ACCOUNTANCY AGE FEATURE: A more flexible business friend

The ‘e-everything’ craze isn’t just causing a boom for Internet companies.

It’s also triggering a high tide of interest in purchasing card systems.

Business is ‘booming’, according to Laurent Gampel, vice-president Europe and head of corporate purchasing cards at American Express. ‘There are several reasons,’ he explains.

‘Firstly, companies are getting pressure from shareholders about making more savings. Shareholders are seeing Internet companies with their shares going up. But for traditional businesses the only way to make shares go up is to make more profits. So a lot of companies are taking the decision at board level to reduce administrative processing costs.

‘The second reason is to do with all the enthusiasm around e-procurement. The purchasing card is a complementary component of e-procurement.’

Purchasing cards not only make payment straightforward, they also provide detailed data which can be used to reconcile payments to orders placed electronically.

‘E-commerce has acted as a catalyst,’ agrees Stuart Fisher, head of purchasing cards at Barclays. ‘There’s lots of activity under the e-commerce banner and that’s where cards will come into their own. Cards will be part of the settlement process.’

NatWest has also noted the e-business fuel energising its purchasing card activity.

‘In e-procurement you replace the telephone (for ordering) with an icon on your PC,’ says Jerry Mulle, head of product management for commercial cards at NatWest. ‘The purchasing card re-engineering process we have gone through with large corporates actually means they can move much more quickly to an e-procurement type solution because they have effectively done the back-office re-engineering job. Now all you are doing (with e-procurement) is the front end.

We are working to make sure that the payment process works in harmony with the purchasing system process, so that when you click your button something in the back office will generate a purchasing card payment.’

PHH Business Solutions, which offers a purchasing card called AllStar Purchasing, is also linking its service with the e-commerce boom.

The company’s website,, allows suppliers to trade via the Web. Both customers and suppliers can also access management information and highlight trends in purchasing habits. ‘We see purchasing cards as an integral part of e-commerce and as complementary to e-procurement activity,’ explains Louise Holt, divisional manager for PHH Business Solutions.

The principle behind purchasing cards, however, remains unchanged. Technically speaking, purchasing cards do not need to involve any form of plastic. They are virtual in nature.

For example, Amex’s Corporate Purchasing Card (CPC) system allocates unique reference numbers to each employee which he or she quotes whenever placing an order with an approved supplier. Purchasing cards are ideally suited for buying high volume, low cost items such as stationery and other general office supplies.

In addition to purchasing cards there are the business versions of credit cards, corporate cards or travel and entertainment (T&E) cards, used for just that – paying for travel, entertainment and occasional other expenses.

Both cards aim to streamline the payment process. With the purchasing card, the card company pays the supplier and then obtains a single payment from its client – the company making the purchases – via a monthly statement.

With T&E cards, statements can be sent to individual employees for reconciliation, or consolidated into a single, central statement.

The cards increase the potential for a company to control purchasing practices since each employee’s ‘card’ can be set maximum monthly spending limits and single transaction limits. And since purchasing cards can only be used with approved suppliers, expensive, one-off rogue purchases are ruled out.

The corporate purchasing card suppliers’ traditional marketing angle has focused on the potential cost savings available, which are generated in two ways.

First, introducing a purchasing card system facilitates supplier rationalisation, enabling advantageous discounts to be negotiated with the approved suppliers. Cost savings can be significant. ‘If a company rationalises its suppliers itself, it will save 10-20%,’ says Gampel. ‘If we then apply our rationalisation methodology, we can generally add another 10% in purchase savings.’

Second, both purchasing and T&E cards can cut down on paper-based administration.

‘The number one thing the purchasing card does is to eliminate the paper invoice,’ says Gampel. Streamlining processes using the CPC, from placing an order through to payment and updating accounting ledgers, can reduce processing costs by 80-85%. Companies need not key in any payment data themselves, but can automatically import files from the card supplier containing detailed data on all purchases that month. The data can then be manipulated for detailed cost analysis.

Barclays also claims significant savings potential for its purchasing card users. ‘If you re-engineer your processes to accommodate the card, that coupled with card usage will give savings of between 60-70%,’ says Fisher. ‘You are cutting out all the paper handling.’

Individual companies can select the degree of sophistication they require from their purchasing card supplier. For example, paper-based reports are available if preferred, but even small businesses can cut out wasted data inputting time by using technology.

‘The ultimate aim for us is that instead of a small-business person sitting down on a Sunday afternoon and transposing data into their accounts they can take a file from us that feeds straight into the key small-business accounting software packages,’ says Mulle. ‘It could fill in all the VAT details that they need and take all the headache out of doing the accounting.’ That ultimate goal will no doubt be achieved.

Constant advances in technology mean the potential for purchasing card usage keeps expanding. Although companies can receive their payment data in many forms, there is still further potential. ‘The next stage will be that companies can dial into the Internet and take their data and manipulate it as they want,’ says Mulle.

The real strength of purchasing card systems comes to the fore when they have been approved by VAT authorities as providing sufficiently detailed and accurate data so as to remove the need for a paper invoice. Amex has adopted the policy of not offering purchasing cards in a country until it has gained such approval. ‘If you have to have the paper invoice the value proposition reduces,’ explains Gampel.

Despite the self-imposed restraint, the Amex purchasing card is spreading rapidly across Europe. It now operates in the UK, France, Germany, Sweden, and the Netherlands. ‘We are now opening up Belgium, Spain, Ireland, Italy, Switzerland and Austria,’ says Gampel. Next year another five markets are due to follow – Finland, Norway, Denmark, Portugal and Luxembourg.

Outside Europe, Amex is also present in Australia, New Zealand, the USA, Canada and parts of Latin America. The range is constantly expanding. Similarly, the VISA purchasing network, to which Barclays and NatWest belong, now has accreditation in 12 European countries.

Using a purchasing card doesn’t bring instant benefits. Completing the supplier rationalisation and streamlining of processes takes time and it may be three years or longer before the full savings potential is realised.

Nor is the service free. Actual charges are negotiated with the card companies and based on transaction levels and variable factors such as the means for transferring data. Suppliers also need to come on board since they must have the IT systems and merchant terminals to be able to supply the transaction data required by the card companies. Merchants will also pay a charge for their participation, but have the benefit of keeping customers happy and also receiving prompt payment from the card company.

The benefits appear to be attracting plenty of interest from many industry sectors. ‘The utilities are certainly up for this, but demand is across the board,’ says Fisher. ‘I would say the emphasis is on the industrial side but services are catching up fast.’ Mulle also sees widespread demand.

‘If you look at the FTSE-100, companies across all sectors are taking up the benefits,’ he says. ‘Around 65% of the FTSE-100 have purchasing cards. The concept is starting to take hold.’

Sarah Perrin is a freelance journalist CASE STUDY: ‘EMPOWERING PEOPLE’ AT BA

British Airways opted to roll out NatWest’s purchasing card in April 1999 after a successful trial period.

Internally branded as the P-Card, the system now involves over 40 suppliers representing purchases valued at over £25m a year. Suppliers have been rationalised.

Although purchasing card systems do not require a physical card, BA opted to issue plastic to staff. ‘The issuance of a card endorses the personal accountability for the spend,’ says Pat Rice, P-Card manager at British Airways. Although staff take-up of the card was initially slow, use of the card was made mandatory in November 1999 and over 1,800 cards have now been issued, about 35-40% of which are active each month. In April 1999 just 47 transactions valued at £3,492 were made using the card, but in December the monthly total exceeded 4,300 with a value of £455,225.

January 2000’s value was anticipated to exceed £800,000.

Most staff have been set a transaction limit of £1,000, enabling them to purchase goods with no further authorisation required. ‘The P-Card was a major step forward in empowering our people,’ says Rice.

BA is making a significant investment in its e-procurement activities and is specifically implementing a full-blown e-requisitioning system, which would enable authorisation for purchases over £1,000 to be sought electronically. ‘The P-Card will not be taken over by e-commerce,’ says Rice. ‘It will be an integral part of it and make the implementation easier.’

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