• cash management
  • cash pooling
  • ERM
  • Middle East
  • working capital

Holding all the cards

by Graham Buck

Published: 21 February 2019

When the Dubai government moved to accept customs payments by credit card, Global logistics firm Aramex identified an opportunity to benefit its working capital by implementing a purchasing card solution.

“In the countries where we have been able to deploy this solution, using a variety of banks globally, I have been able to pull out $25m from the working capital” the company’s corporate treasurer, Arun Singh, says.

The customs burden

Traditionally, customs fees have been settled with cash or cheque on behalf of the company’s clients. When scaled up to the 60 countries that Aramex operates in, this put a huge strain on the company’s working capital. With annual revenues of approximately $1.38 billion and working capital in the region of $140 million, the company found that the volume of these payments was difficult to forecast and manage when using cash. “Customs clearing was always a burden on us that we had to bear to facilitate the trade for our clients” Singh notes.

Arun Singh, Corporate Treasurer, Aramex

Following the move by the Dubai government to accept credit card payments, Singh pioneered the use of a card solution in UAE from an international bank to pay its customs fees. Later, he worked with Citi who provided a card programme with value-added benefits that is linked specifically to customs usage in Dubai. This has allowed Singh’s operations team to have access to a number of different cards with different limits, which they use for payment as soon as shipments arrive at the port. The solution gives Aramex up to 56 days to repay that amount.

“The whole working capital burden, where I was having to pay cash up front, has gone away” Singh says. “That means I’m not chasing my customers for payment in two or three days. The new programme has opened up the time where the customers can pay”.

Singh’s credit card limit is in the region of AED40-50m dirhams, which is just over $13m. “This is an initial benefit and the limits are utilised most of the time” Singh says. “I have been able to take away over $13m from my utilised cash that was previously used to make customs payments”. Similar arrangements have been replicated in other jurisdictions where authorities have started accepting customs payments through credit cards.

Challenges persist

In the Middle East, there are only four geographies that currently accept customs payments on credit cards, Dubai, Bahrain, Oman and Qatar. The picture is similarly mixed around the world. “We can’t even make credit card payments for customs charges in the UK” Singh notes.

“While the number of custom authorities accepting credit card payments remains low, there will always be a pressure on our working capital. We look to improve our working capital situation where possible, but I am aware of the fact that we will not reach an ideal scenario in the current landscape”.

If more territories accepted credit card payments for customs, firms such as Aramex could streamline their payments and collections in a much more effective way. One big stumbling block in the way of greater adoption appears to be the card processing  fees that are charged. “Today, if someone asks me if they can pay $1m on a credit card, my answer would be no” Singh says. “That would be a straight hit to my bottom line at 1.5-2.5% depending upon the card type and country of transaction. Similarly, other corporates or bodies face similar challenges on large value payments that restricts their choice of payment acceptance methods”.

A push for change

While Aramex has rolled out the purchasing card programme where possible, in a number of territories the company still has to pay a set amount in cash. “We continue to talk to banks and regulators where possible to see if they will start accepting card payments” Singh says. “I know that a lot of governments in the region and beyond are working to make all the payments digital, but digital doesn’t necessarily mean credit cards”.

In addition to what he can do as a corporate treasurer, Singh hopes that other parts of the financial world can come together to support a drive towards replacing cash with cards:

“In terms of the banks, I hope they will continue to lobby the different authorities into starting to accepting card payments. While one of the biggest hurdles is on the card processing  fee that is applied, there are opportunities where banks and card schemes can agree bespoke solutions to reduce these fees for clients”.