How commercial card creates efficiency for purchasing processes

Commercial card, a program that is sometimes called purchasing, travel or fleet card, has become a hot product as companies realize how it can create efficiencies within their organization.

Commercial card has been around for a while, but businesses were leery of issuing employees credit cards that could lead to fraud and misuse, says Veenindra J. Singh, first vice president and treasury management consultant in the Corporate Services Division at California Bank & Trust.

Today, commercial card not only reduces internal costs when it comes to purchasing practices, but it also — unlike business credit cards — offers upfront controls on usage with a very robust reporting system that captures data, allows automated postings and so forth.

“There is more acceptance because companies have realized that the product has evolved,” Singh says. “It makes sense for a lot of companies to start looking at putting a program such as this in place.”

Smart Business spoke with Singh about how commercial card can benefit your organization.

How does commercial card create efficiency and reduce internal costs?

Typically 80 percent of business purchasing is below a certain dollar amount, and the remaining 20 percent is high-end purchases. However, the approval process for both is usually the same, whether you’re buying a box of pens or a $10,000 piece of software.

With commercial card, you set a benchmark, and then staff uses a card to make all purchases under that limit without layers of approval. Higher purchases go through the normal approval process, and staff still utilizes cards to avoid processes like invoicing, purchase orders, etc.

What about other benefits like upfront controls and robust reporting?

With upfront controls, a company can issue cards to different employees and each one can be restricted as far as usage. For example, if you’ve issued cards to a maintenance group, then those cards could have features turned on that allows those employees to make purchases only at related stores or companies. These restrictions are established by using merchant classifications codes.

In addition, the reporting is robust. Within 48 hours, a company will see the purchases. Commercial card has three levels of reporting; the level of detail you receive on a purchase depends on the merchant’s capability. With the higher levels, there is the ability to capture sales tax, general ledger codes, whether it’s a minority-owned vendor and exact specifications of the purchase.

There also are many reporting segments within the program, such as expense management where an administrator can create expense reports for each employee.

Does size or industry make a difference to how much a company benefits?

Size does matter. Larger companies have more purchasing needs and requirements. Smaller companies can use these cards, but most banks have a minimum, or an annual spend, and if a business is below that threshold the bank probably won’t offer a commercial card solution.

As far as industry goes, all industries can use the product, but there are more benefits to some, such as manufacturers, the travel industry and nonprofits.

What else is important to understand when getting these cards?

Commercial card, which has no interest rate because it is paid off in every billing period, does carry risk for banks. However, banks may be able to work with you to mitigate the risk, and therefore offer the cards, by decreasing the billing period, which can go all the way down to a daily settlement.

Banks only qualify the company, not the individuals who are issued cards. A bank will give the business a total limit, and then you can issue as many cards and assign whatever limits you wish as long as it’s underneath that umbrella.

There are different options for these cards. Some banks have a charge; others don’t. Most cards offer a rebate, but that rebate could either be in the form of points or dollars. Also, some banks require that you have a relationship with them. You can explore the programs from various banks to see which one will fit your organization best.

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