What are Corporate Credit Cards? – Different Types of Cards
February 12, 2025
Formula Working Capital to Sales Ratio = Working Capital / Sales Meaning Stating the working capital as an absolute figure makes little sense. Consider two companies, both having the same working capital of USD 100. While one company uses this working capital to generate sales of USD 500, the other uses the same amount as […]
Need for a Uniform and Common Theory of Accounting The frequent attempts by experts and professionals on having a “theory” that would guide accountants all over the world is because of the multiplicity of the accounting practices in different countries. For instance the accounting norms of the GAAP (Generally Accepted Accounting Principles) that are in […]
In the previous article, we have already studied about option pools. We now know the various advantages that they offer and why they are preferred by startup companies as a means to compensate their employees. However, some companies and investors are not happy with the concept of stock option pools. This is because they dilute […]
Money market securities are generally issued by firms that have a very strong credit rating. This is because investors do not want their investments to be volatile when they invest in money markets. Hence, they prefer to buy securities only from companies that have a strong credit rating. The government is the most preferable issuer […]
In the previous articles, we have studied what a risk-based supervisory system for pension funds is. We have also studied the various steps which need to be taken in order to set up such a system. It is true that this system is being adopted on a large scale worldwide because of the various benefits […]
In the previous article, we have already studied how commercial banks help in providing point-of-sale services to their corporate customers. We have also studied how point-of-sale systems have become strategically important for corporations. However, they are some pain points in the point-of-service system as well. Commercial banks provide another service called next-day funding in order to help overcome some of these issues which result from point-of-sale systems.
In order to understand the benefit of next-day funding, we first need to understand the problems which are faced by businesses with regard to the collection of payments. We already know that a large number of transactions happening inside any store are electronic transactions. This means that most of these transactions happen via debit cards, credit cards, or mobile wallets.
Now, when transactions are conducted electronically, the merchant does not receive payment immediately. The payment processor or the commercial bank generally holds on to the payment for a few days in order to help mitigate risks. Hence, merchants receive their payments only after three to four days after the transaction has taken place. This means that a significant portion of the daily revenue is locked up. This means that the working capital requirement of the company also goes up leading to an escalation in costs.
As the name suggests, next-day funding is a service provided by commercial banks to their clients where they shorten the timespan for receiving payments. Instead of waiting for three to four days in order to receive payments, corporations can receive the payments on the very next business day. The ability to expedite the reception of payments helps in reducing the credit to cash-cycle.
The next-day funding service is an important service provided by commercial banks. However, there are a couple of factors that need to be taken into account to ensure that the service provides the desired results.
The details of these factors are as follows:
If the cut-off time is too early, then the number of eligible payments gets reduced. This is because of the fact that empirically most of the sales in retail stores tend to happen during the evenings. Hence, companies must carefully consider the cut-off time and how it impacts their business before they decide on which commercial bank to choose for providing next-day funding services.
Next-day funding is popular amongst businesses because of the several benefits that it provides to business users. Some of the benefits have been mentioned below:
The bottom line is that next-day funding is an important feature and is very useful for companies if it is reasonably priced. There are faster alternatives such as same-day payment also available in some developed countries. However, these payments tend to be quite expensive which makes them unviable.
Your email address will not be published. Required fields are marked *