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Implementing a Purchase Card ProgrammeIan Makgill, Ticon - 29 Jan 2008 

Purchase cards have often been seen as an inferior procurement technology, but this article argues that 

they have an important role to play in delivering a successful procurement programme.

Given the ongoing effort to deliver savings through the use of sophisticated and highly functional e-procurementsystems, it might be surprising to discover that the demand for, and use of, purchase cards continues to increase.It seems that conducting purchases through e-procurement systems can be more complex than anticipated forboth the buyer and the supplier. Suppliers have often proved to be surprisingly resistant to publishing cataloguesonto their client's e-procurement systems, preferring their clients to build their own links into their sales systemsinstead; buyers continue to purchase goods and services when they are not in front of a PC and many suppliersdon't offer goods or services that are readily commoditised. So perhaps it isn't so surprising that the humblepurchase card is continuing to make headway.

Today, organisations are using purchase cards across a wide spectrum of categories for both low value and highvalue purchases. Purchases of over £1m using a purchasing card are not unheard of, but what makes thepurchasing card an attractive alternative to e-procurement systems? Well, much of the answer lies in the fact thatcards no longer represent an alternative to these systems. Increasingly, cards are being used as an 'add-on'

function within these systems and as a significant part of an organisation's wider purchasing strategy. Cards areincreasingly used in conjunction with e-procurement systems as a method of payment. Card details can be sentwith orders or retained by suppliers and used to make transactions instead of building expensive links to suppliersystems.

Why Use Purchase Cards?

The key reason why organisations use purchasing cards is the same as it has always been: cards are better thanpaper. Instead of manually processing stamped and signed invoices, cards allow organisations to reconcile aconsolidated electronic invoice that is received from the bank. Cards can be used to manage off-site spend, out ofhours spend and unplanned account spend. Cards handle the one-off, low value, ad-hoc spend that stalks everyorganisation. Generate a breakdown of the volume of invoices by value bands and the vast majority oforganisations will see that 60% to 80% of their invoices are for less than £100. But purchase cards don't justimprove on manual transactions, card banking software such as SpendVision can be used to turn bank feeds intohigh quality procurement data that is more accurate and more useful than the manually coded order data

generated by non-catalogue orders. This means that cards can be used in high value category spend areas, justas effectively as an enterprise system such as SAP.

Purchase cards don't just 'mop up' transactions that can't be executed online, they can be used as an enabler for awide variety of purchasing, from one-off large value spend to regular catalogue-based transactions. Suppliers likeDell, who use the Internet for a large percentage of their transactions, negotiate attractive rates for receivingpayments by card and their business models subsequently rely on early payments. Likewise, small businessesand those that operate with high levels of debt will often accept the costs associated with payment by card in orderto receive the early payments and improved cash flow.

Procurement managers have realised that card acceptance platforms such as Visa are not just an inter-bankcharging scheme for consumers, instead card platforms offer a network of enabled suppliers that use a commonpayment and electronic invoicing standard. Given the cost of adopting and integrating suppliers into e-procurementsystems, the attraction of working with suppliers that are already e-enabled to a consistent standard is obvious.However, purchasing cards are not suitable for all payments, they work well for some transactions and for somesuppliers but not for others. The fact that cards are commonplace in consumer goods outlets means that they areusually used for this kind of purchasing, but this need not be the case. Cards are simply one of the tools thatmanagers can use to engage with suppliers to make payments, improve processes and to generate spend data.

Developing a Purchasing Card Strategy

As any engineer will tell you, selecting the right tool for the job is often half the battle, and choosing the rightpurchasing card programme for your needs is no different. In order to make the best use of purchase cards it isessential for an organisation to have a clear strategy for all of their procurement tools. Typically, managers will usea technology to process transactions because they've been sold the technology for a particular purpose. This top-down, function-based approach can be both limiting and ineffective. Instead, we would encourage managers toinvestigate the characteristics of their transactions before determining how best to process that transaction. Thisapproach can create a much more focused and effective supplier engagement programme and can increasetransactions across all e-procurement systems. If this sounds like a typical piece of consulting speak, ask yourselfthis question: "If a supplier is willing to offer line item detail on card payments, why would you try to integrate theirsystems with your own?" Provided the supplier doesn't apply a surcharge for accepting payments by card, I can't

think of a good reason why. Simply knowing that a supplier accepts payments by card might change how youchoose to do business with them and help advance your procurement savings programme.

Typically a business case for cards is generated by identifying the cost of processing a purchase card transaction,

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as opposed to processing a manual, paper-based transaction, creating a cost saving per card transaction. Thiscost can be multiplied out to estimate a single figure saving based on the number of times the card is used.However, this can be a deceptive approach: firstly payment processes can vary wildly in their efficiency.Additionally, this approach doesn't take account of the fact that, in isolation, a purchase card doesn't do away withmany of the paper-based activities associated with processing payments. In effect, running a card programme canremove a small number of invoices from a batch of paper invoices, but it can't remove the need to process thatbatch of paper invoices. Instead of a per transaction business case, we try to encourage organisations to viewcards as an integral part of a procurement process improvement project. Using this approach, cards become just

one of several technologies that will be used to do away with wasteful paper processes. This means that thesuccess of a procurement improvement programme doesn't have to be measured according to the return oninvestment generated by each technology used, but rather on the savings generated by the programme as awhole.

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Posted by: Post

30 Jan 2008 - 19:34 

Bank, Australia

I've been in the Australian commercial cards industry for over 8 years and although thepurchasing card spend is still largely untapped, there is a definite trend in this market thatmajor companies are starting to take the case seriously. UP to the CFO level, purchasingcards as a suitable solution for high-volume low-cost transactions is now becoming quite

visible.

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