Expenses are an expansive headache for most businesses. Whether it’s purchasing office supplies, business travel, client entertainment or vehicle maintenance logging and keeping track of everything is often much more work than it should be.
That is why more and more businesses are turning to commercial card programs.
A commercial card program is a single card product that can be used for purchasing goods and services, effectively consolidating multiple payment streams into a single program to manage expenses. The program’s reporting system provides a detailed description of who made a purchase, and where and when it was made. Each card can be assigned various limits to manage the dollar amounts and types of expenses authorized for individual employees.
This allows for the centralization of data, making it easy to obtain information on strategic sourcing opportunities and policy compliance. More accurate data enables managers to improve their ability to negotiate better pricing from vendors and ensure their employees are following corporate policies.
“A commercial card program is a convenient and cost-effective way to streamline your organization’s purchasing process,” says Suzanne Colmenero, a senior business relationship manager at Wells Fargo Bank. “You can use a commercial card to purchase anything, from travel expenses to supplies, and even fleet expenses.”
Smart Business spoke with Colmenero about commercial card programs and how to determine if they’re right for your business.
Why is the commercial card becoming an increasingly popular way to manage expenses?
Because it can streamline your company’s purchasing process by automating expense management processes and controlling expenses. With more and more businesses accepting Visa and MasterCard, commercial cards are becoming the preferred way to conduct business. A commercial card program can offer both hard and soft dollar savings for organizations using them, improved cash management, greater control over spending and streamlined expense management.
Commercial card programs have several other benefits. Employees who carried multiple credit cards can now use a single card for business purposes. Employees no longer have to decide when to use which card, eliminating confusion and decreasing reliance on other forms of payment, which often are more expensive to process. Also, a commercial card program can result in increased savings by centralizing the administration and support of the program. One monthly invoice is processed for your organization’s expenditures, and you get better information faster with online reporting features.
What specific savings can a business expect to realize?
According to the 2007 RPMG study, the average cost to process a payment transaction using a traditional purchase order method is $88.55. Compare that to the average cost to process a payment transaction using a commercial card ($19.49). You’ll see these savings thanks to the elimination of check processing, postage and other costs associated with check writing. Not to mention the savings you’ll see from the time saved by streamlining approval processes, which can be used for more value-added activities. You can also extend the time you have to settle payments for your purchases; commercial cards can have up to a 30-day cycle and/or a grace period before payment is due.
Of course, costs vary from organization to organization, but the extent to which a company is willing to revamp its purchasing and accounting processes will determine the amount of savings realized.
Which companies are best suited for commercial card programs?
Almost any organization can reap the benefits of a commercial card program. I find that organizations that have several different employees making on-the-spot purchases or those with at least 25 vendors see the most benefit. Also, companies that have employees that travel and entertain can benefit.
When employees make business purchases with commercial cards, you eliminate cash advances, purchase orders and checks. Plus, cardholders experience a significant reduction in procurement cycle time.
What controls do commercial cards offer?
You can control the amount of each purchase, total expenditures and access to supplier categories for each cardholder. Transactions are approved or declined at the point of sale based on these pre-set controls. Commercial cards also are accompanied by reporting and reconciliation applications that provide company administrators and managers of employees the ability to review purchases made within 24 hours of settlement. There are standard reports available to facilitate informal and formal audits of these purchases to ensure policy compliance.
What are the benefits of online administration?
Having real-time administrator access to your commercial card program enables you to make changes to limits and cancel cards immediately. It also makes reconciliation easier by automatically loading all commercial card transaction activity for each cardholder, along with pre-approved cost center and general ledger mapping combinations. Cardholders can also add in out-of-pocket transactions to facilitate their expense management process. Online approval workflows also help in reducing the time it takes to process commercial card payments.
Managers can monitor spending patterns of employees with real-time Internet access to their card balances and transaction information. An administrator can go online to perform a wide range of tasks, including changing cardholder limits, closing card accounts, ordering replacement cards, downloading transaction data, running reports, auditing the program and disputing transactions.
Suzanne Colmenero is a senior business relationship manager at Wells Fargo Bank. Reach her at (713) 319-1551 or firstname.lastname@example.org.