Benefits of Purchase Cards
For card programs to flourish, all parties need to benefit, including the end-user/buying organizations, suppliers that accept card payments, and providers of card-related goods and services (e.g., issuers, acquirers, processors, networks).
Following are the benefits for end-users and suppliers, including various best practices for both.
Benefits for End-users
Purchasing Cards (P-Cards, Procurement Cards, ProCards, Purchase Cards) were introduced in the 1980s to help end-user organizations (e.g., companies, government agencies, higher education institutions) streamline the purchase-to-pay (P2P) process for goods and services, especially low-value purchases, such as office supplies, computer parts, advertising, printing, shipping/courier services, subscriptions, membership dues, event registrations, etc.
By issuing cards to employees, departments can buy what they need directly from suppliers. This eliminates the need to push everything through the procurement department for a purchase order. In addition, accounts payable can make one monthly payment to the card issuer instead of hundreds of payments to many different suppliers. Establishing an efficient P-Card P2P process allows an organization to enjoy substantial process savings. Calculate these savings and other key metrics for your program.
A streamlined P-Card P2P process saves an organization time and money.
Besides process savings, other benefits of P-Card usage include:
shorter procurement cycle time
staff reductions in procurement and/or accounts payable, or reallocating these staffs to other value-added activities
no federal 1099 reporting
employee satisfaction
spend data availability
potential rebate
Process Savings vs. Rebate
Too often, earning a rebate is the focus of a P-Card program, but this is merely icing on the cake and it is not guaranteed. Consider a common P-Card transaction amount such as $400. If your organization earns 100 basis points (bps) for that transaction (an easy math example), the rebate equates to $4.00, but P-Card P2P process savings are so much greater.
Industry studies by RPMG Research Corporation have consistently shown process savings ranging, on average, between $68 and $71 per P-Card transaction when compared to traditional PO payment methods. Your organization's savings could be more or less, but, either way, per transaction, the process savings is always greater than the rebate.
Benefits for Suppliers
Suppliers tend to only see the costs related to card acceptance and, as a result, surcharging for card payments might be tempting. However, in many cases, the fees are offset by these benefits:
cost reductions, such as eliminating invoice creation, handling and mailing/emailing
faster receipt of payments/reduced days sales outstanding (DSO)/improved cash flow
electronically-deposited funds
reduced accounts receivable staff
competitive advantage over competing suppliers that do not accept cards
opportunity to gain “preferred” supplier status with customers
If you are a supplier, quantify these benefits and compare against the fees. You could actually be saving money through card acceptance.
How Suppliers Can Lower Fees
You can lower card acceptance fees a couple ways. If you've had the same acquirer and contract for many years, it would be worthwhile to revisit. Partner with an acquirer with expertise in business-to-business (B2B) payments.
Secondly, provide Level 3 line-item detail in conjunction with B2B card transactions; Level 3 transaction data is associated with lower interchange rates.
Advice for End-Users and Suppliers
End-users and suppliers must work together to ensure efficient processes that maximize the benefits of card payments. With traditional P-Card programs, buyers should provide the card account information in conjunction with order placement, so the supplier can charge the card upon order fulfillment.
With ePayables/Virtual Cards, end-users should approve invoices and initiate payments quickly (e.g., within 10 days of invoice receipt). The longer the end-user delays, the more the quick payment benefit to the supplier is negated.
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