By Bryan Richardson
The benefits to working capital and AP efficiency can be significant for companies that invest the time to better understand their purchasing card programs.
The purchasing card is a product that has been around for over two decades and continues to be a winner for those companies that have fully embraced it. Yet, it is surprising that some large multinational companies have yet to implement a purchasing card, or P-card program and that some of those that have, don’t structure them to maximize their potential.
There are endless applications for card products for companies that make the investment of time to understand their mechanics and value. And the benefits to working capital and AP efficiency can be significant. A well-planned and executed card program should be a staple for every organization.
At a fall meeting of The NeuGroup’s Global Cash and Banking Group (GCBG), two members gave presentations on their recent RFPs and rollouts of new purchasing card programs, each of which were replacements for older and dramatically different programs. The first company shifted from an Amex to a bank product, but more importantly, switched from a two-card (T&E and purchasing) to a one-card solution where a single card program accomplishes the objectives for both types of card activity. While this company is a multinational, its new program was confined to the US.
The second company, a much larger multinational, had a very different scenario. Suffering from years of decentralized control over card programs, it was characterized by more than 50 different and independent programs around the world. There was virtually no rebate being received, low visibility to spending and inconsistency with liability, policy and administration. The opportunities for this organization were huge.
Although the starting points and ultimate program structure were dramatically different for these two firms, the goals and approach to achieving
them were strikingly similar and likely useful for many other companies in need of a program or simply a makeover.
CARD PROGRAMS ARE STRATEGIC
Many companies mistakenly view card programs as merely an operational activity to be left to heavy-processing groups like accounts payable. But when looked at holistically, these programs can represent significant portions of a company’s spend processes and a huge piece of business for a strategic banking partner. For the company with the 50 independent card programs, there was no centralized reporting and no policies around usage, making any strategic benefits non-existent. A global RFP and subsequent implementation solved those problems and also allowed the company to make some working capital improvements and negotiate lower fees for travel costs.
The other presenting company noted that its prior provider was American Express, with whom it had no other relationship. The company therefore believed it was more important to award this business to one of its strategic banking partners. Companies often struggle with offering enough ancillary business for their credit banks which expect a fair shot. Card programs are an easy opportunity.
OWNERSHIP VS. PARTNERSHIP
Card programs are typically administered in AP or procurement with an occasional program being found within treasury. While some treasurers have argued that treasury should own these programs because they are bank credit relationships, none of the GCBG members felt that way and none owned their card program. But, they are clearly stakeholders in the relationship with the issuer. Since card programs can be a prized piece of business to award a bank partner, it is crucial that treasury be involved in the RFP and decision-making process. That’s because there are numerous other considerations in awarding the business aside from the economics and abilities around the card programs. Further, treasury typically has influence and insight with the bidding banks due to its familiarity with the broader relationships, which can be important in the final decision.
CENTRAL ADMINISTRATION
Some companies are clearly more centralized than others, which in the extreme gives subsidiaries and business units full autonomy to run their operations profitably. But left unchecked one can end up like the company with the 50-plus disconnected card programs globally. The benefits derived by a centrally administered program are significant:
- Standardized processes that are optimal.
- Efficient and standardized expense reporting.
- Consistent policies globally.
- Global visibility to spending volumes and patterns.
- Centralized spending volumes drives vendor discounts.
- Ability to leverage card service provider for lower fees and higher rebates.
- Consolidated working capital improvement opportunities.
A WELL-OILED RFP
The best way to achieve a robust card program is through a well-organized RFP. The presenters discussed their different approaches with many members weighing in on their experiences as well. Following is a synopsis of the recommendations from the discussion:
Project starters:
1) Ensure an executive sponsor who believes in the program. Projects of this nature that permeate so prolifically throughout the organization with such significance must have endorsement from a high-profile executive who understands the benefits, clearly wants them achieved and will hold the project accountable for success. This will result in greater support from stakeholders.
2) Appoint a strong project leader. A team approach is advisable but there must be one leader with authority to drive the process and hold people accountable. One member pointed out that his project began without a project manager, which ultimately changed as it realized the importance of a central leadership role.
3) Ensure broad stakeholder representation. Card programs touch a lot of groups including procurement, AP, legal, treasury, tax, SSC, accounting, business operations and users/cardholders. Having their views, needs and preferences represented in the RFP and selection process is important to ensure cooperation and support of a successful rollout and ongoing operation.
4) Have a clear vision of the objectives. This is often achieved through an assessment of the program’s current state and the shortcomings resulting from it such as little to no visibility to total spend and low adherence to policies. Understanding where you are vs. where you can be is an important step to outlining all of the goals for the project.
RFP Considerations:
5) Define your selection criteria. Priorities will vary by company but the two presenters offered a number of insightful factors to consider:
- Total value (rebates, other financial incentives )
- Data security & controls (SAS 70)
- Data integration with ERP and expense management system
- Fraud prevention (both employee and external)
- Business relationship (long-term strategy fit)
- Chemistry/partnership with the service provider
- Competitive analysis
- Merchant acceptance
- Contract terms & conditions (recommend 5-year contract)
- Flexible & configurable program
- Change costs & time
- Provider resources dedicated to project
- References
- Total contract benefit (first year versus total contract)
- Total card experience for the cardholder
- On-boarding of new employees / new cards
6) Effective communication in a card rollout is crucial for success. With so many stakeholders a clear and broad communication strategy is important, so much so that it is advised to keep a close relationship with the corporate communications team if not graft them into the project at the time of rollout. This is important for both a first-time program and a makeover.
It is even advisable to begin with advanced communications to cardholders of forthcoming changes, which will help prevent confusion and abuse.
7) Secure plenty of contract support. Like any project, the legal components can be extensive and prolonged. Don’t under estimate the resources needed to complete this critical component of the project. Gather resources from legal and procurement to support the effort.
8) Beware of the provider overpromises. One presenter highlighted the numerous features and abilities made by bidders that subsequent experience proved to be inaccurate. Examples include:
a) Global presence: bidders may claim a global presence but the reality is it is likely a consortium of partner banks.
b) Single global contracts: possibly another falsehood where the reality is multiple contracts on a country-by-country basis that may have some similarities.
c) Integrated global network: do not assume banks have good communication between global and regional offices.
CONSIDER A ONE-CARD SOLUTION
It’s been discussed for years and some companies have tried it, but most maintain separate programs for T&E and purchasing. But occasionally there is a one-program success story as was the case for one of the meeting presenters. The one card solution was possible and appropriate for this company to make the administration of it simpler. However, policies and procedures had to be dramatically overhauled to accommodate the new product and their expense-reporting system had to be reconfigured as well