Spend Matters welcomes a guest post from Shelagh Wong of Archstone Consulting, a division of The Hackett Group, Inc. Wong is a strategy and operations professional with experience in strategic and global sourcing, procurement transformation, organizational efficiency, contract negotiations and category management training.
There used to be a stigma associated with making purchases using credit. This invariably affected attitudes towards using a purchasing card or P-card as payment method within organizations as well. Some companies placed so many controls and stringent approval requirements around the usage of P-cards that employees avoided this payment method altogether. Other companies were lax in their P-card policies and ended up in situations where employees placed inappropriately large purchases on their cards. This led to enterprise-wide trepidation about making the autonomy provided by P-cards available to employees.
However, according to the Hackett benchmarks there has been a recent shift in payment trends towards P-cards and away from more labor-intensive options. It appears that management levels have become aware of the benefits of using P-cards, and companies are now championing this payment method. The benefits of P-cards are three-fold. The most quantifiable benefit of using a P-card is the potential for a rebate based on spend volume. This has led to many companies encouraging their employees to use P-cards for small purchases.
As the processing costs for other forms of payments (e.g. three-way match) become more evident, companies are eager to move towards a more efficient payment method that also reduces process costs where possible. P-card vendors are also able to provide periodic reports with transaction-level detail on each purchase, including information around the date of purchase, purchaser name, vendor name, and dollar amount of the purchase. Most vendors automatically categorize this spending based on known vendor names, which can provide a quick high-level view of spend categories without the tedium of manually sorting through mislabeled categories.
To optimize the use of P-cards, organizations should understand their control-risk balance for each spend category common to their annual purchases. This will enable the organization to understand the current costs and benefits of its payment channels. For all categories where using a P-card is most efficient, measures should be taken to encourage spend to move in that direction.
An appropriate spend threshold should be derived for the use of P-cards as it relates to company control preferences. Some companies tend to require more expensive spend items while others do not. Companies with existing P-card policies should update their policies to reflect the appropriate threshold.
Companies should also implement an adequate level of controls so that management will feel comfortable encouraging P-card use without encumbering the process with too many administrative requirements. By maintaining a balance between levels of control, organizations can harness the benefits of P-cards while still maintaining their risk management requirements.