Despite their efficiency in automating processes that usually suck up resources, P-Card programs are still a challenge.
For most companies, P-Card programs can be efficiency “manna from heaven.” That’s because they are a great for automating the manual, paper-intensive process of purchase orders and cutting of checks that can bog down an organization. But if they’re so great, why are purchasing card, or P-Card, programs so hard to implement?
What’s not to like? Card payments are the fastest growing type of payment according to a 2010 Federal Reserve study. Traditionally used primarily for travel and expense purposes, today’s corporate P-Card programs go well beyond T&E purchases, creating significant savings and process improvements across an organization, e.g., in reducing the need for petty cash used for incidental items at remote business sites or controlling levels and types of spending. For larger corporations with significant spend, the volume generated from card purchases is rewarded in the form of substantial dollar rebates from your card provider.
And fortunately for business-to-business payments, so far the finalized interchange rules enacted as a result of the Durbin Amendment only apply to the consumer debit card market. So for corporations and their P-Card providers it is full steam ahead with effective card solutions for paying those low value, high volume supply purchases.
Derailed. But P-Card programs, despite the value to the organization, tend to get sidelined — much to the frustration of corporate management. How then, do companies avoid or circumvent some common obstacles preventing the widespread adoption of P-Cards use in their organization?
It’s certainly not cost. In some companies the rebate earned on P-Card use can pay for the annual administration cost of the card program itself. And with full integration into the GL system, the process never touches the back office’s manual routines and the cost of issuing checks and paying postage is eliminated.
So what’s the problem? Lack of definitive ownership. With usage across the organization, one can easily see that there are multiple departments that benefit from a P-Card use, from treasury, to supply chain to A/P – and perhaps this is the root of the problem. If ownership cannot be readily identified, then the project withers; and the card program can stagnate within a couple of years’ time.
No clear answer. Unfortunately there is not a clear-cut answer as to where a card program – the administration, education and training of employees – should lie. Shared-service centers or procurement management can all step up to the plate; and so can treasury. At many companies within The NeuGroup universe, P-Cards fall under working capital management – normally a treasury function.
But for whoever does take ownership, here are a few issues that should be addressed:
- As part of the implementation process the objectives and incentives, if any, need to be clear to each department. And as with any internal process – policy, procedure and controls need to be established and responsibilities delegated.
- The card program administrator should be dedicated 100 percent to the job of card issuance and program maintenance and communications. Otherwise, reliability and servicing issues may result, slowing down the rate of internal company acceptance of the program.
- Hold your card provider accountable well beyond implementation. The card providing institution can have an impact the success of its P-Card program, and regular reviews should include both internal and external components and a look at best practices.
- Challenge your card issuer partner to develop strategies for supplier acceptance, such as contacting key suppliers directly, as well as for increasing card use in the businesses. The good news is that card acceptance by suppliers is increasing, in certain industries more than in others, so although it is not yet consistent things are starting to change.
But a clear choice.
For companies that have not yet made the move to P-Cards, they should be looking at doing so. The paper reduction, increased processing efficiency and extended payment terms, leave little reason not to maximize use of this product in every organization. These attributes are making card programs, as compared to other electronic means of payment, one of the fastest growing areas in automation. According to one recent bank study on corporate clients for card payments, 42 percent have integrated A/P systems and 26 percent have integrated A/R systems where they accept card payments from their customers (merchant card servicing).
So when the choice is made to implement a P-Card solution ensure that the proper infrastructure is in place, that way companies can avoid the other common pitfalls that have stalled the acceptance of card use internally and externally.