Marry corporate purchasing cards
with the Internet and you have a
match made in heaven.
“Many suppliers like the reporting and
reconciliation features provided by purchasing cards better than accepting payments through the Automated Clearing
House (ACH) electronic payment network,” says Trish Herskovitz, senior treasury management adviser for Capital One
Bank in Dallas. “By using a purchasing
card to make purchases, the buyer benefits
from consolidated reporting while the vendor receives payment in a reliable manner
with faster payment terms, not to mention
the benefit of added float to payables.”
Smart Business spoke with Herskovitz
about the increasing popularity of purchasing cards.
Why is the use of a purchasing card becoming an increasingly popular way for a business to manage expenses?
The dollar volume of purchasing card
transactions is expected to climb from
$110 billion in 2005 to $185 billion by 2010,
according to RPMG Research Corporation
benchmarking data. The list of reasons
explaining purchasing card growth and
popularity begins with savings, which are
potentially great for corporate users. It also
includes improved cash management, the
ability to assert much greater control over
spending and simpler, more robust
expense management.
What specific kinds of savings can a business expect to realize?
Transactional savings, for one. According
to RPMG Research, the average administrative cost of making a purchase using a traditional, paper-based purchase order process
is about $89 per transaction. When companies use a purchasing card, the cost falls to
$67, for a savings of $22 per transaction.
Hard-dollar savings from purchasing card
programs accrue from eliminating costs for
check processing, postage and other
expenses associated with check writing.
Meanwhile, soft-dollar savings include the
time saved by eliminating extensive paperwork, which can be used for more value-added activities. Large organizations may
realize savings from reduced staffing.
In addition to cost savings as it relates to
processing payables, companies that use a
purchasing card can extend the time they
have to settle payment for their purchases
(added float) since most purchasing cards
have a 30-day cycle and perhaps a grace
period before payment is due.
For what kind of company are purchasing
cards best?
Any organization looking to improve payment efficiencies and gain greater control
over cash flow should consider a purchasing card program.
When employees make business purchases with purchasing cards, their organizations eliminate cash advances, purchase
orders and check writing. Furthermore, as
a result of the purchasing card process,
cardholders experience a significant
reduction in procurement cycle time.
Compared to a traditional PO process, purchasing cards reduce the procurement
cycle time by about six days, RPMG
Research data shows.
A purchasing card program makes especially good sense if your organization has
many low-value transactions and currently
has no automated payment process in place. For many corporations or government agencies, small-dollar payments
make up the majority of total payments
while representing a small percentage of
dollars spent. In many cases, the cost of
processing one of these small-dollar payments can be greater than the cost of the
item itself.
What kind of purchasing controls do purchasing cards offer?
Purchasing cards give card program
administrators carefully designed purchasing controls. These include Merchant
Category Code blocking or exceptions,
which enable administrators to designate
which cardholders receive access to spending in preselected industries. For example, if
you have an employee who never travels or
entertains for business purposes, you can
block his or her ability to use his or her card
at merchants such as restaurants, hotels
and airlines. Other purchasing card control
features include: card restrictions by dollar
amounts in a specific period of time, such as
a $1,000-a-day limit; single transaction limits, such as no more than $500; and ATM
cash advance blocking.
Is online administration a big benefit, too?
Tools available with purchasing card programs enable managers to monitor spending online and in real time. Managers can
gain real-time Internet access to a company’s corporate card balance and transaction information. A financial manager
could log in to the system several times a
week to check activity and update the
company’s accounting records to reflect
current balances. The updated records
could be used to more accurately gauge
the company’s cash flow and to maximize
its cash position.
A card program administrator can go
online to perform a wide range of administrative tasks, including altering cardholder
limits, closing card accounts, ordering
replacement cards, downloading transaction data, making payments and disputing
transactions.
TRISH HERSKOVITZ is senior treasury management adviser for Capital One Bank in Dallas. She can be reached at (972) 855-3945 or
[email protected].
