It seems that for as long as there have been businesses in the United States, there have been expense accounts.
Employees would have to make sure they kept receipts that accounted for every penny that they spent while away on business if they wanted to be reimbursed.
Today, that process has become a lot simpler because of something called the purchasing card.
“It’s a total expense management solution,” says Paula S. Lee, principal relationship manager for Wells Fargo Bank in Houston. “Users use it to pay for everyday expenses as well as travel, supplies and any other type of ongoing regular expenses.”
Smart Business talked to Lee about how the purchasing card has revolutionized company spending.
How does a purchasing card work?
Employees use it for any number of company, preselected services. Basically, the card eliminates the need for processing invoices, petty cash, purchase orders and numerous other requests. When a purchase is made with the card, the sale can be allocated to and actually interface with clients’ accounts payable systems. The charges are downloaded each month into the designated general ledger reports without someone having to go in and take the invoice, write the check and put it into the accounts payable system it’s been allotted to.
The program is great for companies that have employees who travel a lot, use a P.O. system or have numerous petty cash accounts because not only can they use the cards for their airline, hotel and car rental but also for out-of-pocket expenses, such as mileage, gas money or meals. And instead of having to fill out a manual employee expense report, the employee or contactor can just log into the system. The transactions then need to be submitted for approval by the employee electronically. If there are out-of-pocket expenses, upon approval, the money is deposited directly into the employee’s account of choice.
Do the cards have a preapproved limit?
As far as how much we approve each card for, the cards go through our normal credit approval process. Each card is designated with a specific limit and you can actually drill down to say a $1,000 limit, which can only be used for specific purposes.
For example, a card could be given to a driver with the specification that it can only be used at the pump meaning that person couldn’t go inside and spend it on snacks or other items in the store. Thus, the purchasing card allows you to keep more control over employee spending and a better eye on employees’ spending activities.
Would it be difficult for the holder to abuse the card?
Yes, because you can restrict use for business-related purposes; whether that be an office supply store or wherever you go to buy gas. A company can set up their own unique parameters for their program. These controls can be changed, by an authorized agent within the company, at a moment’s notice. In addition, should a card be denied, the company can go directly into the system and review where that cardholder has tried to use their card, even take away all spending capabilities, again at a moment’s notice. In addition, and subject to certain terms and conditions imposed by Visa, Visa provides a Liability Waiver Program which provides coverage against employee misuse up to $100,000 per cardholder.
How long have purchasing cards been available?
Purchasing cards have been around since the early ’90s. Initially, they were only used for MRO (maintenance, repair and operating) expenses. Today, purchasing cards encompass traditional MRO, as well as T&E (travel and entertainment), repetitive payments, such as cell phones, pagers, utility payments, even advertising. Initially, large Fortune 500 companies, as well as the federal government, were the only users of purchasing cards. Today, more small- to mid-size businesses are realizing the benefits of the purchasing card program. Clearly, companies are re-engineering the way that they are managing their payables and the purchasing card is an excellent tool for companies to use.
Does it cost the vendor anything to participate?
The vendor would get charged on the card side, similar to merchant card fees. On the flip side, vendors get their money quicker, usually within one to two business days, because the purchase isn’t made on a net 30-day purchase order. In turn, their account receivables move quicker as well, without the exposure or risk.
The company using the purchasing card, on the other hand, can pay for the product right away and their books are up to date, in addition to the knowledge of what exactly was purchased, a huge benefit for any company that is wanting to control costs.
PAULA S. LEE is principal relationship manager for Wells Fargo Bank in Houston. Reach her at (281) 476-4527 or Paula.S.Lee@wellsfargo.com.