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Searching for the best way to pay vendors? Discover a smarter approach

Paying Vendors from Current Account Balance

Process: Funds are directly transferred from the business’s current account via NEFT, RTGS, IMPS, or bank cheques.

Key Features:

  • Immediate debit from the account.
  • No borrowing; payments are made using the company’s existing funds.
  • No additional charges except transaction fees for bank transfers.
  • Requires maintaining adequate liquidity in the account.

Advantages:

  • No interest or credit charges.
  • Simple accounting and reconciliation.
  • No risk of overspending or misuse of credit.

Disadvantages:

  • Reduces available cash for other business needs.
  • Limits flexibility if funds are low.

Paying Vendors Using Corporate Credit Card

Process: Payments are made using a credit card, and funds are deducted from the card's available credit line.

Key Features:

  • Borrowed funds are used, with a repayment period (grace period before interest accrues).
  • Additional benefits like cashback, reward points, or travel perks.
  • Can incur interest and fees if not paid within the due period.

Advantages:

  • Improves cash flow management by delaying outflows.
  • Offers payment flexibility for emergencies.
  • Simplifies multiple payments and tracking.
  • Useful for online or international transactions.

Disadvantages:

  • Risk of overspending or accumulating debt.
  • Interest charges if payments are delayed.
  • May not be accepted by all vendors, especially in cash-heavy industries.

Logistics Industry

Examples in the Logistics Industry

In logistics, businesses often handle multiple payments simultaneously, such as for fuel, tolls, supplier materials, warehouse rentals, and fleet maintenance. Here's how both methods apply:

Current Account Example:

A logistics company needs to pay:

  • A warehouse vendor: ₹1,00,000 via NEFT.
  • Fuel suppliers: ₹50,000 via RTGS.
  • Fleet maintenance vendors: ₹30,000 via IMPS.

Each payment is processed separately, directly from the company’s current account. Liquidity is essential to manage these outflows.

Corporate Credit Card Example:

A logistics company uses a corporate card for:

  • Purchasing fuel across multiple locations: ₹20,000.
  • Paying tolls via FASTag recharge: ₹15,000.
  • Booking freight shipment via third-party providers: ₹40,000.

Using a corporate card consolidates these payments, delays cash outflow, and earns cashback or fuel points.

Choosing the Best Option

  • Use Current Account: When the company has sufficient cash reserves and wants to avoid interest charges.
  • Use Corporate Credit Card: When flexibility, payment consolidation, or cash flow management is needed, especially for managing multiple smaller or urgent payments.

For large-scale logistics companies, a combination of both is often used to balance liquidity and credit efficiency.