Accounts Payable News^®

by Sid Vasili

Organisations continue to look for efficiency savings through automation, and Procurement Cards (P-Cards) can be an obvious place to start. P-Cards provide a simple payment vehicle, enable control of spend, and deliver detailed transaction data.  Or that’s the expectation.  The reality has been somewhat different.

The promise

The benefits that P-Cards are expected to bring to a business are well reported.  At the forefront are cost savings, realised from a number of sources:

Processing costs reduced to a minimum:

• Administrative savings – less time required for purchase order/requisitions, invoice 3-way matching, approvals, payments, queries, data entry etc
• Lower administrative authorisation costs - e.g. budget, value, transaction limits etc
• Aberdeen Group, a US research organisation, found transaction processing costs through a P-Card programme averaged $12.60, compared to manual processing costs of $36.80

Reduced cost of goods:

The supplier can be more competitively priced as they have fewer customer queries and less chasing of payments.

Accenture reports savings of up to 11%

Prompt payment discounts:

Streamlined processes mean payments can be made quicker, and associated prompt payment discounts reaped.

However, the benefits to businesses go further than cost savings alone:

Increased transparency and auditability:

• P-Card programmes enable clearer visibility of the P2P cycle
• Level 3 Line-Item detail for purchases (where a vendor provides it)

Streamlined processes:

• Minimise manual intervention
• Eliminate the need for paper invoices

Release skills:

• Reduced administration means staff spend more time on strategic tasks

In addition, for the public sector, P-Cards help organisations achieve key initiatives;

• The Government's SME inclusion programme
• Ability to trade with and pay local suppliers promptly
• Enable back office efficiencies

Finally, suppliers also gain benefits from P-Card programmes;

• Reduced need for credit control
• Faster payments
• Improved cash flow
• Lower processing costs
• Less paperwork 

So, P-Cards offer wide benefits to businesses, whether they are private or public sector, buyer or supplier. 

The reality

Despite the promises, the benefits for businesses haven’t lived up to expectations.  Take up of P-Card programmes has been limited and spend through P-Cards remains fairly low, but why?

Supplier Merchant enrollment has been a limited success

• P-Card payments are limited to suppliers that accept credit card payments
• Suppliers face significant costs to become a credit card acceptor and participate in P-Card programmes

P-Cards aren’t being used in the way they were designed

• P-Cards were primarily designed for dealing with small suppliers for low value purchases, and the benefits of P-Card programmes are chiefly linked to this usage
• The low levels of suppliers that are P-Card acceptors in Europe means P-Cards have been underused for indirect spend, and thus many benefits of P-Cards have not been realised

Companies worry about maverick spend

• There is a perception that P-Cards won’t control spending.  P-Card programmes have responded with excellent spend control measures, but buyers have remained sceptical, thus limiting P-Card use

P-Cards have not enabled access to Level 3 data

• The provision of this data often rests with the supplier, for whom the cost of providing this can be prohibitively high
• Aberdeen Group reports that even for best in class P-Card programmes, only 68% of them receive Level 3 data
• Without Level 3 data many of the benefits of P-Cards are not fully realised

Many organisations using P-Cards manage their programme manually or semi-automatically and P-Card data is not necessarily integrated to the ERP system automatically. So what’s the answer?  Scrap your P-Card programme?  Revert to your original fully manual processes? Thankfully, nothing so drastic.

The solution

P-Cards do bring benefits to an organisation, but to achieve full benefit companies must look wider. By using an intermediary the drawbacks that have hindered the progress, and so benefits of P-Cards, are overcome. Master Merchants such as Invapay sit as a bridge between the buyer’s P-Card and the supplier, they:

Enable the inclusion of all vendors

• Buying from the supplier is dealt with via the Master Merchant, limiting the need to set up multiple individual suppliers, and reducing a heavy administrative task for the numerous one-time-only vendors dealt with each year
• The supplier is paid by the Master Merchant who draws the funds from the P-Card and remits directly in to their bank account – no more cheques to  bank
• There is no need for the supplier to become a Credit Card Merchant to be paid by the P-Card

Level 3 data is provided as standard, in a format to automatically integrate to the ERP system and secure spend controls can be applied.

• Buyers can put in place secure controls e.g. which suppliers can be used, automatic spend controls etc.
• Level 3 data means all spend can be analysed and anomalies picked up quickly and easily

So we shouldn’t give up on P-Card programmes.  The benefits of such programmes are numerous, however a Master Merchant should form part of this programme to ensure the significant benefits can be realised.