Part 2 – The Business Case for Purchasing Cards
This is the second article in a series, the first of which appeared in the SmartProcurement June Newsletter. Julian Curtiss, Manager of Commercial Marketing, Corporate Payment Solutions at ABSA Bank, told Smart Procurement that "Purchasing card programs are as unique as the companies using them, and therefore the business case varies per organisation"
Referring to recent research by the Aberdeen Group and National Association of Purchasing Card Professionals (NAPCP) whcih jointly conducted a primary benchmarking study of over 175 corporate purchasing card programs:
"• 70% of purchasing card programs deliver satisfactory or better-results as based on the original program charter or business case
• Most purchasing card programs provide an average growth of 15% in total transactions and 21% in expenditure volumes."
However, the research shows that:
"Despite these satisfactory results, purchasing card programs are not strategically deployed (by many organizations) as a meaningful component of a Total Spend Management approach."
"Originated over ten years ago as a credit card-based alternative to petty cash and paper-based “requests for cheque” processes, large corporations adopted individual corporate purchasing cards (P-Card) for low value purchasing. In many cases, private corporate programs evolved independent of any best practices or outside influence. Many of these companies now wonder what it takes to make their program the best, the strongest, and the most progressive."
"Purchasing card programs generally have good, consistent performance records. In most cases, P-Card programs have developed in parallel to corporate travel and entertainment card programs in order to address a number of additional purchasing categories."
"In short – Purchasing Card programs are ready to come of age. A fresh approach can transform the inherent value and significantly improve growth of P-Card programs."
At the recently held IPSA PAN African conference (Gauteng, May 2007), Curtiss, delivered a presentation on Purchasing Card – payment solutions.
He emphasized that the P-Card is very different to standard credit cards. For instance, in the case of P-Cards they have built in controls and restraints:
• has merchant category code blocking thus controlling which suppliers purchasing card holders can purchase from;
• has transactional value and volume limits coupled with exception reporting that increases control and visibility over low volume transactions
• the vendor cannot avoid controls;
• the card itself must be presented and used.
In addition, the Purchasing Card has additional built-in pre-purchase controls:
• the supplier will receive payment within 5 days of confirmed delivery;
• all information is electronically based and hence, the system is capable of generating extensive and detailed reports for the buying organisation.
"Importantly, ABSA’s Purchasing Card pricing includes essential customer security protection i.e.
• lost card protection from the moment it is lost; and
• corporate liability waiver which protects the client against employee fraud" says Curtiss
"The ABSA Purchasing Card solution comes at almost ‘Zero Risk’ to the client. Its ts extensive report capability, ensures that the client is compliant with relevant financial legislation and regulations, including VAT Reporting."
During the conference, Karen Van Vuuren, the IPSA Chairperson, in her introduction to Julian’s address, said that: In the United Kingdom, the P-Card has been extensively and, successfully deployed throughout the public service, including the UK Department of Defense. Yet in South Africa, there is no take-up by Government."
In Karen’s estimation that is due to the fact that “The SA public sector work in silo’s and can’t get down to process. "What Government (local, provincial and central) needs, is to get guidelines on how to implement systems (like the Purchasing Card) which will enable the (meticulous) tracking of spend.”
"And that’s exactly what the PFMA Act requires:
• accountability, and
• auditability, and
The ABSA organization uses the P-Card solution with over 5000 P-Cards issued to authorized personnel at some 750 branches, countrywide.
"Accordingly, the so-called ‘risk’ in Purchasing Cards is taken care of by the systems and controls. " As Curtiss pointed out: “Remember, people abuse POLICY. The card is merely an instrument of that policy. Get a contract in place when handing over the card to a user to get their undertaking and buy-in. It’s really all about (people’s) accountability.”