Purchasing cards as we know them are changing. That means the p-card of today will not be the p-card of the future. And as this tool evolves, so does the impact it has on the accounts payable profession.

With companies, organizations, and governments focused on belt-tightening in a tough global economy, p-cards have continued to gain popularity as tools for monitoring spending. In fact, p-card use was up 48 percent at organizations where finance leaders responded to a 2009 Electronic Payments and P-Card Survey by research and consulting firm PayStream Advisors from Charlotte, N.C. Interestingly, the use of paper checks had declined the exact same amount, 48 percent, at responding organizations.

In its survey report, PayStream called p-cards a “glimmer of sunshine” in providing savings during the recession. And even though the world economy shows signs of bouncing back, experts say p-cards are here to stay.

The term “p-card,” however, is morphing to describe many different types of plastic and virtual tools that operate like consumer credit cards.

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TODAY'S PROCUREMENT CARD

Procurement card or p-card – a commercial credit card used for corporate purchases in the place of a check, electronic payment, or wire transfer.

Travel card – a p-card used primarily for corporate travel, including hotel, airfare, ground transportation, dining, and entertainment.

Fleet card or fuel card – a p-card used primarily for either fuel or vehicle expenses or both.

One card – a p-card used for corporate purchases as well as travel and entertainment, fuel, telephone expenses, and other activities.

Business card – a credit card small businesses use instead of a p-card.

Ghost card – a virtual p-card, with no physical plastic involved.

Single-use card – a unique 16-digit number used to make a one-time authorized purchase without a plastic p-card.

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Although they’ve been around for more than a decade, p-cards are used in less than 10 percent of the purchases organizations make, the PayStream survey shows, which means there’s incredible opportunity for companies to reap more benefits from them in the coming years.


Managing cash 

“A lot of the evolution with p-cards has been on improving control over cash management,” says Frank Martien, partner and head of commercial payments consulting practice globally at First Annapolis Consulting of Linthicum, Md. “On the purchasing side, leaner inventory control, more aggressive supplier negotiations, and other factors have economized on overall indirect spend. However, use of card-based systems for purchasing has actually been bolstered by the economic environment.”

Through the years, AP departments have looked to Automated Clearing House or ACH payments to control the timing of money they disburse because paying electronically lets them hold onto their cash for as long as possible. P-cards take that concept one step further, letting AP keep its funds until the end of the billing cycle while ensuring vendors get their money faster – and that often translates into discounts for earlier payment. Add to that the refund incentives some financial institutions offer for p-card purchases, which typically vary from 0.5 percent to 2 percent, and the savings add up.

Even the U.S. government has taken advantage of p-cards as a savings tool.

“Purchasing cards today generate $1.8 billion in annual cost savings for the federal government, plus $255 million in refunds,” says David Shea, program director of the U.S. General Services Administration (GSA) Office of Charge Card Management. “New processes developed over the past 10 to 12 years are saving significant taxpayer money.”

Shea, speaking during a panel discussion this past spring at the U.S. Bank 2010 Financial Supply Management Conference in Orlando, foresees more innovation stemming from President Barack Obama’s 2009 directive to wring $40 billion more out of government procurement processes in the next two years. P-cards are just a part of the solution.

“That can’t happen just by negotiating better pricing or sourcing more strategically,” he said. “It’ll have to come from using better processes. I see that happening across the landscape.”

As tools for managing cash flow, p-cards shouldn’t be viewed as one-size-fits-all solutions, Martien says. Businesses use them for a variety of reasons, and they’re especially popular in certain types of purchases.

According to the PayStream survey, about 65 percent of respondents said the most important reason for using p-cards is to reduce transaction costs in an organization’s procure-to-pay cycle. Processing a single transaction from purchase through payment typically costs $37.30, but that figure falls to $19.70 with use of a p-card, the survey shows. The process also takes less time, decreasing from 16.5 days to 5.2 days when a p-card is added into the equation.
Respondents cited other reasons besides cost: maximizing rebates and incentives, 49 percent; improving employee convenience, 44 percent; improving employee productivity, 38 percent; and reducing procure-to-pay cycle time, 25 percent.

And what are organizations purchasing with p-cards? The top five items, the survey shows: 

• Travel and entertainment
• Office equipment, furniture, and supplies
• Maintenance services
• Facilities-related services
• Strategic meetings


No plastic required

“Increasingly, heads of procurement, CFOs, controllers, and treasurers are realizing implementation of a p-card program does not necessarily mean their employees have to receive or manage any physical plastic cards,” Martien says.

Instead, organizations have been able to implement card-based payment systems through other options, including “ghost cards,” which can involve account numbers that reside in the systems of preferred vendors and can be used for only certain types of purchases; and single-use cards, which are actually virtual and involve unique 16-digit numbers allocated for each transaction.

Convergence of accounts payable solutions, including p-cards, seems to be the focus for AP professionals in the near future. By bringing together various procurement and payment solutions, people in AP may find that ever-elusive efficiency after all.

“I think we’ll continue to see payments converge – credit cards, ACH, checks, and all of their processes,” says Mary Burchette, senior vice president of product for U.S. Bank Treasury Management. “The automation will continue.”

Martien agrees, suggesting that convergence will emerge in the coming years with a blended use of ACH and card payments. An ACH-based card may be offered for some corporate payments, he says, as organizations want to have a similar process in place.

“I foresee a future a few years out where some of the wiser end-user organizations approach their card program providers with growth-for-rebate modifications to their contracts,” he says. “In other words, end-users will agree to slide back down a rebate scale if their provider can double or triple spend via their purchasing cards. The first few organizations that pursue this strategy will be bold; however, due to the novelty of the approach, this will absolutely achieve immediate attention and renewed focus on growth from their providers.”


Corporate vs. individual liability

As p-card options continue to grow, one longtime debate remains intact. Who should be responsible for the company credit card an employee carries around for purchases: the corporation or the individual?

Richard Palmer, co-author of The 2009 Corporate Travel Card Benchmark Survey for RPMC Research Corp., says there are strong and sometimes heated opinions around the question of who’s liable for corporate travel card expenses.

In general, when the corporation is responsible, charges to the card are paid directly by the organization. Individual responsibility calls for employees to pay off the cards and apply for reimbursement from the organization.

Palmer presented results of the survey at the U.S. Bank conference last spring, including these findings: 

• There is a steady trend toward corporate liability agreements.
• Sixty-three percent of travel card programs have a corporate liability agreement and 25 percent have an individual liability agreement. These organizations account for 81 percent of all travel card spending.
• Corporate liability is currently the dominant platform, accounting for at least half of all programs in organizations of all sizes and types.
• The percentage of companies with individual liability goes up as the companies grow larger in size. Corporate liability rises as companies grow smaller in size.

“An individual liability agreement exists when the cardholder is solely responsible for all charges on the p-card,” Palmer writes in the report. “In the event of a default in payment for card purchases, the card issuer can only attempt collection from the individual cardholder.”

Conversely, corporate liability agreements make the organization solely liable for all charges on the travel card. If there is a default, the card issuer can attempt to collect payment from the company. It seems pretty straightforward, but the controversy lies in who is ultimately responsible for payments when problems arise.

Stan Wilkerson, travel process manager at medical device manufacturer MEDRAD in Warrendale, Pa., has had experience with both sides of the equation. As someone who hears complaints and concerns from employees about travel process matters, he admits to being “uncomfortable” with the notion of individual liability, especially in a tough economy.

“I often get asked, ‘Why should the individual be responsible for the corporation?’” he says. “Employees ask, ‘What if the company goes under? If my name is on the account, and the company goes bankrupt, I’m on the hook for payment. That just doesn’t seem fair.’”

Wilkerson also worries about corporate policies that allow, and in some cases require, that corporate authorities view the specific, itemized account statements of individual employees who carry cards with individual liability. This is done as a means of making employees more accountable to the company for their expenditures, but it doesn’t always sit well with employees.

“They will ask, ‘What right does the company have to look at my expenses when I am responsible for the bill?’” Wilkerson says.

According to Palmer’s survey, corporate liability agreements continue to be the most popular option, especially among large-market, middle-market, government, and not-for-profit organizations. Individual liability agreements are still a popular option for Fortune 500-size companies, but their popularity has been on the decline since 2004, from 57 percent to 38 percent of respondents.

Corporate liability moves closer to the one-card arrangement, which appears to be gaining in popularity. Employees use a single card to pay for anything they need – travel and entertainment, fuel, office supplies, subscriptions, membership dues. This type of arrangement lets organizations take maximum advantage of corporate discounts and rebates. Use is strictly monitored because the company is paying the bill.

“They give you a card for company business and they call the shots,” Palmer says. “It increases the rebates for the corporation and gives the company a better sense of when they use the individual cards, and where things are being bought. Companies can also track how much is being paid by employees at certain hotels.”

Another concern about individual liability centers on the assumption by some companies that requiring employees to submit their bills for reimbursement or be on the hook for paying them makes individuals more financially responsible. If employees are individually liable for paying the bill, are they more apt to pay bills on time?

“Individual liability sometimes serves as a policing function,” Palmer says. “People who are responsible for the payment will submit the expense reports on time in order to get paid. Some companies feel this will prevent late payments. Some employees, of course, may not be so pleased with this arrangement.”

Palmer says there is a relatively simple solution.

“The company can make a payment but the liability arrangement can still be with the individual,” he says. “Employees have a company card, they ring up the bill, put in the expense report, and get reimbursed for their spending. When you have individual liability, you have so many other issues – more liberal card distribution, credit checks on employees, employee billing, and employee payment.”


The future

P-cards in all their formats are changing the way organizations do business, Martien says. “Card networks, issuers, and trade associations are being led by selected end-user organizations into launching globally integrated purchasing card programs in which organizations can obtain a common view across geographies and business units of indirect spend completed via purchasing cards.”

Originally, p-cards were often used to process low-dollar, high-volume transactions. But as the tool itself matures, savvy organizations are looking to expand their p-card programs to include higher-dollar transactions.

“We’ve had a standard p-card program for over 12 years and a card program to replace paper checks for three to four years,” says Kathy Sheehan, commodity manager in indirect spend at Milford, Mass.-based Waters Corp. “We began our partnership with U.S. Bank about 18 months ago, and the first six to nine months was spent getting both card programs up and running smoothly.

“Now, in 2010, we are working heavily with accounts payable to reduce the amount of checks and encourage our suppliers to sign up,” Sheehan says. “If they will not or cannot, ACH is offered next.”

Changes are so swift, in fact, that p-cards as we now know them may evolve into something different and slightly more abstract.

“Over the next five to 10 years, we expect the term ‘purchasing card’ may begin to become a misnomer, since so much transaction activity will not be face-to-face and will not involve physical plastic cards,” Martien says. “A ‘purchase control account’ would be more descriptive of what many organizations already have in the market today.”

No matter what purchasing cards are called, the primary driver for their use is expected to remain the same: better accounting and accountability.

“There’s an increased need for visibility and control of the payment process,” U.S. Bank’s Burchette says. “Knowing where your money is and how you can get it is critical to success. There is so much more control from a payable and treasury standpoint. What is your cash forecast? What is your risk management? The need for control applies to cards and checks.”

Organizations are recognizing p-cards give AP professionals better visibility into where the money is going.

“Anything that is AP-related at all is a priority for us now,” says Barbara Qualls, business support services manager at Service Corp., a Houston-based funeral services company. “The more payments we drive to our card system … the more easily we can forecast what will be spent.”