Purchasing Insight on purchasing cards

The way the blogosphere works is very interesting and very different to conventional media, I would surmise. For a start, you find that bloggers in a particular area are much more "social'' in the sense of featuring each others work, starting debate, discussion or argument - there's a realisation that actually, readers are more likely to pursue their habit if there are multiple worthwhile sites in their area of interest.  That's why we genuinely feel that Supply Management are being self-defeating (and working against CIPS members' interests), in pretending that we don't exist because we're "competition".

So I'm happy to thoroughly recommend  a "competitor" in the blogging world, Pete Loughlin. In his Purchasing Insight blog, he regularly demonstrates that he's probably forgotten more about Purchase to Pay and related issues then I ever will know.  He's been picking up on the fuss around public sector use of Purchasing Cards recently, and I'm delighted that he's written a piece here specially for us. There's more about Cards and lots more good stuff on his site.

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The Daily Telegraph is no stranger to public sector worker bashing and their piece on the Government Purchasing Card last month is a typical example of how the Telegraph appears to wish that public servants would act a bit more like - well, servants. They published the shock revelation that “Treasury mandarins” had the audacity to spend over a 3 year period almost £9,000 at “Marks & Spencer and John Lewis” and how public money is used to fund “lavish hospitality events, training and conferences”.

We love a scandal apparently but this was a ignorant piece that was aimed more at knocking public sector workers than the more serious point about the lack of spending controls associated with government purchasing cards.

Purchasing cards are a great tool - in theory at least. Where goods cost less to buy than the cost of the purchasing process itself, it’s common sense to circumvent the purchase to pay process and just buy the goods. P-cards empower people to make and execute simple buying decisions without fuss and rather than theTelegraph wingeing about the public money spent on “lavish” courses, they would do well to consider the amount of tax payers’ money saved by not insisting on a complex and costly approval process.

But there is a valid concern about the use of purchasing cards in the public sector, as well as in business because, unfortunately, the theoretical benefits of purchasing cards are often not delivered in practice. The fear that purchasing cards, as Eric Pickles claims, “can make spending that bit too easy”, can become a reality.

The big disadvantage of p-card process is that allows “spend now, approve later” culture. While it is possible to return goods bought inappropriately and in the case of fraud even insure against it, it requires that the approval is actually done with some level of diligence. In the case of usage by senior staff, spend is rarely questioned after the event. I know from personal experience of disgraceful abuses of purchasing cards, not in the public sector I have to say, that have been swept under the carpet and the worse culprits are invariably executive level staff.

The fact is, whether it is staff expenses, or purchasing card spend, retrospective approval is nearly always given and misuse - except in extreme cases - is treated with a “don’t do it again” warning. It actually takes some courage to challenge this spend and in reality, most managers just don’t have it.

Voices (7)

  1. John Vasili:

    Pcards are alive a living!! Don’t be fooled by the press Pcards are 100% better for the country than cash or claiming on expenses.The use of Pcard processes such as Invapay provide full visibility , control , compliance before the goods paid for.With level 3 data for every transaction,on-line reconciliation there are a whole number of benefits for the buying organisation. For the vendor the Invapay process enables vendors to accept card payments without becoming a merchant, provides visibility of the payment cycle , reduced the AR costs & automatically producing an e invoice. Pcards are only a credit line if used correctly they extend buyers DPO whilst reducing sellers DSO , generate revenue via rebates and provide the freedom to by but the power to control. Don’t be fooled by the press Pcards are 100% better for the country than cash or claiming on expenses.

  2. lyn duncan:

    Hi Torsten,
    The fees are generally less than 2%, which is also less than most companies pay for services such as factoring which are a lot more complex to deliver prompt payment for suppliers.

    I think there is a bit of confusion between APR, which is what consumers pay if the borrow money on a credit card with a low headline rate and high compound rates annually and suppliers being paid in 3 days for a flat % fee.

    Most suppliers already accept Visa cards as part of their day to day business, this just takes advantage of this to join up order, invoice and payment.

    We are certainly finding that suppliers are keen to have prompt and certain payment as the public sector is becoming increasingly slow in paying it’s bills……Flog I agree with you where is the 10 day payment?? From our own perspective the cost and pain of credit control is increasing and if we can take a payment by card our credit controller does a dance of joy! We are seeing payment times out at 60 to 90 days across our supplier base with SME’s being worst affected as they typically have little clout…. the PFI provider is at the top of the payment pile as they impose draconian sanctions for late payment, but the local maintenance man simply has to wait.

    In a difficult economy cash flow is all important and for under 2% most suppliers can more than justify the benefits.

  3. flog:

    There’s no such thing as a ‘free lunch’; likewise, whatever automated process is used be it pcards etc it has to be paid for. Whether it’s a flat rate transaction fee (a la your debit/credit card payments when booking flights) or a payment to the bank to enable payment by your customers (within 3 days is significantly faster than traditional payment routes which continue to slip – what happened the UK public paying within 10 days) – a transaction/management fee will have to be paid by someone. If the payee is paying the pcard’s bank a fee – it will be built into the purchase price. So, make the process a painless as possible and if using the likes of GeM provides greater control and is efficient, then so be it.

  4. Torsten Budesheim:

    Another p-card issue is the fees associated with it. To Lyn’s point, sure it’s nice to have a payment within 3 days, but at what cost to suppliers? A fee of 2.5% or more translates into an annual rate of 30% or more. To me, that doesn’t seem like p-cards should be alive or well any longer. There are truly better ways that benefit both the supplier and the buyer.

  5. Lyn Duncan:

    It’s very easy for the press to jump of the pCard bandwagon or as they like to infer ‘the previous administration’s out of control credit card’… The reality is of course much more prosaic, with the majority of pCard expenditure on T&S and low value items being exactly what the programmes were planned to address.

    Interestingly we are now seeing an increased interest in pCards within public sector, but used in a very different way. As we are an eCommerce vendor we can embed a virtual card within our marketplace in exactly the same way that Amazon does. This payment method is then subject to all of the controls of the marketplace or ERP that it is attached to, with the additional benefit that we can derive line item data from level one merchants.

    This mix of technologies means that we see a 10 fold increase in pCard rebate to the buying organisation with full 3 way match control over all expenditure. Working with banking partners we can provide a fully self funding solution that also provides ongoing revenues to the buying organisation – very attractive in todays difficult climate.

    The first major roll out of this technology will be GeM, the new emarketplace for the University and further education sectors where the only payment method will be by pCard.

    So pCards are alive and well, providing 3 day payment to suppliers and funding greater control over the entire purchasing process…….probably too boring for the press to get to grips with!

  6. Pete from Purchasing Insight:

    I agree with you of course about Supply Management – the only blog I’ve ever been barred from ;0)

  7. Ben McKee:

    I agree wholeheartedly with what Pete Loughlin says about GPC cards. Indeed the only reason we know about these “abuses” of public money is the fact that the purchase data is accessible and easy to review – i.e. transparent. There are two issues at play here: 1) Abuses will always happen with whatever system you have – that’s, unfortunately, in the DNA of certain individuals.
    2) How easy is it to spot and tackle the abuses.
    With GPC products across the board, coupled with good spend analytics it is actually much quicker and easier to highlight issues and deal with them. Indeed, with certain newer virtual card products on the market, like our vPayment product, the controls that you can put down to individual transactional levels can nearly eradicate rogue spend.
    It is ironic that the whole reason The Telegraph had the story was because GPC cards were in place…Is this what you’d call a faustian pact??

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