Small Business Spend Management — Indirect Buying, Travel, Strategic Sourcing and Beyond (Part 3)

Continuing on our examination of smarter small business spending today (see Part 1 and Part 2), I'll share some additional suggestions from a recent WSJ column informed more by good intent than actual procurement and Spend Management thinking. A couple of the ideas propagated in the piece suggest driving customers away from plastic and pushing employee to spend as much on cards as possible. While this behavior is certainly hypocritical, it has some merit in small business environment. On the subject of accepting card payments while simultaneously providing potential internal and external incentives to discourage their use, I personally suggest shopping merchant fees aggressively. It also pays to understand your working capital requirements before embarking on a receivables card-driven model. Yet without question, the price you pay in processing fees is most likely significantly higher on an APR basis than other lending/credit facility options (except factoring/receivables-based lending in certain cases).

The other side of the card equation is to drive employees to put more on their cards -- corporate or p-cards, to be exact. The extreme of this is to mandate purchases (with limited or no exception) on cards. There are multiple reasons for this -- not the least of which are the air, hotel and cash-back program ideas the story suggests. Perhaps the most important thing the article overlooks is that card-based programs not only can help drive vendor compliance (if you set up your controls properly), but overall spend reporting and visibility, at least on a basic level. It's unlikely a small business will ever invest in a spend analysis package from the likes of Ariba, BravoSolution, SAP, Emptoris, Zycus, Spend Radar, etc. Yet basic card-level information (especially if you can get down to invoice-level detail) can provide a simple means to track spending trends and volumes, showing where to focus your sourcing efforts in the future. Card-level reporting data may not let you do a perfect 80/20 analysis of your overall spending, but if you can drive the bulk of your purchases onto a card, you'll get data you can work with. Also, another suggestion here is to check out Mint.com as well as the integration offered with Mint.com and various T&E, travel and related packages.

I've come to believe the concept of p-cards is more than sound (Oxygen Finance sold me on the philosophical concept of closed-loop contracting, buying and payment networks). Yet the execution of card-based approaches (with high bank APRs for suppliers) quickly yields diminishing returns for certain classes of spend in larger organizations. Clearly, one size does not fit all. In the future, I suspect we'll see the rise of non bank-based p-card-like networks -- even buying co-ops/GPOs that focus on payment mechanisms and controls -- but until then, even though the issuers are making obscene margins off of our plastic, the visibility and compliance such programs can provide to a small business are sound.

Jason Busch