· PDF file01.A PROCESS TRANSFORMED The MasterCard Corporate Purchasing Card® is the...

I M P L E M E N T A T I O N G U I D E

PURCHASING CARD

MASTERCARDCORPORATE

A PROCESS TRANSFORMED

A. Introduction

B. Traditional Purchasing Process

C. Purchasing Process D. MasterCard Corporate Purchasing Card

Program Functionality and Features

E. MasterCard Corporate Purchasing Card - Who Benefits?

1 Purchasing Department Benefits

2 Internal Business Unit/Employee Benefits

3 Suppliers

F. Purchasing Card Industry Research Analysis

1 Cost by Payment Method

2 Channel Savings

3 Process Costs per Order Incurredby Cardholder

IMPLEMENTATION

A. Overview

B. Phase I - Program Construction

1 Assess Present Practice

2 Set Goals

3 Build Internal Support

4 Create an Implementation Team

5 Establish Program Parameters

6 Enrolling Suppliers

7 Establish Policies and Procedures

8 Training

C. Phase II - Rollout

1Managing and Measuring Your Program

2Monitoring for Policy Compliance

ADVANCED PURCHASING CARD

A. Program Expansion

1 Identify Barriers

2 Determine new card use opportunities

B. E-Commerce

C. International/ Multinational

D. MasterCard Corporate Multi Card

E. Smart Card

APPENDICES

A. Glossary of Terms

B. 1 Sample Supplier Letter 1

2 Sample Supplier Letter 2

3 Mailing List Guidelines

4 Fax Order Cover Sheet

C. 1 Sample Cardholder Guide

2 Purchasing Card Application

3 Acknowledgment of Responsibilities

D. Sample Implementation Schedule

E. Frequently Asked Questions

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02

01 03

T A B L E O F C O N T E N T S

01. A PROCESS TRANSFORMED

The MasterCard Corporate Purchasing Card® is the

better way to manage corporate purchasing. Using

this tool, companies can save time and money by

streamlining a labor- and time-intensive purchasing

process. Paperwork can be reduced or eliminated,

and management can exert front- and back-end

controls through the card’s authorization system and

comprehensive information reporting. Many corpora-

tions are turning to the Corporate Purchasing Card,

a MasterCard Corporate Payment Solutions® card

program designed to fundamentally change the way

your company handles its purchasing process.

In 1998, the market for indirect materials (mainte-

nance, repairs, and operational materials known as

MROs) was estimated at $500 billion1. Recent data

shows purchasing card volumes at over $80 billion

for 1999 with annual growth at 33% for the past

two years2, signifying the huge growth opportunity

still available for the purchasing card. Also, the

market for purchasing cards has been increasing to

include recurring payments, payments to service

providers, capital equipment purchases and inven-

tory items; providing even more opportunities to

utilize the Corporate Purchasing Card to save

money for your organization.

The growth of online commerce will also spur

purchasing card usage. Business-to-business buying

via the Internet is estimated to achieve worldwide

volumes in excess of $1 trillion by 2003.3 MasterCard

and its members are working with many e-procurement

solution providers and online exchanges to ensure that

the Corporate Purchasing Card is integrated with these

new marketplaces.

01The MasterCard Corporate Purchasing Card

Implementation Guide was developed to provide

your organization with best practice guidance and

assistance for the purpose of implementing and

maintaining a quality purchasing card program.

S E C T I O N

Your organization can utilize this guide to:

Understand the features and benefits of the

MasterCard Corporate Purchasing Card;

Work with management to identify business issues that

are important to your organization and then make key

decisions about your purchasing card program;

Establish and guide the activities of the project task

force responsible for planning and development,

launching and ongoing management of your company’s

purchasing card program.

A PROCESSTRANSFORMED

1 Packaged Facts®, May 20002 Packaged Facts®, May 20003 WEFA Group Survey, February 23, 1999

3

A. Introduction

4

B. Traditional Purchasing Process

The traditional purchasing process istypically a laborious procedure involv-ing paperwork and verbal communica-tion that begins with the need to pur-chase, and ends with a payment beingmade to the supplier. The steps inbetween are time-consuming for thebusiness unit making the purchases —purchasing and accounts payable. Theprotracted process means those orderinggoods wait a long time to receive themand suppliers wait to get paid.

(See page 5 for process description flow chart.)

This process is still in effect today. Theadvent of computers may have reducedthe need for multi-part forms, but withonly minor exceptions, each party to theprocess is printing a hard copy at theirlocal printer and still matching paper.

The traditional purchasing process oftenbreaks down at the three-way-match step.P.O. numbers are incorrect, or purchaseorders have not been written for a specif-ic delivery. Receiving documents and/orinvoices are misplaced or a myriad ofother situations occur that result in amismatch. Mismatches are resolved withmanual intervention by buyers, account-ing staff, original requestor and receivingstaff. The end result is that an “artificial”match is created, (i.e. duplicate receivingdocuments, duplicate invoices, “after thefact” purchase orders) in order to makethe process work. This “forced match”defeats the entire objective of the “three-way-match” step.

The following chart illustrates the process of the traditional purchase process flow:

01S E C T I O N


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• Step 1: An employee decides to purchasea good or service.

• Step 2: An employee creates a requisition.

• Step 3: The appropriate individual mustapprove the requisition.

• Step 4: The approved requisition is for-warded to the purchasing departmentwhere a buyer orders the goods and ser-vices. The purchasing department issuesan official purchase order to the supplier,possibly via an ERP system.

- Two copies of the purchase order areheld in the purchasing department forfiling — both numerically by PO numberand alphabetically by supplier name.

- One copy of the purchase order is sentto the accounts payables department.

- One copy is sent to the receiving department.

- The original is sent to the supplier. - An additional copy is sent to the

requestor along with a copy of the requisition to confirm that the orderwas placed.

• Step 5: The receiving department receivesthe goods and matches their PO copywith the packing slip and files thematched papers. The receiving depart-ment issues a two-part receiving docu-ment, (receiver), matching one copy withthe PO and supplier packing slip and thensending a second copy to accountspayable.

• Step 6: The accounts payable departmentreceives an invoice from the supplier.

• Step 7: The accounts payable departmentmatches the PO, invoice and receiverbefore a payment check to the supplier isissued. (This step is known as the “three-way match”.) If a match does not occur,then manual intervention from either theemployee, the purchasing department orthe receiving department takes place.

• Step 8: The accounts payable departmentmakes the payment to the supplier whena match is completed.

• Step 9: The accounts payable departmentadds the transaction to the generalledger, possibly via an ERP system.

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The Corporate Purchasing Card purchasing process is as follows:

The result is a streamlined purchasing and accounting process.

C. Purchasing Process

Step 1: The employee is given a MasterCard

Corporate Purchasing Card with pre-assigned

authorization limits determined by the organization.

The authorization limits are in line with the employ-

ee’s job responsibilities and authority. This allows

the employee to purchase goods/services at the

time they are needed, rather than relying on the

purchasing department to order the goods/services.

Step 2: The employee can make purchases directly

with suppliers/service providers within pre-

assigned authorization limits.

Step 3: The supplier/service provider delivers

goods/services and receives payment through the

MasterCard network within a few days instead of

relying on the buyer’s Accounts Payable department.

Step 4: The employee receives a card activity state-

ment, which they review for accuracy. The account-

ing/finance area receives and pays one consolidated

invoice for all cards rather than paying multiple

supplier invoices.

Step 5: Electronic Data Management System adds

the transaction into their financial system to record

the expense on the General Ledger.

1

2

3

4

5

In contrast to the traditional purchasing process that often involves several internaldepartments and many pieces of paper, a purchase made with the MasterCard CorporatePurchasing Card utilizes external resources as described below:

01S E C T I O N


D. MasterCard Corporate Purchasing Card Program Functionality and Features

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The MasterCard Corporate Purchasing Card is able to streamline the purchasing process by utilizing the ubiquitous nature ofcredit cards today. The enhanced functionality of the Corporate Purchasing Card provides additional data and authorizationcontrols to enable purchasing managers to manage their suppliers and internal constituents more effectively.

Feature Benefit

• Over 19 million merchants worldwide accept a MasterCard card for payment

• Over 200,000 merchant locations can capture and transmit Level II and Level

III data (see Incremental Data Capture below).

• MasterCard is accepted in over 200 countries.

• Provides a large network of suppliers available to meet

corporate needs as well as enhanced relationships with

existing suppliers.

• Provides an easy-to-implement program.

Unsurpassed Supplier/Merchant Acceptance

Enhanced Authorization controls

• Criteria set by corporation.

• Limits can be set at departmental and/or employee level

- Dollar limit per transaction and/or per month- Transaction frequency limit per day and/or month - Limits by supplier type

• Authorization/decline is done at point of sale based on corporation defined limits.

• Provides total flexibility to assign purchasing power –

Managers can empower employees while maintaining control.

• Provides efficient way to control purchasing activity.

• Reduces time and costs for authorizing purchases.

Incremental Data Capture

• Captured at point of sale

• Transmitted via MasterCard network to issuer provided reporting system

• Key data elements:

- Level I:- Name of merchant- Address of merchant (city and state)- Amount of transaction in US dollars- Date transaction was authorized- Date transaction was posted to issuer’s system- Exchange rate, if applicable

- Level II:- Level I data- Sales tax amount- Customer Code:

• Uniquely identifies each transaction• Provided by employee to supplier/merchant at point of sale• Up to 16 characters alpha/numeric

- Level III:- Level II data- Line item detail:

• Item description(s)• Item quantity(ies)• Cost per unit• Total transaction amount

• Streamlines administrative procedures

• Facilitates allocation to separate cost centers, project

numbers, etc. from one purchasing statement

• Provides efficient monitoring of purchasing activity

• Reduces time and costs for monitoring purchasing activity

• Data available from MasterCard within 48 hours of card transaction activity

by cardholder.

• Coordinate with your Issuing Bank for Electronic Reporting

- User-defined report formats- User-defined reporting frequency (daily, weekly, monthly, quarterly)- Transmits all data captured at POS including Level III

• Provides flexibility in receiving reports

- Detail- Frequency- Location- Management level

• Reduces/replaces paper storage

• Increases employee productivity

• Increases timeliness of management and financial reporting

• Streamlines administration procedures

• Provides efficient reconciliation of purchasing activity

Electronic Data Feed and Reporting

The following features highlight the benefits of the MasterCard Corporate Purchasing Card:

8

It is important to note that incrementaldata capture is captured at the suppli-er’s point-of-sale terminal and transmit-ted through the MasterCard network.The sophistication of the supplier’spoint-of-sale device will determinewhat data is captured and transmitted.

To capture Level II information, thesupplier does not generally requirehardware upgrades. Level III capabilitygenerally requires sophisticated hard-ware and software at the merchant loca-tion to handle bar code information orinventory/order entry systems interact-ing with the card authorization termi-nal. This will usually require a signifi-cant investment by the supplier and,therefore, this functional capability willmost likely be limited to larger nationalsuppliers.

MasterCoverage®

Liability Protection Insurance

Experience indicates that employee mis-use of company credit card privileges israre. However, to protect against theselosses if they occur, MasterCard estab-lished the MasterCoverage® LiabilityProtection Program.

The MasterCoverage® LiabilityProtection Program is provided at nocost to financial institutions and com-panies covered by the program for cardsissued in the U.S.* For corporationsthat have four or fewer cards, the liabil-ity protection is up to $5,000 per card-holder, for corporations with five ormore cards, excluding the CorporateMulti Card, the Public Sector MultiCard and the Government IntegratedCard, the liability protection is up to$15,000 per cardholder. For CorporateMulti Cards, Public Sector Multi Cardsand Government Integrated Cards, theliability protection is up to $30,000 percardholder.

*The MasterCoverage Liability Protection Program is provided subject to the terms and conditions set forth in the master policy. For cards issued outside of the United States, there may be an applicable fee.All MasterCard benefits subject to the terms and conditions of the policies and may vary country to country.

D. MasterCard Corporate Purchasing Card Program Functionality and Features

01S E C T I O N


The benefits to be derived fromimplementing your MasterCardCorporate Purchasing Card are notrestricted to only the corporate pur-chasing group. Your external businesspartners (suppliers) and your internalclients (business units and employees)will realize considerable benefits fromyour program.

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1. Purchasing Department Benefits

aSubstantial reduction in processingcosts (resource time), administrativecost savings (postage, stationery,printing costs, check fees, etc.) andsystem file maintenance and operat-ing costs (supplier file management);

aReduced accounts payable inquiriesfrom suppliers on outstanding payments;

aStrengthened cash management andsimplified bank reconciliation practices;

aEnhanced management control andreporting, with the opportunity tofrequently access transactional data inpartnership with automated postingto the General Ledger (electronic dataplatform);

aIncreased operational and manage-ment time for other core strategic oroperational business activities, and;

aImproved supplier management viaenhanced and readily available MIStools.

2. Internal Business Unit/

Employee Benefits

aControlled empowerment andaccountability to the business unit/cardholder to procure goods and service as required;

aAccelerated delivery time in thereceipt of goods and service resultingin overall increased productivity, and;

aEnhanced budget monitoring result-ing from greater access to transaction-al order data.

3. Suppliers

aImproved cash flow through the rou-tine card settlement process ratherthan through the laborious “invoicing— accounts receivable — bankdeposit” process;

aReduced administrative cost of manag-ing an accounts receivable activity forpurchases made with the MasterCardCorporate Purchasing Card;

aReduced accounts receivables follow-up activity, and;

aImproved customer relations by deal-ing directly with the end user at thecustomer business rather than throughorganizational intermediaries.

E. MasterCard Corporate Purchasing Card-Who Benefits?

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Gunn Partners 1998 researchanalyzed 22 companies. The sizeof these companies ranged from$1 billion in revenue to $127billion, with median size $15billion. A wide mix of industriesparticipated in the research. The total annual purchasesmade with a purchasing cardranged from $140K (companiesin early stages of implementa-tion) to over $172M.

Illustrated below are charts and analyses prepared by Gunn Partners.

F. Purchasing Card Industry Research Analysis

1. Cost by Payment Method:

As part of the purchasing card research, cost data was collected on four paymentmethods: purchasing cards, purchase orders (for non-inventory transactions),check requests and travel expense reporting (when used for miscellaneous purchas-es). The purchasing card compares very favorably to the three other methods orchannels, with the largest cost advantage of $47 occurring between the purchasingcard ($28.75) and the purchase order ($75.70). The increased cost for the initiatoreffort required in a purchasing card transaction was more than offset by decreasesin purchasing administration.The cost-of-payment differences were converted to savings for each company bymultiplying their transaction volume by the difference in costs for their company(not the averages shown in the chart). The assumption for the savings was that50% of the transactions, from each of the three, (3), alternate methods could beconverted to purchasing cards.

01S E C T I O N


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$35.00

Saving in $ Millions

$30.00

$25.00

$20.00

$15.00

$10.00

$10.00

$5.00

$0.00

Check Request Travel Reporting Purchase Order

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1.7

29.7

Cardholder Costs

Cardholder total cost per purchase = $10.56

3. Process Costs per Order

Incurred by Cardholder:

One of the issues cited with the use ofpurchasing cards is that tasks may be shift-ed from the purchasing and accountingfunctions to the cardholder. As indicated,the average cardholder cost per purchase is$10.56. Seventy-eight percent of that costis related to the cost of procurement,while the remaining 22% (matchingreceipts and data entry) are related to theaccounting function.Over the next several years, a dramaticimprovement in each segment of costreduction will take place as more compa-nies implement electronic supplier cata-logs; due to more companies using elec-tronic purchasing.

2. Channel Savings:

The largest opportunity is to convert transactions from PurchaseOrders to Purchasing Cards, as the average saving was over $29 million per year.

Channel Savings ($M)

Average savings by moving 50% of eachchannel volume to Purchasing Cards

02. IMPLEMENTATIONPurchasing cards can greatly improve the efficiency

of your organization’s spending volume. However,

the savings discussed in Section 01 will only occur

if your organization’s purchasing process changes.

A purchasing card implementation must be viewed

as a reengineering effort for your organization, and

given the necessary resources. This section will

explore the steps required to create an effective

Purchasing Card program.

It is vital to spend adequate time on the program construction before issuing cards to your employees. You want to ensure your organization has a completeprocess in place to handle purchasing card transactions.In addition, you need to position your program andexplain the benefits of using a purchasing card toemployees.

Employee acceptance and endorsement of a purchasingcard program is essential to a successful program.

02S E C T I O N

IMPLEMENTATION

Best practice:• A key component in the success of a purchasing card program

is a well-planned implementation. Overwhelmingly, allparticipants in the Gunn Partners research study agreed thathaving a coordinated, cross-functional implementation isimportant to the overall success of the program.

• The implementation should be well planned, appropriately staffed and have specified tasks and goal-related measures set in advance.

• Given a solid plan and the proper management support, four to nine months should be adequate time for implementation.

Purchasing card implementation has four phases:

Phase I - Program construction phase

Phase II - Program rollout

Phase III - Program management

Phase IV - Program expansion

A. Overview

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Phase 1 is where the implementationprocess begins. This Phaseencompasses the following activities:

1. Assess Present Practice

2. Set Goals

3. Build Internal Support

4. Create an Implementation Team

5. Establish Program Parameters

6. Enroll Suppliers

7. Establish Policies and Procedures

8. Create Communications and

Training Material

B. Phase 1 - Program Construction

1. Assess present practice

A. Initiating the Process

Once you have determined that thereengineering of your purchasingprocess with the use of purchasingcards could be valuable for yourorganization, you can begin animplementation process for yourpurchasing card program.

The first step is to determine who willmanage this effort. This individual orgroup of individuals will be responsiblefor gaining a complete understandingof the current processes and building acase for moving forward. Under Step 4of the process, a full implementationwill be created. However, a staff will berequired to accomplish the first threesteps.

B. Create Analysis, Costing and Mapping

of Current Processes

As previously stated, the cost savings ofa purchasing card program will only berealized if your organization changesthe way that it buys goods and services.In order to understand what needs tobe changed, you must examine thestate of purchasing in your organizationtoday. Document what yourprocurement activities are costing yourorganization in hard and soft dollars,and match those costs to each activityin the current process. Companies thatskip this step will not be able to clearlydocument cost savings later.

First, identify the steps in your currentprocess. In the introduction, wecompared the traditional transactionprocess to the streamlined process,using a MasterCard CorporatePurchasing Card®.

Best Practice: Identify every step in your currentpurchasing process, from the initial“need to buy” through the closing ofaccounts payable entries.

02S E C T I O N

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Traditional Purchase Process Flow

IMPLEMENTATION

This illustration of the traditionalpurchase flow can assist yourorganization in documenting thecurrent cost of your process.

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The following table tracks the paper trail created to support the traditional process flow.Your process may have already reduced some of the paper, but a full review of the chartwill probably uncover some similar actions at your company. These tools can be used withthe “Process Flow Tally Sheet” on page 17 to determine the costs of the current process.

Phase 1 - Program Construction

Here are some additional questions thatwill help you to identify your process:

aHow does the purchasing process work?

aHow long does it take fromrequisition to product receipt?

aWhat do you buy? Number oftransactions under US$1000 and$5000 annually?

aWhat authorization controls are inplace?

aWhen errors or disputes occur, howare they corrected?

aHow is the purchasing processaudited? Time involved?

aWho are your suppliers? What type ofdata is currently required fromsuppliers?

aHow are suppliers paid and what isthe average settlement time?

Once the steps are identified, assign acost to each activity. (Use the “tallysheet” on the next page to check yourfindings with the data from pages 14 to16 of this guide. How do your numberscompare?) Typically you’ll arrive atthese costs by analyzing such things as:

aMan-hours in Accounts Payable

aMan-hours in Purchasing

aMan-hours in Receiving

aBank fees for checking

aPostage

aPaper

aCost of funds

aDays of float

aData entry, data storage, MIS reportgeneration

a“Hidden” costs of your currentpurchasing process, including:

• Time spent resolving purchasingproblems (e.g., problem receipts andinvoices, and after-the-fact purchaseorders)

• Other costs incurred (e.g., priorityfreight) due to a time-consumingand complex purchasing process.

• Time spent filling out and receivingapprovals for purchase requisitions.

Step Paper Paper Paper Paper Signature/ Data Number Generation Forward Matching Filing Authorization Entry

Requestor 2 Requisition ( Req. - 3 parts) 2 3 parts to Approver 2 Req. (1 part) 2 Req. (3 parts)3 3 2 parts to Purchasing 3 Req. (2 parts w/P.O.) 3 Req. (2 parts w/P.O.)

Approver 3 Req. (3 parts) to Requestor Req. (3 parts)

Purchasing 4 Purchase Order 1 part to Supplier 1 part w/Req. (for Requestor)Department (P.O. - 6 parts) 1 part w/Req. to Requestor 1 part w/ Req. (for alpha file)

1 part to Accounting1 part to Receiving 1 part w/ Req. to alpha file1 part to numeric file

Receiving 4 4 P.O. to “open P.O.” fileDepartment 5 5 Receiving Document 5 1 part to Accounting 5 1 part w/P.O. 5 w/P.O in “closed P.O.” file

(Receiver - 2 parts)

Accounting 4 4 file P.O. to “open P.O.”Department 5 5 Receiver w/P.O. 5 file P.O. and receiver

in file “awaiting invoice” 7 7 Invoice w/P.O. or 7 If P.O. and receiver OK,

w/P.O. and receiver then file “pending payment”.If only P.O is in, then file“pending receiver”

8 8 Check (3 parts) 8 1 part to supplier 8 1 part w/ P.O., 8 1 part in numeric file, 8 Check (3 parts)receiver and invoice 1 part w/ P.O., receiver

and invoice in alpha file.9 9 adds

transaction to the general ledger

02S E C T I O N

IMPLEMENTATION

Paper, (copies) # of copies Cost per form:

Purchase Requisition

Purchase Order

Mailing envelope(s)

Receiving Document

Checks

Postage stamps

Photo copies

Other forms/paper:

Total paper:

Filing: Hours Rate Cost

Requestor

Purchasing Dept.

Receiving Dept.

Accounting Dept.

Other departments:

Total filing:

Matching: Hours Rate Cost

Requestor

Purchasing Dept.

Receiving Dept.

Accounting Dept.

Other departments:

Total matching:

Other Costs:

Cost

Telephone

Filing cabinets

Check fees

Admin. problem solving

Priority freight

Fax

Other

Total other costs:

TOTAL COSTS

17

Process Flow Tally Sheet

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Once steps have been identified andcosts quantified, you now need to tiethe cost to the process step thatgenerated the cost. This is the mappingprocess.

If, for example, it takes 13 days fromrequisition to product receipt, howmuch of that thirteen days is suppliertime versus your internal approval/administrative time? How many daysof extra inventory does that require?What is the dollar value of thatinventory? What is your company’scost-of-funds to have that inventory instock? Do you use priority freight toshorten that time? How much moneyis spent on priority freight as a result of the internal process? What are thelabor costs to count, store and retrieveand deliver that inventory whenneeded?

The mapping process is laborious, butit is an important investment in yourimplementation process because itfirmly establishes the baseline fromwhich you will measure your progress.

C. Take Stock of Your Current System

Take an “inventory” of your currentpurchasing process to get a picture ofwho is using it, for what purchases,and at which suppliers. Based on ananalysis of this data, you can select theparameters of the rollout and whattypes of purchases to target for theprogram — who will receive cards,what suppliers will participate, whatare the dollar amounts and types oftransactions.

Cost/Frequency AnalysisFirst, it is useful to consider what typesof purchases your organization makeson indirect materials. Generally, thesepurchases can be categorized into fourquadrants shown above.


The above chart illustrates thefollowing:

aIf the unit cost is high, and yourorder frequency is low, most likelyyou are using a purchasing contract.It will not be practical to utilize aPurchasing Card for these types oftransactions.

aIf the unit cost is low, and your orderfrequency is high, the PurchasingCard would be a perfect way tohandle these transactions andstreamline the process.

During implementation planning,companies should separate what theybuy into this matrix and concentratetheir initial purchasing card activityin the lower quadrants. These are thelow-dollar/high-frequencytransactions that require largeadministrative effort, resulting incosts relative to the cost of the item.

02S E C T I O N

IMPLEMENTATION

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Supplier AnalysisAnother useful way to consider yourpurchases is by commodity breakoutand by supplier type.

aGenerally, high-dollar transactions arefor distinctive, non-commodity itemspurchased by your organization. Withthese suppliers, you generally have anestablished partnership withnegotiated payment terms andpayment conducted via blanketcontracts or EDI. It may not bepractical to use a Purchasing Card forthese types of transactions in the earlystages of your program.

aThe Purchasing Card works well forlow-value, high-frequency purchaseswhere your organization is buyingfrom three or more suppliers. Byestablishing a purchase card programfor these transactions, you canconsolidate information about yourpurchases and begin to negotiatebetter pricing with preferredsuppliers. Invoice Analysis

To help you define what purchases willbe eligible to be included in aMasterCard Corporate PurchasingCard program, it’s useful to look atpresent invoices and create an invoiceanalysis chart using the process asoutlined below:

$ per invoice # of invoices % of Total Cumulative % Total $ (mm) % of Total Cumulative %

$0-1,000 60,000 80% 80% $1.35 5% 5%

$1,000-5,000 11,750 15% 95% $4.05 15% 20%

$5,000-10,000 3,000 4% 99% $6.75 25% 45%

>$10,000 750 1% 100% $14.85 55% 100%

aEstablish the volume (%) ofprocurement transactions for severallow- to medium-dollar thresholds

aEstablish the total budgetary value foreach threshold level (%)

In the example below, 95% oftransactions have a transaction value ofless that $5000. Therefore, purchasesless than $5,000 would appear a goodstarting point for your program.

Invoice Analysis Chart

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Other AnalysisBe sure to examine all types ofpotential spends when you aredetermining which types of purchasesto target for your program.

aConduct a business analysis of allPurchase Orders/Maintenance RepairOrders and Requisition PurchaseOrders.

aReview all business transactions thatresult in a check payment.

aReview all credit/electronic fundstransfer payments that result from amanual order process.

aIdentify the current assetcapitalization transaction level. Thismay be a good way to identify yourinitial limit on Purchasing CardTransactions.

aReview all direct invoice/utilitytransactions that are manuallyprocessed.

aReview the process undertaken forpayment of overseas businesstransactions, particularly bank draftactivity.

2. Set Goals

Companies decide to pursue apurchasing card program for amultitude of reasons — to reduceprocess costs, increase employeesatisfaction, or gather information forsupplier negotiations. This decisionmay be a piece of an overall companyinitiative. Understanding themotivating factors for your company’sdecision to begin a purchasing cardprogram will have substantial effectsthroughout the entire implementationprocess.

aThe first order of business for thenewly formed team is to set goals anda timetable for the program. As withany project, it is important to bespecific about your objectives.Establish primary goals such as:

• Cardholder convenience (i.e.,number of steps to receive what isneeded)

• Minimizing manual efforts (i.e.,eliminate logs, petty cash)

• Strategic purchasing reengineering(i.e., what new terms and conditionscan be negotiated with suppliers —delivery time frames, paymentterms, pricing)

• Information technologyreengineering (i.e., online real-timereporting capability)

• Cost-savings targets (i.e., reducingtotal purchasing/accounting cyclecosts by 75%)

Your goals should be prioritized toensure that they match the reasons forinitiating the program. All of the abovementioned goals are positive, but yourcompany should focus on those goalsthat most match the objectives of theprogram.

The correct metrics will replace hands-on hierarchical supervision. Managersand supervisors can take a“management-by-exception” approachto ensure that purchasing activity isconsistent with company policy andoperational objectives.

The metrics established should beintegrated — individual, team anddepartmental. The reporting ofperformance, vis-à-vis the metrics,should be automated-system generated,easy to produce and timely. Samplemetrics may include:

• Number of transactions

• Number of cardholders

• Average transaction amount

Best practice:Successful companies have establishedgoals, savings targets and metrics thattrack program success.


02S E C T I O N

IMPLEMENTATION

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3. Build Internal Support

The information gathered in theevaluation process now needs to bepresented in a management summarythat quantifies the benefits of a well-run program. Potential metrics toenumerate could be:

aNumber of potential transactions tobe transferred to purchasing card

aProcess savings per transaction(personnel hrs. vs. other)

aPotential direct savings fromnegotiated rates as a result of strategicsourcing

The numbers should speak forthemselves and easily convince seniormanagement to support the program.It is advisable to have seniormanagement set up a steeringcommittee consisting of seniormanagers who will monitor progress ofthe implementation, allocate resourcesto the project when required andreconcile interdepartmental issues. Thissteering committee should be asked toacknowledge senior managementsupport for the program by generalmemo to all departments and ongoinginvolvement in the implementation.

4. Create an Implementation Team

Now that you have decided to moveforward with the implementation, youwill require more resources to supportthe program. The typical paper-basedpurchasing system cuts across manyorganizational boundaries, from theemployee who initiates the purchase tothe purchasing, receiving, and accountspayable departments. Each of thesedepartments — and any others thatmay be involved in your purchasingprocess — must work together as ateam to design and implement a newway of handling purchases. Here aresome suggestions on creating a cross-functional team:

A. Select a program manager

The program manager is someone who will assume overall responsibilityfor the design and implementation ofthe program. This may or may not be the individual who you have selected to initiate the process. An effectiveprogram manager will have goodproject-management skills and be able tocommunicate, motivate, and negotiatewell. In particular, the program managerwill use these skills to:

• Chair the cross-functionalimplementation team

• Act as the company liaison to thecard issuer on all program-relatedissues, including setting upcardholder accounts

• Communicate the program tocardholders and suppliers

• Report on the progress of theprogram to senior management

• Coordinate resolution of programquestions and policy issues

• Participate in ongoing programreviews

• Oversee card issuance andcancellation

• Resolve billing disputes if thecardholder is unable to do so

• Help plan continual rollout,maintenance, and enhancement ofthe program

For many organizations, the ProgramManager’s role is a full-time position.You will need to quantify how thescope of this role translates to staffingrequirements for your company.

Best practice:Selection of a cross-functional team and dedicated program administrator to manage the process is a commonfeature of successful companies.

Best practice:Successful MasterCard CorporatePurchasing Card programs have seniormanagement’s strong endorsement andvisible commitment for the program.

22

B. Appoint implementation team and

create implementation schedule

Typically, the implementation team is across-functional team consisting ofrepresentatives from these functions:

aAccounting and Finance Because your accounting/financedepartment will be impacted by thenew program, by doing more controland audit, and less paper processing;it must be represented on your phaseprogram team.

aPurchasing DepartmentPurchasing will play an important rolein the new process. Purchasing mustbe on the team to consider such issuesas supplier reporting, supplier-basereduction, preferred suppliers, andsupplier-base management techniquesthat will require specialized reporting.They also will continue to beresponsible for the overall terms andconditions of the supplier base.

Supplier management will bediscussed later in this document inSection 02-6, Enrolling Suppliers.

aInformation TechnologyThe Information TechnologyDepartment will help make decisionsabout how the purchasing card datawill interface with existing internalfinancial reporting systems:

• What medium (Internet tomainframe, Internet to PC’s, client-server access, EDI transmissions,paper reports, magnetic tape, CD,disk, etc.)?

• What format (custom EDI data file,Flat files, preformatted reports, etc.)?

• How frequently will data bereceived?

• How will the data be distributed?

• What access security measures willbe required?

• What impact does this effort haveon other company-wide informationtechnology initiatives (ERP, newhardware installation or othersystem upgrades)?

• How will this facilitate anye-Commerce efforts currentlyunderway?

aInternal AuditAny purchasing process — whethertraditional paper-based or your newMasterCard Corporate PurchasingCard program — will be audited.That’s why it’s a good idea to includeinternal auditors on your programdesign team. They can make sure thatthe new system has the propercontrols in place to ensure compliancewith company policies.

aTax DepartmentA Tax Department representative canreview the process for handling salesand use tax payments and reporting.

aHuman ResourcesBecause redesigning the purchasingprocess involves communicating withemployees and determining policesand procedures, the human resourcesdepartment may be represented onthe implementation program team.Human Resources may also beresponsible for training cardholders.

aLegalA representative of the company’sLegal Department should be amember of the team, advising on suchmatters as contract negotiations withthe card issuer, legal and regulatorymatters, and liability issues.


IMPLEMENTATION02S E C T I O N

23

C. Create detailed implementation

schedule

After the team is complete, you shoulddevelop an implementation schedule,to which you will add tasks as youdevelop the program parameters for thepurchasing card implementation.

The implementation schedule is theroad map for the tasks that need to becompleted for a successful purchasingcard program. The schedule lays outthe timing of sequential and parallelefforts as well as identifying thoseindividuals responsible for thecompletion of each task.

Identify committed resourcesIn addition to listing and organizing allrequired tasks, the implementationschedule must identify committedresources to the project. These arepeople who must be available to attendmeetings, and complete assigned taskson the schedule.

The program manager must ensure thatthe committed resources are activeparticipants and complete their taskson time. Typically these resources’current functional job responsibilitieshave not been reduced. As a result,there may be priority conflicts that theprogram manager will need to resolve.

Modify the generic implementationscheduleThis generic schedule provides astarting point from which the team candevelop its own detailedimplementation plan. The final detailedimplementation plan should, at aminimum, include all of the itemsmentioned in section B “Phase 1”. It isimportant that the team develops andagrees on the plan. Hence, committingto the success of the program. Thegeneric implementation schedule isincluded in Appendix D. An electroniccopy is also available.

aWhen using the genericimplementation schedule, the teamshould modify the time line forresource constraints. The programmanager will have a constantbalancing act between the needs ofthe project and the ever-changingavailability of resources.

aIn addition to resource constraints,the team may need to modify thetime line for unique requirements.Some purchasing cardimplementations may requirecustomization of standard productofferings because of uniqueorganizational structure, specializedcustom reporting requirements,complex software integration with in-house systems, major supplier sign-upprograms, etc. Any relevant factorthat could impact the time lineshould be considered. Review progresswith the implementation team.

aThe program manager should reviewprogress with the implementationteam on a weekly basis via a regularlyscheduled weekly meeting whereprogress on the implementationschedule is reviewed, and appropriateadjustments made to the time line oravailable resource base. Thesemeeting should have a preset andpredistributed agenda. In addition,ongoing dialogue with individualteam members should occur as theneed arises.

Identify issues and report progress tosenior managementMinutes should be taken at each weeklymeeting. These minutes should identifyissues and report progress to seniormanagement. Recommended solutionsto any issues should be included in theminutes. Typically the suggestedresolutions will be to change an existingpolicy, extend the time line or addresources to the project. It isimperative that the minutes bedistributed as soon as possible after themeeting to both the team members andsenior management.

Best Practice: From the beginning of the program,develop an implementation schedule withresources assigned for the completion ofindividual tasks.

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24

5. Establish Program Parameters

Defining the program parameters is theheart of program design. Here is whereyou will decide the structure of yourprogram — which employees willreceive cards, what purchases willqualify, what other internal controlsyou should utilize, how payments willbe settled with your bank, and how toreconcile your transactions with yourGeneral Ledger.

A. Assigning Purchasing Authority

As the process flow illustrates, theprocess change that must accompanythe purchasing card implementationempowers buyers to actually pay for thegoods and services that they use,relieving the purchasing departmentand the accounts payable group fromhaving to perform these tasks.Empowerment of employees can alwaysfeel risky for a corporation. Setting upprogram parameters defines purchaseauthority based on dollar limits andmerchant category codes (MCC) andwill help to control this risk. The desireto control perceived risk must betempered by the need to provide

employee purchasing flexibility. If theemployee finds the program toorestrictive, it will fail. Understandingwhat types of requisitions and othertypes of purchases the cardholdertypically makes to perform his/her jobshould provide the guidance in settingappropriate limits. This will require aculture shift from front-end managerialcontrols to automatic back-endauthorization features.

Purchasing authority can be assigned toindividual cardholders according to anycombination of criteria you choose:dollars per month, dollars pertransaction; number of transactions perday or month, even by supplier type.This means that each individual, eachdepartment, or each division can haveits own custom designed purchasingparameters. This ability to tailor yourauthorization criteria gives you muchcontrol over purchasing expenditures.

When setting spending limits, it’simportant to strike a balance betweenadequate controls and the flexibilityemployees need. You’ll want toperiodically review the spending limitsyou’ve established to see how wellthey’re meeting your organization’sneeds. The program manager cancontact the card issuer to requestadjustments to a cardholder’s purchaseauthorization.

The following details the specifics ofeach authorization control:

• Credit limits — There will be anoverall company credit limitestablished by the card issuer.

• Cardholder monthly spending limit— At the cardholder level, you canset monthly spending limitsappropriate to the employee’s jobresponsibilities. Again, your existingsystem will give you guidance onsetting limits under the new system.You’re likely to want to givesomeone who currently has $10,000a month in spending authority thesame limit on the MasterCardCorporate Purchasing Card.

• Supervisory or departmental roll-upspending limits — The MasterCardCorporate Purchasing Card programallows you to have checks andbalances. In addition the individualcredit limit, a supervisory roll-upspending limit can also beestablished. Here is an example:

An engineering department with abudget of $10,000 per month has sixemployees. The budget manager doesnot know in advance how much of themonthly budget each of the employeeswill spend within a given month.However, he can comfortably assigneach employee a monthly spendinglimit of $3,000, knowing that oncethe group’s cumulative monthlyspending reaches $10,000, alladditional purchases will be declinedauthorization at the time of purchase.

Best Practice:Set up your initial rollout to allow it toreach wide and deep enough to givemeaningful results.


02S E C T I O N

IMPLEMENTATION

• Transaction limits — In addition tothe dollar limits per month, you canplace limits on individualpurchasing power based on criteriasuch as:

– Dollars per transaction– Number of transactions per day– Number of transactions per

month

In determining your dollar limits pertransaction, consider:

• The statistical business dataobtained from your invoice analysis;(Described on page 19)

• The asset capitalization thresholdvalue of your organization — Manyprograms do not initially allowassets to be procured via theirpurchasing card and, therefore, setdollar limits below this rate

• Supplier categories — You also havethe ability to define the types ofsuppliers where your employees’MasterCard Corporate PurchasingCard can be used.

In the MasterCard network, allmerchants, (suppliers), arecategorized by merchant categorycode (MCC), which is similar to theStandard Industrial Classification(SIC), the code system establishedby the United States Department ofCommerce. You may elect toinclude (or exclude) types ofsuppliers where your MasterCardCorporate Purchasing Card can beused, based on these categories orset different authorization controlsfor different categories of spending.

For example, you could giveauthorization to an employee to makepurchases only at merchants classifiedas office supply merchants and excludeor limit use of the card for travel andentertainment merchants such asairlines, car rentals, hotels andrestaurants. The types of merchantswhere cardholders are allowed to makepurchases and the sizes of thesepurchases are entirely in your control.

Be careful to only enhance thecomplexity of controls where necessary.While it is feasible to allowauthorizations to vary by suppliercategories administered by you, thismay result in inconveniences andconfusion for cardholders attempting touse the card for legitimate businessexpenses. Your company should thinkthrough its spending policies to ensurethat they are realistic and not overlyrestrictive for cardholders.

Using these criteria, you can customizespending authority for your employees.

aAn office manager may be authorizedto make purchases of up to $45,000per month, up to $1500 pertransaction and can only makepurchases with office supply vendors.

aA buyer in the purchasing departmentmay have larger dollar limits and adifferent range of vendors that will beauthorized for purchasing cardpurchases.

aAn administrative assistant may beauthorized to make five transactionsper day, not to exceed $50 pertransaction.

If a cardholder tries to make a purchasethat violates any of the limits placed onthe card — departmental dollar limitsper month, cardholder limits permonth, number of transactions per dayor month, or type of supplier — thetransaction will not be processed.

Maintaining authorization parameterson the cards, increases control, but alsoadds administrative responsibilities forthe card programs. To minimizeadministrative responsibilities, establishno more that three or four programparameter templates includingmonetary and MCC type parameterdesignations.

25

26

The chart above demonstrates two scenarios, one in which allauthorization parameters are met, and one in which an authorizationparameter is violated. In the latter case,the supplier category used to make thepurchase did not match the parametersset up for the cardholder. As a result,the transaction was declined at thepoint of sale.

B. Choosing cardholders for initial rollout

You may want to test your programparameters on an initial rollout todetermine if the program parametersshould be modified before the cards aredistributed throughout the enterprise.While the initial rollout should be of amanageable size, one that is too limitedin scope will not truly test the newprocess.

Selecting a cross section of cardholderswill help you see how the MasterCardCorporate Purchasing Card programcan work in a variety of situations. Youcan use any criteria you like, forexample:

aEmployees (those who request thepurchase rather than today’sauthorized buyers) who generate alarge portion of the low-dollarinvoices.

aUsers who charge all of theirpurchases to one cost center oraccount number ( e.g., secretaries, librarians)

aSelect functional areas (e.g., facilitiesmanagement or maintenance)

aA selected geographical location (i.e.,a plant or a headquarters office)


Maximizing control over small purchases


27

C. Electronic Data Management

Your issuer will most likely provide youwith a reporting tool that allows you tomanage and control your purchasinginformation. You should utilize thistool to achieve the following:

aReceive transactional dataelectronically from your issuer;

aDistribute transactional dataelectronically to the cardholder and/ordelegate, and;

aProvide an electronic upload ofvalidated and confirmed transactionaldata directly to your EnterpriseResource Planning (ERP) system.

The following types of functionalityshould be considered whencontemplating your electronic datamanagement needs:

aSystem compatibility with your ERPsystem and operating environment,with proven applicationenvironments;

aCardholder access to electronictransactional data;

aRequired levels of base systemfunctionality, user friendliness andproduct support, maintenance,upgrade conditions, etc.;

aFrequency of transaction dataacquisition from your issuer (matureprograms are now finding the need tohave access to data more frequentlythan monthly to meet financial andexception reporting needs);

aData distribution capabilities,including data validation andpopulation options such astransaction splitting, cost allocationoptions, line item text, projectcosting, taxation accountabilities;

aManagement and exception reportingfunctionality;

aSystem security protocols andprogram position security profiles.

D. Internal Controls and Exception

Reporting

Many companies are moving fromcontrolling at the point of purchase todeveloping audit procedures to ensurepolicy compliance. This has the benefitof empowering employees withoutlosing the ability to monitorcompliance.

Your management reporting tools canbe configured to identify card usageoutside of set parameters and can beviewed by program administrators andline management.

E. Settling Payments with your Issuer

First, you must collaborate with yourbank to define a monthly billing cycleperiod/ program-reporting period tosuite your business needs.

Next, you should establish a simplisticreconciliation process, whereby datadownloads via the issuer or theMasterCard network are reconciled tothe direct debit sweep by your issuer.

F. Reconciling to the General Ledger

Traditionally, cardholders use theirpaper statement to perform datavalidation and cost allocation. Thetraditional paper statement processcontains the following steps:

aCardholder validation of cardtransaction detail on IssuerCardholder Statement to retainedtransaction receipts;

aReconciliation of commercial cardtransactions to manually preparedcardholder transaction log;

aPopulation of transaction log withappropriate cost/charge code andother required line item detail, thensubmission to cost/budget centermanager for endorsement, and;

aCost/budget center managerendorsement, then forwarded toAccounts Payable for journal entryposting to Accounts Payable/GeneralLedger.

The above process requires extensivepaper shuffling and excessive data inputactivity. With recent improvements inreporting and management tools, youcan more efficiently perform these tasksfor your organization.

Utilizing an electronic datamanagement tool with yourMasterCard Corporate Purchasing Cardprogram for transaction data validationand cost/charge code allocation is a bestpractice. The process steps fortransaction data validation and cost/charge code allocation would be;

aElectronic transaction datadistribution to the cardholder (ordelegate where cardholder has nosystem access) or all downloadedtransactions since last distribution(may be daily, weekly, monthly);

aCardholder validates transactiondetails from retained receipts/invoices;

aCardholder can allocate appropriateexpense/account code to thetransaction (or amend the defaultexpense/account code where linked toa Merchant Category Code/Group).Specified range of your organizationsexpense/account codes are loaded intothe system for menu access bycardholder or delegate;

aAdditional project code, assetpurchase details, line item description,taxation information, can be providedto the transaction in fields allocatedwhere required;

Best Practice:Use the Purchasing Card with anelectronic data management tool toreconcile with general ledger.

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aCardholder/delegate can split thetransaction either by amount orpercentage across expense/accountcodes and/or across cost/budgetcenters as necessary,

aCardholder/delegate can screen printconfirmed transactions, attachsupporting documentation and retainfor audit and/or managementscrutiny,

aCardholder/delegate completesvalidation and cost allocation processand forwards transactionselectronically to the cost/budgetcenter for endorsement. Onendorsement, the manager forwardstransaction data electronically to yourMasterCard Corporate PurchasingCard Program Administrator

aProgram Administrator, as and whenrequired, uploads all programendorsed cardholder transaction datato the ERP system as designed.

The use of such a reporting andmanagement tool provides thefollowing benefits:

aUnlimited flexibility in the datavalidation and cost allocation processdesign,

aSignificantly reduces data entryactivity, while enabling expanded datapopulation options,

aDetailed data audit trail ofcardholder/delegate validation andcost allocation activity, and

aGreatly enhanced management andexception reporting as and whenrequired.

All information on your ProgramParameters should be included in yourCardholder Guide. An example of theseguidelines is included in Appendix C1.

6. Enrolling Suppliers

Many successful purchasing cardprograms define supplier categories,such as office supplies, consultingservices, or hardware, which shouldalways be paid via the purchasing cards.The purchasing department then worksto ensure that all suppliers withnegotiated rates in those categoriesaccept the purchasing card.

When invoices are sent from thosesupplier categories for payment, theaccounts payable department can rejectthose invoices and demand that thepurchaser contacts the supplier to paywith his or her purchasing card.During employee training you shouldeducate employees as to which supplier

categories he or she should pay via thepurchasing card versus any otherpayment method.

Supplier categories may be selectedbased on any criteria you choose, suchas volume of invoices or supplier type.For example, you might select suppliercategories that account for the highestvolume of purchase transactions(purchase orders or invoices) asopposed to those with significant dollarvolume.

The following is a supplier strategy thatyou may wish to employ in yourimplementation.

A. Establish selection criteria based on

data analysis.

The objective is to maximizetransaction reduction opportunities.The common rule is 80/20; low-dollarpurchases will often comprise over 80%of the total transaction volume, butthese orders represent under 20% ofthe total dollars spent.

Best Practice:Determine which suppliers to include inyour program by analyzing your currentsupplier database and then develop aspecific action plan.


OfficeSupplies

ABCStationery

$42,653 565

Hardware Joe'sHardware

$15,000 103

ConsultingServices

SandyGlaser

$110,456 52

SupplierCategory

NameTotal

Dollars

Number ofInvoices/yr.

$ 1000

Sample Supplier Analysis


29

The Sample Supplier Analysisdemonstrates that office supplies andhardware are supplier categories forwhich your organization gets a majorityof invoices, but which represent asmaller portion of dollars spent. Theseare perfect supplier category candidatesfor your purchasing card program.

B. Determine Data Level Needs

Requirements.

In the introduction, different types ofdata, such as Level II and III, availablewith the purchasing card were outlined.Your organization must determine ifthat enhanced data is needed to ensurethe success of your purchasing cardprogram.

With the purchasing card transaction,along with the merchant address andphone number, you may receiveadditional information from themerchant such as:

a1099 indicator

aMWOB data

aSmall business status

aDuns number

aSupplier’s TIN

This information can help you withyour tax calculations. By purchasingfrom certain suppliers, such as minority-or women-owned businesses, yourorganization may be eligible for taxbreaks. The 1099 indicator can assistyou in reporting taxable transactions tothe government.

Level II data provides sales tax data thatcan assist a company in ensuring thatthey are paying correct taxes for goodspurchased, particularly out of state.This information will assist a companyif the state tax authorities ever auditthem. Level II data also providesadditional information regarding thestatus of the supplier that is needed to

determine whether tax breaks areavailable as a result of using certainminority or women suppliers. If youwant to utilize Level II information toassist with your tax preparations, youmust demand that all of your supplierspass this information. The supplieraction plan below will tell you how toinstruct your suppliers on this matter.

Level II information can also provide acustomer code that uniquely identifieseach transaction — assisting inassigning transactions to your GeneralLedger.

Level III data will provide line-itemdetail to help your company determineexactly which items were purchased.This can assist your procurementdepartment in negotiating better rateson frequently purchased items. Also,this information can allow yourpurchasing department to auditwhether your employees are purchasingthe company-required items — forexample, the negotiated $150 cellphone instead of a top of the linemodel $500 cell phone.

C. Develop a supplier action plan.

Once you have compared your datarequirements to your suppliers’capabilities, you must determine whatactions should be taken to convertsupplier categories defined above to theMasterCard Corporate Purchasing Cardto realize the program benefits.

To determine which of your targetsuppliers currently accept MasterCardcards, and what their current datacapture capabilities are, you mightwant to conduct a survey. In additionto gathering information regardingyour suppliers’ capability to processLevel II and III purchasing card data,the survey can make your suppliersfeel more involved in your program.

If your supplier already accepts cards andprovides the level of data you require:

Convert purchases in the suppliercategory to MasterCard CorporatePurchasing Card. To effectively convertthese transactions, take the followingactions:

aEstablish a supplier list for eachsupplier category of spending.

aMake cardholders aware of thesesuppliers.

aHave the buyer pay for thesepurchases with his/her MasterCardCorporate Purchasing Card.

aInstruct your accounts payabledepartment not to accept invoicesfrom these suppliers or to pay usingthe MasterCard Corporate PurchasingCard.

aRemind cardholders that suppliersmust provide the data you require. Forexample, if customer code is required,ensure that cardholders are trained onproviding this code to the supplier.

If your supplier accepts cards, but doesnot provide the level of data you require:

aInstruct the supplier to contact theirMasterCard card service provider(acquiring bank) for an upgrade.Their MasterCard card terminal orsoftware must be upgraded to eitherLevel II or III data capture as youspecify. Be aware that suppliers musthave a personal computer or hostcomputer to perform Level III.

aSet a time frame for supplierparticipation and communicate thisto the supplier.

aConsider switching suppliers ifcurrent suppliers choose not toparticipate. Select from the list of“Level II and III” suppliers in theMasterCard Corporate PurchasingCard Supplier Directory, located onthe MasterCard web site atwww.mastercard.com.

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If your supplier does not accept cards yet:

aInstruct them to contact theirfinancial institution for a referral to a MasterCard card service provider.They must request Level II or IIIcapability. Set a time frame forsupplier participation andcommunicate this to the supplier.

aPlace your card acceptance and datarequirements in your next RFP orcontract with the supplier.

aInvite your supplier(s) to a seminar —ask your card issuer for a supplierseminar kit.

aConsider switching suppliers ifcurrent suppliers choose not toparticipate. Select from the list of“Level II or III” suppliers and askyour card issuer for a copy of theMasterCard Corporate PurchasingCard Supplier Directory.

To convince suppliers to accept thepurchasing card, you may wish toeducate them on the benefits that theywill receive by accepting the card forpayment.

aReduce the receivable financingcosts: By accepting MasterCardcards, payment will be receivedwithin a few days of orderfulfillment, rather than the typical30- to 60-day receivable cycle.

aReduce invoicing and collection costs:Your suppliers incur significantadministrative costs generating andprocessing invoices. MasterCard cardacceptance means reduced invoices,reconciliation and credit checks fornew accounts.

aReduce bad debt expense: Becausepurchasing authority is verifiedelectronically at the point of purchase,credit risk is transferred from thesupplier to the issuer.

aConcentrate your business within thatcategory: Communicate to yoursupplier that you plan to concentratebusiness within the category andthose suppliers passing the datarequired by your company are likelyto be the preferred vendors and,subsequently, gain additional business.

D. Communicate with your suppliers

Companies have had success with manymethods of communicating their cardprograms to their suppliers. You’ll wantto consider some or all of thefollowing:

aAn announcement letter An announcement letter sent to yoursupplier is the most effective means ofsecuring supplier cooperation with yourprogram. This is an opportunity toclearly communicate to your suppliersthe reasons why your corporation willbe using the MasterCard PurchasingCard, and what benefits they canexpect to realize. (Use the opportunityto enclose a survey asking if theycurrently accept MasterCard cards, andif not, whether they’d be interested inaccepting them). You should alsoinclude a referral to a MasterCardmerchant acquirer that can allow thesupplier to provide the level of data yourequire (your financial institution canidentify service providers for you). Toencourage a supplier to accept the cardfor payment, you may wish to statethat in the future you will only bebuying from merchants who accept thepurchasing card for this type of goodand will no longer accept invoices forpayment for this good category.

Samples of announcement letters mayinclude:

aSupplier Letter 1 (See Appendix B1)

aSupplier Letter 2 (See Appendix B2)

A strong targeted letter campaign canhave great impact. Response rates varywidely, depending on the accuracy ofmailing lists and the strength of yourdirective in the letter. You can createyour own mailing list utilizing yourvendor database. A targeted mailing listis one of the most important elementsof a successful direct mail campaign.See attached appendices for samples of:

aMailing List Guidelines (See Appendix B3)

aSample Fax-Order Cover Sheet (See Appendix B4)

A fax cover sheet alerts suppliers to thecompany’s new payment method.

aSupplier seminarsInvite key suppliers to a seminar toexplain your program. Your card issuercan assist you in this effort, and involvea MasterCard merchant acquirer toreceive applications from interestedsuppliers on the spot.

aInformation pamphletsInformation pamphlets may beavailable through your card issuer. Theyhighlight the benefits to the supplier,and instructs the supplier on how tobegin accepting MasterCard cards ifthey don’t already. The pamphlet willalso explain the requirements for anyadditional data that you, the customer,may require.

aTelephone contactYou may want to speak to key suppliersdirectly to explain the new program orhave a MasterCard card providermarket its services to your suppliers.

Use every opportunity to get yourmessage across.



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E. Develop Reporting on Supplier

Categories

As the purchasing department’s time isfreed from administrativeresponsibilities, it should have moretime to monitor spending to certainsuppliers in certain categories todetermine how much is being spentwith each supplier and what purchasemethod is being used. Thisinformation can assist in:

aSupplier base reduction

aSupplier base management

Your issuer may be able to assist you indeveloping certain suppliermanagement techniques using the datayou receive from your purchasing cardprogram coupled with the dataavailable via your ERP system.Successful supplier management canprovide significant hard dollar savingsto your companies and can befacilitated by analysis of the data thatwill be available to you.

7. Establish Policies and Procedures

Since the purchasing cardimplementation will be changing howpurchases take place in yourorganization, the implementation teammust ensure that it develops policies forthe distribution and maintenance ofthe cards, card usage criteria, roles ofdifferent constituents in thereconciliation of purchases, and disputeof purchases.

aYou must determine how you wantthe cardholder to handle:

• The receipt of materials and servicespurchased with the card

• Maintaining and reconciling recordsand receipts

• The resolution of errors, disputes,and credits.

aHow are you going to distribute cardsto your employee cardholders? Youshould establish a secure, central placeto store the cards you receive fromyour card issuer; and requireemployees to sign for them whenpicking them up.

aYou should immediately cancel adeparting employee’s MasterCardCorporate Purchasing Card (inaccordance with your card issuer’spolicy), and notify the employee of

the card cancellation in writing. This should be part of your standardoperating procedure for any cardholderwho leaving the company, whethervoluntarily or not. The cancellationnotice sent to the employee mustinstruct the individual to immediatelydiscontinue all use of his or herMasterCard Corporate PurchasingCard, and to return the card to thecompany.

aIf there is a dispute over a transaction,the cardholder is empowered toresolve the dispute. The cardholdershould first try to resolve it with thesupplier. If this is unsuccessful, thecardholder should contact theprogram manager.

aSince the card is issued in theemployee’s name and is to be used forbusiness expenditures only; it shouldnot be used by anyone other than thecardholder

aThe card should only be used to makepurchases within the parametersestablished by the company, such asdollar limits or supplier category. (Youshould include instructions on whatto do if a transaction is denied at thepoint of sale.)

aWhile the cardholder may not beresponsible for making payments, thecardholder should be responsible forverifying and reconciling all accountactivity. The cardholder shouldsurrender and cease use of his/hercard on termination of employment,whether for retirement, voluntaryseparation, resignation, dismissal, orin the event of transfer or relocation.The cardholder may also be asked tosurrender the card at any timedeemed necessary by the companymanagement.

Best practice:It is important for your employeecardholders to understand that benefitsand responsibilities of using aMasterCard Corporate Purchasing Card.Consider asking each cardholder to signa formal cardholder agreement detailingthese responsibilities.

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32

These guidelines and responsibilitiesshould all be included in a CardholderGuide, which must be signed by theindividual cardholder when he or shereceives the card. A sample CardholderGuide is included in Appendix C1. TheCardholder Guide will be discussedfurther in the next Section, Training,since the agreement will be the primarymeans of training the cardholders ontheir roles and responsibilities.

Other Internal Audiences:The impact of implementing thisprogram stretches beyond thecardholders. Many other employees —purchasing, receiving accounts payable,MIS, and internal audit, for example— will need to understand how theprogram will work and what their newroles and responsibilities will be.Examples of policies and procedures toconsider include:

aHow will disputed items be handledin Accounts Payables, (i.e., will A/Pwithhold the disputed amount fromthe payment or will they pay in fulland wait for the credit to post on thenext billing cycle)?

aWhat markings will the receivingdepartment be looking out for onsupplier deliveries made forpurchasing card shipments?

aWhat human resources policies willbe employed if an employee misusesthe purchasing card?

aWhat degree of reconciliation and bywhom, is required to meet internalauditing requirements?

Sections of the guide must also bedeveloped for each of theseconstituencies to ensure that roles andresponsibilities are easy to understandand to follow.

8. Training

Training should be comprehensive,explaining the reasons for the companyembarking on the effort as well asfocusing on specific operational tasks ofeach group.

A. Prepare internal communication

aCardholdersCardholders are where the new processbegins. They will now becommunicating directly with thesuppliers to request goods and servicesbe delivered to the company in orderthat cardholder’s various jobresponsibilities can be completed. Theyneed to be educated in the propercommunication to use with suppliers.

The following are suggested strategiesin tackling the training challenge:

a“Kick-off ” meeting where questionscan be answered

aOnline interactive tutorials

aInternal and external support lines

aNewsletters by internal email or paperfor implementation and on anongoing basis

We recommend that you prepare acardholder guide for your MasterCardCorporate Purchasing Card program asreference for participating employees.The cardholder guide should be givento each cardholder with their card.

While the contents of such a guide willobviously depend on the particulars ofyour program, it should cover thefollowing subjects: (A samplecardholder guide is provided inAppendix C1 of this guide.)

aSenior management endorsementThe guide should begin with a letteracknowledging senior management’scommitment to making the program asuccess.

aProgram overviewTo encourage employee participationand support of the program, employeesshould be given a basic description ofhow the program is going to work.

aCard controlThis section should include a copy of the cardholder application andagreement; information on cardrenewal and cancellation; what to do if the card is lost or stolen; and tips on keeping the MasterCard CorporatePurchasing Card secure.

aCardholder responsibility This section should include the resultsof the policy decisions made in Section02-7 “Establish policies and procedures”.

aList of contactsInclude a list of important contacts forthe program (i.e., how to contact theprogram manager or the card issuer’scustomer service area).

Best Practice:The one common thread shared by allsuccessful programs is a strongcommitment to user training.


02S E C T I O N

33

IMPLEMENTATION

aReceiving The receiving function also will haveprocedural changes. Typical examples ofthe impact of the purchasing cardprogram are changes in suppliermarkings that Receiving should lookfor on delivered packages and howReceiving should respond to suchmarkings. In addition, there may bedifferent procedures for delivery ofitems received from purchasing cardorders as opposed to the traditionalprocess.

aAccounts PayableAccounts Payable may still be receivinginvoices from suppliers who ship bothpurchasing card orders and traditional“purchase order-invoice” orders. Therewill also be situations where invoicesare inadvertently sent for goods alreadybilled to cardholder purchasing cardaccounts. Accounts Payable personnelneed to be able to recognize theseevents and take the proper action.

aPurchasing DepartmentThe role of the purchasing departmentchanges significantly. For itemspurchased via the purchasing card, itsfocus will be on supplier basemanagement, contract negotiations andcontract compliance. Purchasing willneed to learn how to use the newreports they have available to them tonegotiate with the supplier base.

Program education forums should beheld with all these internalconstituencies to actively driveacceptance and participation in theprogram.

B. Conduct external communication

As discussed in Step 6, EnrollingSuppliers, participation by yoursuppliers is a vital component of thesuccess of your program.

Suppliers also need to be trained inhow they will now be expected todeliver goods and services to thecompany. Key changes from previousroutine may include:

- Special markings on the outside ofpackaging, indicating that thisdelivery is for a purchasing cardtransaction.

- Suppression of the issuance of aninvoice.

- Inclusion of the MasterCard cardreceipt with the packing list andgoods.

- How to identify and properly chargecardholders when consolidatingmultiple orders from multiplecardholders.

- What action to take if a cardauthorization is declined.

Maintaining frequent communicationwith your major suppliers on theprogress of your Purchasing Cardimplementation can ensure that theirstaff is educated about your program toprocure business goods and services.

34

In Phase 1, the groundwork was laidfor the actual issuance of cards tocardholders. In Phase 2, you areready to distribute cards, have youremployees make actual purchasetransactions and monitor all of thesystems, processes and procedures.You should be prepared to makeminor adjustments as eventstranspire that were not adequatelyaddressed in Phase I.

1. Managing and measuring your

program

While each company’s programmanagement will be different, there areseveral tips that every company shouldconsider:

aCommunication with card issuerIt is a good idea to establish formalongoing communication — such as aweekly conference call — with thecard issuer to review the program.This allows you to get answers to anyquestions that have arisen, solveproblems, and make any adjustmentsto the program.

aPerformance measures Performance measures will helpevaluate the success of the program.The implementation team shoulddecide before the rollout what wouldbe measured. Measurement of successcould include:

• Employee feedback

• Number of cards

• Number of transactions

• Number of participating suppliers

• Dollars transacted

• Saving (in time and/or money)

• % of Purchase Orders eliminated

• % of invoices eliminated

• Time created for work redirection

• Internal & external customersatisfaction

aEvaluationThroughout the implementationperiod, the implementation teamshould conduct an Evaluation Reviewof your MasterCard CorporatePurchasing Card Program, withconsideration of the followingactivities:

• Assessing the performance of yourPurchasing Card Program initialimplementation against establishedperformance measurement criteria;

• Conducting cardholder/linemanagement/business unit feedbackforums on an open and informalbasis;

• Communicating with selectedsuppliers/vendors on transactionactivity and cardholderunderstanding.

The findings and recommendationsfrom the Implementation’s team reviewshould be presented to the ProgramSponsor/Executive Management Team.With this presentation should be anyrecommendations for corrective action.

aCorrective actionIf you are not meeting your launchtargets, we recommend the followingways to keeping your Purchasing Cardenergized:

• Re-survey your suppliers for cardcapabilities. Based on the surveyresults, prepare a list of suppliersaccepting your company’sPurchasing Card. Give the report tocardholders and instruct them thatthey should use preferred suppliersfor their card purchases. Providecardholders with regular updates ofthe supplier list.

C. Phase 2 - Rollout

02S E C T I O N

• Work with your issuer to persuadethe remaining suppliers to becomecard capable.

• Reduce the number of MCC blocksto an essential few such as travel andentertainment suppliers and cash.

• Contact the cost center managersgenerating most of the small-dollarpurchase orders and invoices. Askthem to provide the names of theemployees who frequently initiatepetty cash vouchers and low-valuerequisitions/check requests. Issuecards to these employees.

• Eliminate the petty cash process.

• Convince the purchasing managerto establish a policy of ceasing toprocess purchase orders for less thanan agreed dollar level for items thatare authorized for card purchases.

• Write articles for the companyemployee publication at least once aquarter with updated informationabout the card program.

2. Monitoring for Policy Compliance

One of the tasks of the programmanager is to monitor the program forcompliance with company policy. Inconcert with the company’s internalaudit group, the program managershould be able to review cardholdertransaction activity for anomalies. Ifthe company has opted for dailyelectronic reporting, “out-of-norm”activity can usually be identified within48 hours of the transaction beingmade. Typical things to look forinclude multiple transactions by acardholder on the same day with thesame supplier. This may indicate thatthe cardholder is attempting tocircumvent the single transactiondollar limit by “splitting” thetransaction into two smaller ones.Other “red flags” may be suppliernames that are not known to thepurchasing department and manytransactions for the same dollaramount at the same supplier. While allof these activities don’t conclusivelyprove wrongdoing, they do warrantfurther inquiry.

35

IMPLEMENTATION

03. ADVANCED PURCHASING CARD

Successful purchasing card program managers are always attempting to expand the reach of their program to increase the amount of spending placedon the card. This section will review methods used by other program managers to achieve this goal.

New technology will also enable increased usage of the purchasing cards. A One Card solution allows yourcompany to combine multiple card programs, Travel & Entertainment and Fleet capabilities, with yourPurchasing Card. Electronic procurement systemsenable payment choices to be predetermined by the procurement team and incorporated into thebusiness rules of the software; removing the paymentchoice from the purchaser.

03

After an organization has had several months of post implementation success with the MasterCardCorporate Purchasing Card system, they shouldbegin to explore new opportunities to expand theuse of the program.

S E C T I O N

ADVANCED PURCHASING CARD

The Corporate Purchasing Card accountnumber could become a seamless part of an online transaction program. These are just a couple of examples of the changingenvironment for payments that couldenhance the utility of your card program.

38

aPurchase service and spares from capitalequipment suppliers with a card.

aUse the card with blanket orders as a‘release-and-pay’ tool.

aSet up card accounts for individualprojects to track project costs(research and development projects or trade shows).

aUse cards to reduce or eliminatecentrally stored items, like officesupplies. You can reduce carryingcosts and satellite storage facilities.

aAsk your issuer about “conveniencechecks” associated with manypurchasing card programs, to paysuppliers who traditionally don’taccept cards such as utilities andoffice leasing companies.

aEstablish a dollar minimum, equal toyour purchasing card spending limit,for purchase requisitions yourpurchasing department will accept.

aCharge requesting departments aprocessing fee for invoices orrequisitions that could be on a card.”4

aCharge services — temporary help,janitorial services, training classes,office supplies, professional services(legal, accounting, consulting, etc.).

A. Program Expansion

Reason Corrective ActionSupplier doesn’t accept

cards

• Advise the issuer of your card program and ask them

to work with the supplier to accept cards.

Cards being used by

central buying organization

• Give cards to the end users in your organization.

• Use front-end controls to limit purchases to those

consistent with individual job functions.

Reconciliation of

cardholder transactions

takes too long

Not enough activity

• Ask for daily electronic reporting from your issuer.

• Have cardholders review their transactions on a

frequent basis (weekly, daily) throughout the month

rather than at the end of the month.

• Raise the threshold for small dollar purchases.

(The United States Government mandates that all

purchases made under $2,500 be done with a

purchasing card.)

• Train personnel in the use of the cards.

• Look for new applications such as postage,

subscriptions, priority mail, freight, internet

purchases, training seminars, books, computer

software, computer peripherals, uniforms, hand tools,

office furniture and building maintenance service,

supplies and catering.

• Update and communicate to cardholders the names of

suppliers who accept cards for payment.

Does not tie in to

accounting systems

and monthly cut-offs

* Work with your card issuer to integrate the card

reporting system with in-house systems and monthly

cycle cut-offs.

2. Determine new card use

opportunities

Companies with successful purchasingcard programs are continually lookingfor new types of spending to put onthe purchasing card. The following areexamples of innovative practices ofbest-in-class procurementorganizations:

aIssue a card account to be used at onesupplier (ghost or department

account) for a particular type ofpurchase— for example, officesupplies. All employees order throughthis one supplier.

aAssign a card account to a capitalequipment item such as a copymachine or air conditioning unit.The card serves as an asset life-cycletracking of maintenance, repairsand/or lease payments system for theequipment.

4“Show Me the Money Saved!”, Stephanie King, CPR Consulting, Inc.

1. Identify barriers

The first step is to identify barriers. Organizations should review all invoices forgoods and services of less than $1000. The following table will give some typicalreasons for not using the card and the corrective action to be taken:

B. E-Commerce 03S E C T I O N

ADVANCEDPURCHASING CARD

39

Many companies are looking toelectronic purchasing to revolutionizethe corporate purchasing function. E-procurement sites, auctions, reverseauctions, vertical exchanges, andhorizontal exchanges are all purchasingvehicles available to commercial buyers.The buyer also must determine if theywant to integrate these buying hubswith their enterprise resource planning(ERP) systems. Payment and settlementfor the goods or services is another issue.

The MasterCard Corporate PurchasingCard provides the payment andfinancial settlement functions necessaryfor your company to conductpurchasing online. First, the purchasingcard allows settlement and datacollection to occur with the newsuppliers found in online communities.“Many studies continue to show thatnew, unplanned, one-time buys accountfor more than 50% of maintenance,repair, and operating (MRO) supplypurchases.”5 Vendors for these purchasescould be sourced online with paymentenacted with the purchasing card inorder to ease the financial settlementand data collection associated with anew supplier.

Also, the MasterCard CorporatePurchasing Card can be used seamlesslyfor both your online and offlinetransactions, which allows you access toall of your information to conduct acash management and purchasingstrategy. Your organization may chooseto buy from supplier-centric onlinecatalogues of a select group of supplierswith whom you may have moreestablished relationships with, orthrough your e-procurement system,such as Commerce One or Clarus. Byusing a procurement card to completethese transaction, you will receive a datafeed of all activities with all supplierscompleted both online and off,enabling the purchasing group to bettermanage its vendor relationships. Also,if you have a previous relationship withsuppliers, you can leverage thatrelationship to ensure the transferenceof Level II or III data.

The process improvements that resultfrom the extended automation of theprocurement cycle to the point ofprocurement translate into real dollarssaved.

Your e-procurement solution canautomatically generate a purchasingorder to your ERP system and apayment to the merchant. Theinformation will be relayed via the ERPsystem to accounts payable resulting inseamless reconciliation when your issuersends you a statement for purchasesmade. Accounts Payable will not haveto receive, reconcile and pay multipleinvoices with purchasing cardpurchases. This automation will lead tobest-in-class performance of utilizing e-purchasing with a purchasing card forpayment.

5 Michael T. Smith, “Are procurement Cards Compatible with Internet-Based E-Commerce?”, Technology Guide, Supplement to Purchasing Today” October 1999, page 4.

40

If your corporation is multinationalwith employees in many regions, yourissuer can assist you in providing aconsistent program to your cardholders.Many card issuers have a strongpresence in foreign countries whileothers have formed alliances with localin-country financial institutions to issuepurchasing cards in the foreign country.In either case, it is important that youensure that you are able to meet therequirements of your card program inthe foreign country as well as you havebeen able to meet them in the U.S.Consider the following for an effectivemultinational card program:

aWill cardholders be able to receive thein-country customer service that theywill require?

aHow will your card program supportany unique tax-reportingrequirements?

aWhat, if any, cultural differencescome into play when using apurchasing card as a paymentmethod?

aDoes your company want the foreigncards billed in local currencies of thecard holders, in one particular foreigncurrency, or in U.S. dollars?

aWill reporting be sent to the U.S. forredistribution by the company to itsforeign operating units, or will allforeign activity be reported locallyand then sent on via companyinternal systems to the U.S.?

aWill each foreign unit pay the bills forits own cardholders or will bills bepaid centrally in the U.S.?

The expansion of your purchasing cardprogram internationally requires carefulconsideration of all of these questions.This can be challenging. Ask yourissuers for details.

In particular, you will want to ensurethat your reporting tool can meet yourmultinational needs. Any reporting toolmust be multilingual and have theability to perform currency conversionson transactions.

Best Practice: If going international, make sure yourpurchasing card provider has localpresence and/or strong alliances in thecountries where you plan to havecardholders.

C. International and Multinational Programs

D. MasterCard Corporate Multi Card 03S E C T I O N


41

The MasterCard Corporate MultiCard® is a “One Card solution” thatemployees can use for traditionalpurchasing card transactions, inaddition to travel and fleet expenses.

This new card has separate spendingcontrols for each type of transaction,including dollar limits and supplierrestrictions. For example, a cardauthorized for both purchasing andtravel can have a $2,000 limit onpurchasing card transactions and a$5,000 limit for travel expenses. If amanager authorizes only purchasingtransactions for a cardholder, all travel-related and fleet-related suppliers can beblocked6.

All the charge data for each type ofpurchase will be housed in a singledatabase, providing your company theability to view all information collectivelyand make cash management decisionsbased on a broader spending picture.While the data is all housed together, itcan be integrated into specialty databases,such as fleet management systems, toensure that none of the reportingfunctionality is lost. (See diagram below.)

The fundamental steps forimplementing a One Card program areas follows:

Step 1: Set up account hierarchy.

Step 2: Customize cardholder spending

profiles utilizing MCC’s

Step 3: Customize billing and liability

options by MCC

Step 4: Employees make charges

By utilizing the same reporting toolsthat you currently use for thepurchasing card, you can integrateMasterCard Corporate Multi Cardtransactions into the general ledgerusing rules based on merchant,cardholder, and MCC. You caneliminate the expense reports associatedwith Travel & Entertainment (T&E)spending to create additional processsavings.

The MCC codes can also be used todivert transactions for central vs.individual bill charges, central vs.individual liability, rewardsqualification, and diversion of T&Echarges into expense reporting software.

By combining card programs,(purchasing, travel and fleet), thecompany can save on administrativeeffort. With fewer cards to manage, aconsistent reporting platform across allprograms, and one accounting process,all concerned parties will have the samedata in the same time frame and be ableto make better management decisions.The ease of use for the cardholder isalso a benefit. Now instead of havingmultiple cards, and potentially usingthe wrong card for the wrong purpose,the cardholder has one card and oneprocess to follow for all transactionshe/she needs to make to fulfill his/herjob responsibilities.

The level of sophistication of yourvarious card programs can determine ifyour organization is ready to migrate toa One Card program. If you think thatyour organization may be interested ina One Card program, contact yourissuer for additional information.

6 “What’s New”, Stephanie King, CPR Consulting, Inc. 1998

Middle Manager ŁPurchasing and T & E MCC's

Admin Asst.Purchasing ŁMCC's

Field ŁSalespersonAll MCC's

Fleet DriverFleet MCC's

ExecutiveT&E MCC's

Vehicle #12345 Fuel and ŁMaint MCC's

Vehicle #2345Fuel and Maint ŁMCC's

42

E. Smart Cards

Smart Cards have the ability to offer multiple applications — both financial and non-financial —through the use of intelligentcomputer chips that reside on thecards. These chips have over 80times the capacity of the magneticstrip used on credit cards today.With this additional capacity, newfunctionality can be added to extendthe value of the card to yourorganization.

A. Financial Applications

Smart cards can enhance data-capturing capability. Organizations thatcurrently do not send Level II or Level III data might be able to pass thisinformation to a smart card with asmart card reader. This information canautomatically be uploaded into areconciliation statement that istransmitted monthly to your AccountsPayable department to reconcile withthe statement sent by the bank.

Companies can also load funds onto asmart card for employee use. Examplesof stored-value applications includecards that can be used at vendingmachines, entrance turn-styles, or other specially enabled card readers atmerchants such as military baseexchanges, colleges and universities,company stores or other “containedenvironments”. Some stored-value cardscan offer the cardholder the ability toread the remaining dollar value on thecard without having to make a purchasetransaction. Stored-value cards can alsobe “re-loadable”, meaning that moredollars can be added to the remainingbalance on the card by making apayment or “deposit” to the storedvalue card provider.

There are many examples where acompany may wish to provide itsemployees funds for use on specialprojects, relocations, reimbursements,etc. The smart card could be anadministratively efficient way toprovide funds to employees.

B. Non-Financial Applications

Chip cards also provide the opportunityto add unique applications to traditionalPurchasing and/or Multi Cards. Newcorporate benefits could be:

aCorporate campus access: to building,parking, computer, Internet/LAN

aAuthentication: employee ID, digital signature

aCarry cost center information whenusing company services such asphotocopying, multimedia, ortelephone

a Emergency contact information

aInsurance and health care information

aAirline frequent flyer programinformation

aCalling Card information

You may want to consider addingSmart Card functionality to yourMasterCard Corporate Purchasing Cardor MasterCard Corporate Multi Cardprogram if you have access/securityrequirements, employee incentiveprograms, comprehensive employeebenefits programs or other potentialsmart card application requirements.

If you believe that your organizationcould benefit from Smart Cardtechnology for either financial or non-financial applications, discuss the possibilities of developing a solution with your issuer.

03S E C T I O N


43

AA P P E N D I X

GLOSSARYOF TERMS

44

Acquirer:

A card processing company thatmaintains a relationship withsuppliers/merchants and has anagreement to process the datarelating to a card transaction. Anacquirer is often referred to as a“merchant bank”.

Authorization:

A procedure by which card issuerseither approve or decline transactionrequests from merchants at the timeof sale. Authorization is based onthe cardholder account status andavailable spending.

Data Capture:

The collection, formatting, andstorage of information in computermemory. Most point-of-interactiondevices perform data capturefunctions.

Decline:

A response to an authorizationrequest which means that the cardissuer will not authorize a specifictransaction.

Issuer:

The financial institution (or itsagent) that holds contractualagreements with and issues cards tocardholders.

Level I Data Capture:

A traditional MasterCard cardpurchase transaction. It includes thefollowing information: totalpurchase amount, date, merchantcategory code (MCC),supplier/retailer name.

Level II Data Capture:

Includes information from Level Iplus: sales tax amount, customer’saccounting code, merchant taxidentification number andapplicable minority and women-owned business status, sales outletzip code.

Level III Data Capture:

Includes all information from LevelsI and II plus line-item details andother data, including: quantities,product codes, product descriptions,ship-to zip code, freight amount,duty amount, order or ticketnumber.

Magnetic Stripe:

A stripe of magnetically encodedcardholder account information onthe bankcard.

Manual Entry:

When the card number, expirationdate, and transaction information isentered into the terminal orcomputer instead of swiping themagnetic strip (also known as keyentered.).

Merchant:

Any business meeting acquirer andMasterCard qualification standardswhich accepts MasterCard cards as apayment for goods and services.(Suppliers that accept MasterCardcards may also be referred to asmerchants.)

Merchant Category Code (MCC):

Merchant classification code thatidentifies the merchant’s type ofbusiness (similar to an SIC).

Merchant Type Code:

A four-position code used toidentify unique business ownershipcharacteristics (socioeconomic datahelps corporate and governmentagency customers to accurately tracktheir spending with small, minority,disadvantaged and/or women-owned business). Suppliers self-certify their unique businesscharacteristics using a numericalindicator from each of the four fieldpositions.

POI Terminal (or POS Terminal):

A terminal, at the point-of-interaction (or point-of-sale), whichis connected via telecommunicationlines to a central computer.Authorization, recording, andtransmittal of transactions isperformed through the POIterminal.

Purchasing Card:

Designed to help companiesmaintain control of purchases whilereducing the administrative costassociated with authorizing,tracking, paying, and reconcilingthose purchases.

Recurring transaction:

A transaction for which thecardholder has granted permissionto the merchant to charge on aregular basis. For example — ablanket purchase order for amonthly supply of widgets.

Transaction:

Any action between a cardholderand a merchant or member thatresults in activity on the account,such as a purchase or balanceadjustment.

B1A P P E N D I X

SAMPLESUPPLIER LETTER 1

45

Date

NameTitleSupplier’s Company NameAddressCity/State/Zip

Dear Preferred Supplier:

Did you know that your company could be paid in three days instead of 45? By accepting the MasterCard Corporate Purchasing Card® for purchases that aretraditionally invoiced, you will realize improved cash flow, reduced paperwork, and eliminate payment delays.

Our company has launched a MasterCard Corporate Purchasing Card program. In order to maintain your preferred vendor status, you must be able to process our MasterCard Corporate Purchasing Card orders. By doing so, you will:

• Receive payment in days instead of weeks

• Reengineer your accounts receivable

• Maintain preferred vendor status

• Simplify and speed the buying process

• Electronically authorize our purchases

• Eliminate invoices for our purchases

What do you have to do?

• If you currently accept MasterCard cards, please call your MasterCard card serviceprovider and arrange for a software upgrade to “Level II.” This will enable you toelectronically transmit valuable accounting data — the sales tax amount and ourcustomer code — with MasterCard Corporate Purchasing Card orders.

• If you do not accept MasterCard cards yet, please contact your financial institution to find out how you can.

Because we are so committed to our reengineering efforts, inability to accept ourMasterCard Corporate Purchasing Card as of (date) may jeopardize your status as ourvendor. Please call (contact name), our purchasing card program administrator, at(phone number) if you require additional information. Thank you for your cooperation.

Sincerely,

NameTitle

46

B2A P P E N D I X


Date

NameTitleSupplier’s Company NameAddressCity/State/Zip

Dear Preferred Supplier:

Our company has launched its three-day program in conjunction with our use of theMasterCard Corporate Purchasing Card®.

Under this program, our suppliers will:

• Maintain preferred vendor status

• Receive payment in days instead of weeks

• Reengineer their accounts receivable

• Simplify and speed up the buying process

• Electronically authorize our purchases

Act now to maintain your preferred vendor status with our company. Please fill out and return the attached form. Additionally:

• If you currently accept MasterCard cards, please call your MasterCard card serviceprovider and arrange for a software upgrade to “Level II” to electronically transmitvaluable accounting data —the sales tax amount and our customer code— withMasterCard Corporate Purchasing Card orders.

• If you do not accept MasterCard cards yet, please contact your financial institutionto find out how you can.

Because we are so committed to our reengineering efforts, inability to accept ourMasterCard Corporate Purchasing Card as of (date), may jeopardize your status as apreferred vendor. Please call (contact name), our purchasing card programadministrator, at (phone number) if you require additional information. Thank youfor your cooperation.

Sincerely,

NameTitle

We need to know:

Do you already accept MasterCard® cards for payment?

■■ Yes: Are you able to transmit the sales tax amount and our customer code with our transactions? ■■ Yes ■■ No

If no, please call your MasterCard card service provider to upgrade to “Level II” support.

■■ No: To begin accepting MasterCard cards for payment, please contact your financial institution

Date: _______________________________________________________________________________

Name: _______________________________________________________________________________

Title: _______________________________________________________________________________

Company Name: _____________________________________________________________________

Address: _____________________________________________________________________________

City, State, Zip: _______________________________________________________________________

Phone: _______________________________________________________________________________

Fax: _________________________________________________________________________________

MCC (Merchant Category Code): ______________________________________________________

Please complete and fax this back to (fax number). Thank you.

47

B2A P P E N D I X


48

B3A P P E N D I X

MAILING LISTGUIDELINES

A targeted mailing list is one of the most important elements of a successfulsupplier mail campaign. On a diskette, you should collect the followinginformation and field lengths:

Field Name: Suggested Length

• Company Name 30

• Contact Address 30

• City 20

• State 2

• Zip Code 10

• Telephone 14

• Contact Name 30

• Your Vendor Number 15

• # of Transactions/Year 4

• Sales Volume 9

Supplier Selection:Concentrate your efforts on suppliers with which you have more than 20transactions a year or that have significant importance to your company.

Contacts:Unless you have a current contact name, address the mailing to the AccountsReceivable Manager or the Controller.

Signature on Letter(s)/Self-Mailer:For greatest impact, have a senior officer such as the Controller, CFO, orPresident of your company sign your letters and/or self-mailer.

49

B4A P P E N D I X

FAX ORDER COVER SHEET

Fax Order Date:

From:Fax:Phone:

To:Fax:Phone:

Re:

Attention

Attached is an order. Please be advised that we plan to use the MasterCard CorporatePurchasing Card® for payment with our next order.Please route this cover sheet to your Accounts Receivable Department.

Accounts Receivable Manager:Do you already accept MasterCard cards for payment?

■■ Yes: Are you able to transmit the sales tax amount and our customer code with ourtransactions? ■■ Yes ■■ No

If no, please call your credit card service provider to upgrade to “Level II” support.

■■ No: To begin accepting our cards for payment, please contact your financialinstitution.

Please complete and fax this back to (fax number). Thank you.

C1A P P E N D I X

SAMPLECARDHOLDER GUIDE

50

IMPORTANT: This sample is notrecommended by MasterCard anddoes not purport to meet your legalor regulatory obligations. Obtainadvice from a counsel to determinewhat those obligations are.

Senior management endorsement

The guide should begin with a letterfrom a senior manager statingmanagement’s commitment tomaking the program a success.

Program Objectives

The Purchasing Card Program isdesigned to offer a low-cost andefficient purchasing alternative. TheCard is designed to eliminate thepurchase order and invoiceprocessing associated with thesetransactions. It may be utilized foremergency orders, night hours andweekends. You can utilize thePurchasing Card for businesssupplies and other low-dollar valuegoods and services.

Cardholder Application

As a cardholder, you will be asked tocomplete a Cardholder Applicationform. (Please refer to Appendix C2for an example). The applicationform must be signed and approvedby your manager and thePurchasing Card Administrator.

Card Issuance

Before receiving your PurchasingCard from the issuing bank, allcardholders must attend a trainingprogram. In the training session,you will learn about the PurchasingCard Program guidelines and yourresponsibility as a Program

Manager. The cardholder will signoff on the Participating EmployeeAcknowledgment of Responsibilitiesform (please refer to Appendix C3for an example). Once you havecompleted all necessary forms andcompleted your training program,you will receive your card.

Cardholder Security and Activation

The Purchasing Card is intended foruse by Company Name employeeswho have business procurementauthority. The Purchasing Card isissued for Company Name and in the name of the authorizedemployee. The Purchasing Card mayonly be used by the employeeidentified on the card. ThePurchasing Card is a credit card.Cardholders must take precautionsto protect the card and store it in asecure place. Delegation of authorityis not permitted. Cards and cardnumbers must be safeguardedagainst use by unauthorizedindividuals either within or outsidethe company. For security reasons,the Purchasing Cards are issuedinactive. Affixed on the Card will bea label with card activationprocedures. Only the employeewhose name appears on the Card isauthorized to activate it.

Employee Transfers or Termination

Upon transfer or termination, theemployee must surrender thePurchasing Card to their supervisor(Authorizing Manager). TheAuthorizing Manager will thennotify the Program Manager who,in turns, notifies the financialinstitution and cancel the card.

Canceling and Reassigning Cards

To cancel the card, the card shouldbe cut in half and forwarded to theProgram Manager. The ProgramManager will then forward the cardto the financial institution.

Card Renewal

To ensure uninterrupted service, arenewal card will be automaticallymailed to the cardholder at theaddress prior to expiration date ofhis or her current card Cardholdersmust destroy expired cards oncenew Cards have been received.

Lost or Stolen Card

You are responsible for the securityof your card and any purchasesmade on your account. In the eventof a lost or stolen card, thecardholder must immediatelycontact the financial institution’stoll-free number (1-800-XXX-XXXX). The Cardholder’s accountwill immediately be closed and areplacement card will be deliveredwithin 48 hours to the Cardholder.Failure to promptly notify of a lostor stolen Purchasing Card mayresult in inappropriate charges onthe card. The cardholder must alsoadvise the Program Manager.

Revising Cost Account Information

The specific cost accountinformation can be changed bycontacting the ProgramAdministrator.

(Not the Cardholder Agreement)

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C1A P P E N D I X


Card Usage

This card is not to be used for anypersonal expense items. Dependingon program guidelines theMasterCard Corporate PurchasingCard can be used at any merchantthat accepts MasterCard cards forpayment of purchases. If a supplierdoes not currently acceptMasterCard, please refer thesupplier to credit card acceptancesign-up (1-800-440-0095). You canuse the MasterCard CorporatePurchasing Card to make in-storepurchases as well as phone, fax, ormail orders. You can use the card topurchase:- tools/hardware- maintenance/parts- meeting amenities

(not including food)- company vehicle repair- safety supplies- books- freight services- subscriptions- office supplies while on the roadIf the Cardholder is “declined” forauthorization at the point of sale(POS), it is possible that thetransaction or cycle spending limithas been exceeded, the number oftransactions per day has beenexceeded, or the MCC code of thesupplier, indicating type of business,has been restricted.

Transaction and Spending Limits

The Purchasing Card will beassigned a dollar limit pertransaction. Any purchaseattempted with a total sale priceexceeding the limit will be declinedby the financial institution nameauthorization system. EachCardholder can also limited by thenumber of transactions per day. Thiswill allow a Cardholder to executeno more than the specified numberin any given day. If the Cardholderattempts to make more than thatnumber of purchases in one day, theCardholder may be declined. Inaddition, each Cardholder accountwill have a total spending cycle limit.As purchases are made using thePurchasing Card, transactions areposted against the spending cyclelimit as part of the authorizationprocess. Once the sum of allpurchases (net of creditadjustments) exceeds the monthlyspending limit, any incrementalpurchases will be declined. TheProgram Administrator will beresponsible for setting andmaintaining the transaction andspending limits.

Receipt of Materials and Services

The cardholder is responsible forensuring receipt of materials andservices and will follow-up with thesupplier to resolve any deliveryproblems, discrepancies anddamaged goods.

For telephone or catalog orders,make sure that complete shippinginstructions are given along withyour name and mail stop. Instructthe supplier to mark the outside ofthe package with the words“Purchasing Card” to expediteinternal delivery.

If materials are ordered by phone,ask the supplier to include a salesreceipt, (detailing any sales taxescharged) with the goods shipped.Save the credit card receipt andshipping documentation

Record Keeping

It is a requirement of the programthat cardholders keep all receipts forgoods and services purchased. Tofacilitate the reconciliation process,the cardholder is expected to retainall credit card slips, cash registerreceipts, packing slips, etc. Thecardholder and cardholder’ssupervisor are left to determine howthese documents will be retained. As purchasing card records will beaudited from time to time, it isessential to adhere to the record-keeping guidelines.

Reconciliation

Upon receipt of the activitystatement, the cardholder willcompare the sales receipts to thestatement.

The Cardholder is required toreconcile their statement foraccuracy and verification of goodsand services purchased.

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The Cardholder will need to refer to previous activity to reconcilepurchases made close to the end ofthe spending cycle, or to reconcilecredits that may have been postedon their statement. Cardholderreconciliation procedures include:• Match all transactions listed on

the statement to the purchases.• Attach all sales receipts and other

documentation to the monthlystatement as support for eachtransaction.

• Identify and highlight alldiscrepancies on the statement andcontact supplier directly.

• Send approved Statement andReconciliation to AccountsPayable within 5 days of receipt,with all receipts attached.

• Failure to submit an approvedstatement in a timely manner,within 5 days, will result insuspension or termination of cardprivileges.

Duplicate Statement Requests

To obtain a duplicate of a statementor a copy of the actual record ofcharge, the cardholder can call theirfinancial institution’s customerservice center.

Resolving Errors, Disputes,Returns and Credits

While reconciling the ActivityStatement, the Cardholder mayidentify purchases that were billedbut were not received or ordered. Itis the responsibility of theCardholder to resolve anydiscrepancies between the ActivityStatement and actual activity.The cardholder is responsible tofollow up with the supplier or(financial institution) on anyerroneous charges, disputed items orreturns.

The cardholder will contact thesupplier first to resolve anyoutstanding issues. Most exceptionscan be resolved this way.

If the cardholder is unable to reachagreement with the supplier, thenext step is to contact the financialinstitution’s customer service center.

The (financial institution) may askthe cardholder to complete a disputeform and fax or mail the completedform to the (financial institution).Please note on the form the date and name of the customer servicerepresentative that you spoke to.

The (financial institution) must benotified of any disputed item within60 days of the statement datecontaining the disputed item.

If the cardholder is still unable toreach an acceptable solution, call theProgram Manager.

Disputed billing can result from afailure to receive goods or servicescharged, fraud or misuse, alteredcharges, defective merchandise,incorrect amounts shipped,duplicate charges, credits notprocessed, etc.

List of Contacts

Include a list of important contactsfor the program (i.e., how tocontact the Program Manager or thecard issuer’s customer service area).

Purchasing Card Application

Section I. Instructions1. To add a new account, please complete sections II through V on this User Profile2. To change information for existing accounts complete characters a-d:

a. Complete Section II with the type(s) of requestb. Fill in the individual’s Card Numberc. Fill in Cardholder’s name as it appears on the Cardd. Fill in only the fields requiring change(s)

3. Signed copy to be maintained in Cardholder and Authorizing Manager’s personnel files.

Section II. Type of Request (circle one)a. New Account e. Name Changeb. Address Change f. Credit Line Adjustmentc. Customer Code Change g. Single Dollar Transaction Limit Adjustmentd. Department Change h. Other (please specify) _____

Section III. Cardmember Information (Please Print)

_______________________ ____________ _________________________ ____________________First Name of Cardholder Middle Initial Last Business Phone

____ / ____ / ____ ______- ____ -_________Date of Birth Social Security Number

____________________________________________________________________________Business Mailing Street Address (no PO Boxes)

___________________________________ ___________ _______________-__________City State Zip Code

X__________________________________________________________Signature of Approving Manager

Section IV. Authorization Parameters – Budget Unit Manager must complete!Monthly Cycle Limit $____________ (Total dollar amount allowed per month)Single Dollar Transaction Limit $____________ Daily Number of Transaction Limit #____________

Section VI agree to abide by the procedures established in the (Company Name) Purchasing CardGuidelines. I understand that it is my responsibility to notify (Financial Institution Name) at (1-800-xxx-xxxx) immediately if my card is lost or stolen.

Employee Signature ____________________________________________ Date ___________________

Approving Manager Signature ____________________________________________ Date ___________________

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PURCHASING CARDAPPLICATION

C3A P P E N D I X

ACKNOWLEDGMENT OF RESPONSIBILITIES

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Participating Employee Acknowledgment of Responsibilities

By participating in the Company Name Purchasing Card Program as a Cardholder, you assume responsibilities pertaining to theoperation of the Purchasing Card Program. Please see the Purchasing Card Program Guidelines for complete list ofresponsibilities, which include but are not limited to the following:

• The Company Name Purchasing Card is to be used for authorized business expenditures only. The Purchasing Card may onlybe used within the policies and procedures outlined for the Purchasing Card program.

• The Purchasing Card will be issued in the name of the employee. By accepting the Card, the employee assumesresponsibility for the card and will be accountable for all charges made with the Card. The Card is not transferable and maynot be used by anyone other than the Cardholder.

• The Purchasing Card must be maintained with the highest level of security. If the Card is lost or stolen, or if the Cardholdersuspects the card or account number has been compromised, the Cardholder agrees to immediately notify the FinancialInstitution Name and their Authorizing Manager. Oral notification is to be followed up by written confirmation.

• On a monthly basis, the Cardholder will receive a statement listing all activity associated with the Card. This activity willinclude purchases and credits made during the reporting period. While the Cardholder will not be responsible for makingpayments, the Cardholder will be responsible for the verification and reconciliation of all Account activity.

• Cardholder’s Accounts will be subject to periodic internal control reviews and audits. By accepting the Card, the Cardholderagrees to comply with these reviews and audits. The Cardholder will be asked to produce the Card to validate its existenceand produce statements and receipts to verify appropriate use.

• Policies and procedures related to the Purchasing Card Program may be updated or changed at any time. Company Name willpromptly notify all Cardholders of these changes. The Cardholder agrees to and will be responsible for the execution of anyprogram changes.

• The Cardholder agrees to surrender and cease use of their Card upon termination of employment whether for retirement,voluntary separation, resignation or dismissal. In addition, the Cardholder must surrender and cease use of the Card in theevent of transfer or relocation. The Cardholder may also be asked to and agrees to surrender the Card at any time deemednecessary by management.

• No subsequent invoice should be received from the vendor related to any Purchasing Card purchases.

• Misuse, including, but not limited to, personal use or unauthorized use and/or fraudulent use of the Card will result indisciplinary action, up to and including termination and/or civil or criminal penalties.

By signing below, I acknowledge that I have read and agree to the terms and conditions of thisdocument. I certify that as a participating Cardholder of the Company Name Purchasing Card Program, I understand and assume the responsibilities listed above.

______________________________________________________ _________________________________Employee Signature Title

______________________________________________________ _________________________________Name (Print) Date

______________________________________________________ _________________________________Authorizing Manager Title

______________________________________________________ ____ / ____ / ____Name (Print) Date

DA P P E N D I X SAMPLE

IMPLEMENTATIONSCHEDULE

55

MONTH 1 MONTH 2 MONTH 3 MONTH 4RESPONSIBILITY/ACTIVITY 1 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 41. Final product overview meeting is held with corporation senior

management and functional departments. ✔ ✔

2. Estimate roles and responsibilities of all players from issuer and corporation are identified. ✔ ✔

3. A weekly conference call is scheduled to discuss progress and issues. ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

4. A project manager from both issuer and corporation should be assigned. ✔ ✔

5. Corporate purchasing volumes are requested by issuer (number of cards, dollar volume, number of transactions). ✔ ✔

6. Camera-ready artwork is provided by corporation to issuer (name and/or logo of corporation on card should be encouraged). ✔ ✔

7. List of suppliers to be included in mailing expressing intent of using Purchasing Card should be compiled. ✔ ✔

8. Settlement option and process is discussed (number of days and method). ✔ ✔

9. Management reporting option is discussed, (paper, fax, EDI, Smart Data, ASCII, Internet, Client server). ✔ ✔

10. Pricing is reviewed and finalized. ✔ ✔

MONTH 1 MONTH 2 MONTH 3 MONTH 4RESPONSIBILITY/ACTIVITY 1 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 412. Issuer receives camera-ready artwork, completes card design,

and forwards immediately to processor. ✔ ✔

13. Issuer receives corporate purchasing volumes (is initial approved line of credit sufficient)? ✔ ✔

14. List of suppliers is reviewed and mailing is initiated by corporation. ✔ ✔

15. Supplier days are scheduled in a centralized locations. ✔ ✔

16. Issuer sends set-up forms, cardholder instructions and supplemental information to corporation. ✔ ✔

17. Corporation reviews sample cardholder instructions and customizes, if necessary. Corporation distributes set-up forms to various user areas participating in program. ✔ ✔

18. Settlement process is reviewed and finalized. ✔ ✔

19. Management reporting options is finalized. ✔ ✔

21. Customer Code scheme is discussed. ✔ ✔

MONTH 1 MONTH 2 MONTH 3 MONTH 4RESPONSIBILITY/ACTIVITY 1 2 3 4 1 2 3 4 1 2 3 4 5 1 2 3 422. Corporation completes all forms and returns to issuer. ✔ ✔

23. Project managers review all set-up forms for accuracy. ✔ ✔

24. Issuer sets-up accounts on system. Cards are ordered. ✔ ✔

25. Cardholder instructions are finalized by corporation. ✔ ✔

26. Supplier status is reviewed for critical mass. ✔ ✔

27. Electronic reporting transmission status is reviewed. ✔ ✔

28. Customer code scheme is finalized. ✔ ✔

29. Issuer or corporation receive new cards from processor. ✔ ✔

30. Cardholder instruction, list of approved suppliers, supplemental information and new cards are distributed to cardholders. ✔ ✔

31. Final testing of electronic transmission between issuing bank and company is approved. ✔ ✔

32. Card is tested by project managers. ✔ ✔

33. Electronic transmission is reviewed. ✔ ✔

34. Settlement is reviewed. ✔ ✔

35. MasterCard Purchasing Card Program begins! ✔ ✔

36. After week 12, monthly conference calls are scheduled to discuss progress, issues and expansion. ✔

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FREQUENTLYASKED QUESTIONS

How can we ensure that employees don’t buy unauthorized items?

The front-end controls that the organization places on each cardholder will restrict the buying ability of the cardholder, permitting only thosepurchases that are consistent with the cardholder’s job function. Byunderstanding the cardholder’s buying requirements and profiling thoserequirements into the front-end controls, the opportunity to makeunauthorized purchases is greatly reduced. In addition, the reportingdetails that are provided enable the organization to monitor the activitywith statistical spot audits. Experience indicates that employee misuse ofcompany card privileges is rare. However, to protect against these losses ifthey occur, MasterCard International established the MasterCoverage®

Liability Protection Program.

Why do we need a purchasing card when we have EDI and blanket orderswith our top suppliers?

Not all MRO purchases will warrant the development of an EDI solutionor a blanket order. In the Implementation section of this document, wehighlight how purchasing cards may be more applicable for low-dollarpurchases while EDI is more appropriate for high-dollar purchases.Determining the optimum mix of payment solutions for different types ofgoods is an exercise that each company must undergo.

Furthermore, while blanket orders and EDI systems have eliminated someordering tasks from the purchasing function, the back-end accountingfunctions are still burdened with the non-value-added activities of invoiceposting and check writing. The purchasing card can enhance the EDI andblanket order programs by providing a payment system that allows foraudit accountability and relief from some accounting functions.

Where will our cost savings come from?

Cost savings vary from organization to organization. Typically cost savingsare realized in the reduction of steps required to complete a purchasetransaction-from the recognition of the need to buy to the reconciliation ofthe cancelled payment check with the bank statement. These are indirectsavings produced from processing cost reduction. Also, as a result of theconsolidation of purchasing activities, you will be able to conductnegotiations with preferred suppliers for lower rates resulting in directsavings. The extent to which a company is willing to reengineer thispurchasing/accounting process will determine the amount of savings thatwill be realized.

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Will our suppliers raise prices to cover the cost of card fees?

Many of your suppliers are already accepting MasterCard cards from othercustomers. The fees paid to the acquirer (institution servicing the supplier’sMasterCard card transactions) are typically on a decreasing fee schedule asvolumes increase. By converting non-card customers to card payments,these fees will decrease on existing card business. In addition, the supplierwill realize a lower cost of business in dealing with the invoice/checkpayment customers. The supplier will be paid by the acquirer within a fewdays. The supplier’s internal cost of invoice generation, check /invoicereconciliation, receivables posting, and check deposit fees will be reducedor eliminated. These internal cost savings should more than offset theacquirer fees. To ensure that your supplier accepts your MasterCardCorporate Purchasing Card, include the requirement in your request forproposals.

How will we be able to capture sales tax information?

For those suppliers that have been enabled to do so, (Level II and Level IIImerchants) sales tax information will be collected directly at the supplier’spoint-of-sale terminal and then transmitted to MasterCard. MasterCardwill, in turn, report the information to the organization as part of thetransaction detail. For those suppliers that are unable to collect andtransmit this information, MasterCard will be able to compute the sales taxvia sales tax tables which are cross-referenced to the ship-to zip code andthe point-of-purchase zip code. The calculated sales tax transactions will beidentified as “calculated”, and the applied sales tax rate will also betransmitted. The organization’s efforts with its supplier base to upgrademerchants to Level II will increase the incidence of direct capture andtransmission of sales tax.

How can we control which suppliers our employees choose for their purchases?

The front-end authorization controls allow the organization to limit theaccess to suppliers by supplier type (i.e. hardware, office supply, etc.). Someissuers are even offering the ability to limit purchases by specific supplier.In addition, most reporting programs/applications, such as MasterCardSmart Data for Windows® and MasterCard Smart Data OnLineTM, allowan organization to enter a “preferred supplier” list and generate anexception report which lists transaction detail on all purchases made at“non-preferred” suppliers. The organization will then be able to takeappropriate corrective action.

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How do we ensure that the items on the card invoice were received before wemake payment?

The MasterCard Corporate Purchasing Card program is able to report thetransaction information independent of the invoice process. The reportingsystem is able to report transaction activity at the cardholder detail leveland up to six additional managerial levels, on a daily basis. Typically thisinformation is available within 48 hours of the supplier charging thecardholder’s card. With daily review of cardholder transactions, scrutinycan be given to the purchasing activity before payment is made.

How can we handle disputed items?

The first recourse is to have the cardholder resolve the dispute directly withthe supplier. If that does not bring resolution, the organization can contactthe card issuer, (financial institution servicing the organization’s cardtransactions) and request a “charge back” to the supplier. The credit will beissued while the dispute is being resolved via the MasterCard network.

How can we deal with suppliers that don’t and won’t accept MasterCard cardsfor payment?

Your organization may be currently dealing with these suppliers in a varietyof ways:

- Issuing petty cash to those employees who, by the nature of their jobfunction, need to deal with these types of suppliers

- Establishing an invoice/check payment relationship

- Reimbursing employees who used personal funds and then submitted anexpense reimbursement form.

All of these approaches are expensive and time-consuming. Organizationsshould encourage their suppliers to accept MasterCard cards for payment asa condition of doing business with the organization. In addition, employeesshould be discouraged from dealing with suppliers that do not acceptMasterCard cards. If all other approaches fail, many card issuers offer theability to use “convenience checks” for those suppliers who don’t acceptcards but are still valuable business partners to the client corporation.

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By asking the cardholder to reconcile his/her activity aren’t you asking us toviolate the checks and balances that are standard business practices (i.e., wecan’t have the fox guarding the hen house)?

The front-end controls on the MasterCard Corporate Purchasing Cardprogram allow the organization to limit the buying ability of the cardholderto the type of purchases that are consistent with the cardholder’s jobfunction. This greatly reduces the organization’s exposure to abuse. Inaddition, the reporting system allows up to six managerial hierarchical levelsabove the cardholder to review purchasing card activity. Typically, within 48hours of the transaction taking place, this activity can be reviewed. By usingstatistical audit techniques and adopting a “management by exception”approach, you reduce exposure to abuse to a very manageable business risk.This should be compared with the current methodology utilized to preventabuse in terms of effectiveness and cost. Experience indicates that employeemisuse of company card privileges is rare. However, to protect against theselosses if they occur, MasterCard International established theMasterCoverage® Liability Protection Program.

We have spent a lot of energy reducing our supplier base. Aren’t you nowproposing that the base be expanded?

The organization will still be able to maintain a portfolio of “preferredsuppliers”. This portfolio should be communicated to all cardholders. Theprogram provides for exception reports that will detail the policy violations.These reports will provide information allowing the organization to takeappropriate corrective action. However, legitimate business needs do arisewhere another supplier offers the best solution. In those cases, it is better toallow the employee to address the need without the encumbrance of strictpolicy enforcement. Most companies that have reduced their supplier basereport examples such as reducing the base from 20,000 to 5,000. Inactuality, they have reduced their base from 20,000 to 3,000, but haveadded 2,000 new suppliers, many of which will be used only once. TheMasterCard Corporate Purchasing Card program allows organizations totake full advantage of the total supplier reduction effort by capturinginformation on one-time suppliers without having to load those supplierprofiles into the organization’s supplier data base.

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Payment Solutions® can work for you.

Contact us at 888.321.9119

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