Purchasing cards are expanding on many fronts and have grown to be a standard payment tool for many corporations and public sector organisations. The purchasing card enables companies to achieve efficiency by reducing admin overheads and tracking expenses. With the available information, corporations are able to reinforce compliance with travel and entertainment expenses (T&E), purchasing policies and negotiate better rates with major suppliers.
Designed to simplify recurring business-to-business (B2B) transactions such as utilities, monthly orders of office supplies from the same vendors or IT equipment purchases, purchasing cards had seen tremendous growth in spend evidently driven by the significant process efficiency savings, sourcing effectiveness and improved compliance that result from a purchasing card programme.
According to the 2010 Purchasing Card Benchmarking Survey, 26% of survey respondents used purchasing card spending data to obtain higher discounts on goods or services, with an average cost savings of 2.2%. For an organisation that uses a purchasing card to charge as little as US$1m annually, that equates to US$22,000 in savings per year.1
Corporations are mainly using purchasing cards to gain benefits in three ways:
1. Identifying real financial benefits
Spend categories that were previously thought to be inappropriate for purchasing cards, such as direct spend commodities, are now being managed through a purchasing card programme and corporations are transforming less efficient processes, earning discounts at an earlier phase in the supplier relationship and getting more from their spend.
2. Leveraging technology to reduce procurement process costs
The integration of purchasing card programme with electronic invoice payment and presentment (EIPP) solution drives savings within the invoice-to-payment (I2P) processes. Respondents of the 2010 Purchasing Card Benchmarking Survey reported that companies, on average, could operate with one less full-time accounts payable (A/P) position for every 15,000 purchasing card transactions.2
3. Drive compliance and maximising savings
Purchasing card reporting and reconciliation tools are designed to provide transparency of their indirect spend and exert greater control over their entire expense management programme. These tools allow companies to maximise control and ensure compliance while driving savings to the bottom line.
Figure 1: Benefits of Integrating Purchasing Card Programme with EIPP Solution
Source: American Express
Case Study: Healthcare Company
A leading global healthcare company was looking for ways to demonstrate cost benefits achieved by implementing purchasing card programme in Singapore. This company also required assistance on the best approach for promoting the programme internally across other markets in Australia and Asia-Pacific.
A value creation analysis for their card was conducted. Utilising American Express benchmarking data, an assessment of high level cost savings of US$300,000 from process improvement, sourcing effectiveness and control and compliance was provided. In addition, American Express facilitated a business process review engagement for a deeper dive into the company’s purchasing cards process and associated costs for its Singapore programme.
An annual process savings of US$40,000 for the company from implementing an automated purchasing card programme with corporate account reconciliation (CAR) in Singapore was identified. Currently, the company is showcasing this initiative internally to drive adoption of the programme across the region and achieve incremental of US$7m in card spend. The client is delighted with the outcome of the programme and had provided positive feedback stating: “The analysis provides me with a great insight into our process savings – far more than I expected from the study.”
The case study had evidently established that purchasing cards has emerged as the most effective tool to manage indirect spend. Corporations which were committed to reducing paper processing realise that the programme can help them meet that goal as well as better control spend.
Implementing an automated purchasing card programme can provide organisations currently using invoice and cheque payment methods with valuable improvements in both cost and data visibility. Organisations which manage their purchasing card programmes effectively can achieve process cost savings, increase visibility into their non-travel and entertainment spend, drive additional sourcing effectiveness and improve compliance to policy through improved security purchasing card offers.
1RPMG Research Corporation,Purchasing Card Benchmarking Survey, 2010.
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