New—this ERP solution boosts working capital and margin

February 16, 2024 | 5 minute read
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Last month we shared updates on the Oracle B2B service. This month we're diving deeper into one aspect of its payment capabilities that offers significant working capital and efficiency advantages. It has the potential to add real value for finance teams.

The accounts payable optimization puzzle

Accounts payable (AP) may not sound glamorous, but it is an essential part of any high-performing finance organization. It impacts which party in a transaction holds cash the longest, margin, and administrative costs. Let’s take a closer look (feel free to skip ahead if you’re a pro at this).

  • Working capital: Paying suppliers’ invoices more slowly, or extending Days Payable Outstanding (DPO), lets companies hold cash longer, improving cash flow and providing more working capital for investments, growth initiatives, or operational expenses. The increased cash on hand can also improve access to new capital and lowers borrowing costs. (These treasury-related benefits can be a significant component of some organization’s financial performance.)
  • Margin: Suppliers offer discounts for faster payment, which improves profit margin (but comes at the expense of letting go of cash faster).
  • Administrative overhead: Costs skyrocket when processing paper invoices and checks. This includes responding to supplier inquiries about payment status plus the costs of error- or fraud-related overpayments and double payments.

Automating payables has the potential to improve all three: working capital, margin, and administrative costs. But to maximize value, you need to solve for several variables.

A better way

You may have heard about Oracle B2B’s support for virtual cards, which expands access to digital payments for greater liquidity and lower administrative costs for payer and payee alike. “Virtual cards” sound complicated but they’re not. They work like this:

  1. Your company opens a credit card account.
  2. When you need to make a payment, you can use Oracle Cloud ERP to send a payment request to your card provider (i.e., Mastercard) via Oracle B2B’s integration.
  3. Your card provider creates a “virtual card” unique to each request,  which is essentially a reference number that allows you to keep concealed your true card number.
  4. The unique reference number attaches to every payment you authorize. These payments can be one time or recurring, and you can impose limits based on time, amount, merchant category, and/or specific seller, etc.
  5. Suppliers use these unique payment reference numbers to claim their funds, typically on an accelerated schedule (e.g., 10 days instead of 30 or 60).
  6. When suppliers claim their funds, the charge goes on to your credit card bill.
  7. You settle that bill every month as you normally would any credit card bill.

The benefits of virtual cards

CFOs will get excited about the opportunity to generate new working capital benefits. And not just because of automation: virtual cards provide working capital benefits above and beyond what’s possible with other electronic mechanisms, such as Automated Clearing House (ACH).  Examples include:

  • Delaying payments and getting up 48 days of float (without the risk of damaging supplier relationships, since they’re paid immediately)
  • Freeing up cash that would be otherwise inaccessible because of slow processing and clearing times for paper checks
  • Extracting new concessions from suppliers based on a track record of prompt payment
  • Improving the reputation of the finance team among internal stakeholders (e.g., as a valued partner in a strategic approach to supply base development)

Since this is all electronic, there are additional benefits related to lower administrative costs, better security, improved auditability, and risk reduction, too. And in some cases, there’s the possibility of bank rebates for using this approach.

Suppliers are often eager to participate in this program since it:

  • Eliminates collection risk
  • Improves cashflow and DSO (i.e., they get their cash faster)
  • Lowers costs compared with short-term financing (especially in an inflationary economy)
  • Dramatically lowers administrative overhead related to accounts receivable, reconciliation, collections,  and the processing of paper checks

While suppliers do pay a fee to participate, those fees are in line with typical credit card merchant fees and virtual cards offer a much more predictable way for them to manage their own margin and working capital. (Exact fees depend on a range of factors but can approach 0% for some kinds of purchases.)

Where do virtual cards fit in?

We aren’t expecting Oracle B2B virtual cards to completely relegate paper checks to the history books, replace ACH payments, or render other types of card-based payment obsolete. Instead, they are a valuable part of a portfolio of payment options that can improve the AP function by providing an electronic method that optimizes payment terms for both buyers and suppliers. They are particularly useful for:

  • High volume, low value purchases (i.e., purchases where the administrative overhead of a traditional order-invoice process is a significant portion of the total cost)
  • Categories and suppliers that already accept credit card payments
  • Suppliers with high product margins (e.g., professional services, media, etc.)
  • Cash-hungry suppliers or those interested in DSO improvements

Next steps

When you’re ready to dive in, the best place to start is with a review of your suppliers to determine which ones already accept virtual cards. You’ll likely be surprised at the diversity of suppliers that will gladly accept virtual cards (we were!). If you’re interested in being an early adopter, reach out to us at: oracleb2binfo_www@oracle.com. We’d love to get your feedback and discover how Oracle B2B can help your business. 

For more information, you can watch the replay of "ERP–Oracle Fusion Cloud ERP Embedded Virtual Card Payments,” or download the presentation (PDF). 

You can also visit Mastercard to express interest in our joint virtual card program.

If you're an Oracle Partner and want to learn more, visit the Oracle Partner Community.

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Fusion Development

The Fusion Development team is responsible for building, maintaining, and driving innovation on the Oracle Fusion Cloud Applications Suite, which includes Oracle ERP, EPM, SCM, HCM, and CX. Its members are based throughout the world with central offices in the US, India, Mexico, The Philippines, and Romania.


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