different option - virtual cards and electronic payments. Paying via virtual cards gets payments to vendors much faster, provides a clear receipt trail, and offers predictable, stable payment data.

Back to the original question: who pays for cash back?

For a business debit card solution like the Plate IQ Card, run through our VendorPay network, transactions are structured by combining a transaction fee plus a percentage of the transaction. A portion of the transaction fee that vendors pay to the network is then taken out and passed on to the customer as cash back.

For many corporate debit card programs offering cash back, the rewards are essentially vendor-sponsored cash on invoice spend. There are no extra fees or enrollment programs, and the rewards are real cash, not points.

It’s a win-win. The vendor gets paid faster, and the customer can earn some profit by simply processing invoices. Plate IQ found through a survey we conducted that VendorPay vendors enjoy DSOs of 22.7 days, compared to 41 days typically experienced by B2B vendors.

Boosting the Bottom Line: How Your Client Can Use Cash Back in Their Business

With more background information to share with your clients about the structure of cash back programs, let’s explore how cash back rewards could function in your business.

Although cash back rates may not be as significant as overall sales levels, cash back funds can add up to significant value for a company’s profit margin over time. Cash back can be a modest but meaningful boost for businesses, particularly small businesses.

As long as payment is made with a virtual card, it is eligible for cash back. Replacing something like a petty cash system with a corporate card system can earn you cash back that can be used strategically. For example, if you normally pay your vendor with a card, but you need to run out and get an ingredient at the store (which won’t carry the wholesale price), using cash back can help you mitigate the price difference. Over time, these small spending adjustments can add up to a healthy bottom line.

You can also use a corporate card to pay recurring invoices, such as utilities or rent, as a way to earn cash back on expenses that need to be paid anyway. Even if you’re not using the card for everyday purchases, when you schedule payment for these planned expenses, you can generate a consistent influx of cash back.

How Cash Back Helps Both the Accounting Firm and the Client

With a strategic setup, cash back rewards can help both your accounting firm and your business clients.

Cash Back Helping Your Clients

Your clients already have enough on their plates. When it comes to new programs, they need simplification, not complication.

Corporate debit cards are a convenient, easy solution for everyday transactions for companies. The solutions are easy to set up and control on the back end. Paying invoices digitally can also help save customers money on the front end by allowing them to access any early payment discounts offered by vendors.

A corporate card also makes it painless for businesses to reconcile books on the accounting side. Once you map transactions to your chart of accounts once, the AP solution will remember it for the next time. You can minimize your manual data entry with GL coding powered by AI learning.

Finally, with no limit to the number of cards you can create, business clients have the flexibility they need. They can also implement security controls to place guard rails on what kind of merchant these cards can be used with or adjust spending limits in real-time.

Cash Back Helping Your Accounting Firm

Cash back benefits aren’t just for businesses either — the rewards program also has the potential to help your accounting firm as well.

First, familiarity with cash back systems as a profit center can help your firm provide even more value for your clients. Advertising these solutions may be part of your sales pitch or an element of business development. If you know how to leverage a corporate debit card cash back system, you are adding value to your services.

In addition, if your accounting firm is in charge of overseeing payment for client invoices, you can generate significant cash back using a debit card to pay those bills. Depending on your agreement with your client, your accounting team may be able to pocket that cash back as a way to discount services to clients.

Cash Back on Purchases is a Win-Win

It’s not every day you find a business solution that benefits so many different parties: your client, your client’s vendors, and your accounting firm. Strategically leveraging cash back programs can contribute to a healthy bottom line and play a helpful role in your business strategy.

If your firm is interested in incorporating cash back rewards into your client services, Plate IQ can help you transform your AP automation and payment process. Plate IQ has you covered when you're ready to take the next step with integrations with the software you already use, including QuickBooks integration.

Topics: Modern Bookkeeping


 

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