What are Corporate Credit Cards? – Different Types of Cards
February 12, 2025
In the previous article, we have already learned about the repo market. We learned about how the repo market is one of the most important segments of the money market. We also learned about the large volumes of transactions that take place in the repo market. We already know that about $2 trillion to $4 […]
Advantages of Currency Pegs Currency pegs have become extremely popular in the post Bretton Woods monetary world. About one fourth of all countries in the world today have pegged their currencies to some other major currency like the dollar or the euro. This strategy has bankrupted certain nations like Argentina whereas it has caused other […]
Most of the lessons taught in the “Rich Dad Poor Dad” book series are somewhat unique. This is because the book provides a new perspective of looking at finances. In this article, we will have a look at some of those lessons in order to explain the rich dad philosophy. High Incomes do not Equate […]
Apple is one of the largest manufacturers of mobile phones in the world. The company is the largest in the world and recently became the first one to cross the $1 trillion market capitalization mark. The company has been recently engaged in a quagmire with Qualcomm, which is one of its suppliers. Finally, Apple had […]
In the previous article, we have already established that there are many sporting franchises across the world that prefer to rent out stadiums instead of building them outright. We also know that a significant number of sports franchises are indeed using the leasing route. Hence, there are a lot of leasing transactions present in the […]
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 *