Example of Supplier Savings
A supplier can actually save money by accepting P-Cards with level 3, per the example below.
|Calculation (using example components below):|
|P-Card transaction: $359.00|
|Merchant discount fee: ($10.90)|
|Cash flow savings: +$1.87|
|Invoice/receivables process savings: +$35.00|
|Transaction savings for the supplier = $25.97|
The total fee paid naturally increases for higher transaction amounts and decreases for lower amounts. Similarly, the cash flow savings is variable—higher savings for larger transactions. Conversely, the invoice and receivables process cost is a fixed cost unless the process is changed in a notable way.
|Example Components for Above Calculation||Data|
|Average P-Card transaction amount||$359.00|
|Merchant discount fee1
|A supplier’s typical invoice payment terms (non-P-Card) to it customers||Net 30 (days)3|
|Cost of funds, as defined by the supplier; in this example, based on a blended rate of the cost of equity (8%) and cost of debt/borrowing (2%), for which the blending is 80% equity and 20% debt, for a total of 6.8%Cost of funds per day: 0.068 divided by 365 days/year x 28 days4 = 0.0052||6.8% or0.0052 per day|
|Cash flow savings: $359 x 0.52%||$1.87|
|Estimate of supplier’s invoice and receivables processing cost||$35.00|
1 Here, the merchant discount fee ($10.90 total) is approximately 3% of the transaction amount.
2 This example is on the high end; a supplier can lower the interchange portion by, for example, providing enhanced data.
3 Even with 30-day payment terms, suppliers often receive non-P-Card payments in 45 or more days.
4 Represents the difference in timing of payment receipt (30 days for a check payment minus two days via card).