The Two Sides of Corporate Payment Cards

The advantages and limits of a consumer friendly payment method for businesses

Corporate Payment Cards, commonly known as Procurement Credit Cards (P-Cards) and Travel & Entertainment Credit Cards (T&E Cards), have been in existence since the early 1990’s.

These cards have been popular because they have proven to be immense employee satisfiers and successful in reducing backroom complexity in organizations of all types and sizes for 30+ years:

Employee Satisfier.  Both the P-card and the T&E card are big employee satisfiers because they make buying easier and faster.  Employees are empowered to use their card to purchase and pay for items/services they need for their job without the need to engage Purchasing or Accounting:
 
– Streamlines Item/Service Purchasing and Payment.  Rather than submitting a requisition for low-value, low-risk items/services, P-cards eliminate unnecessary transactions because there is no requisition, no purchase order, and no invoice from the supplier;  employees simply use their P-card to purchase and pay for the item/service. 

– Streamlines T&E Purchasing and Payment.  Rather than submitting a requisition for travel (air, rail, car, hotel, etc.) and/or for food (individual meal, group meals/catered meals, company-sponsored entertainment, etc.), use of T&E cards eliminate unnecessary transactions because there is no requisition, no purchase order, and no invoice from the supplier; employee simply uses his/her T&E card to purchase and pay for their travel and entertainment expenses. 

Supplier Satisfier.  Timely payments to suppliers help strengthen the supply chain and supplier relationships which can be monetized in terms of better supplier terms and discounts (early pay).

Cash Flow Improvement.  Payment cards help improve working capital for both the buyer and the supplier because the agreed supplier’s payment date is advantageous to both; supplier gets paid faster and buyer gets to keep cash float before having to pay bank and the buying organization can also seek an early pay discount from the supplier.  This is a big win-win.

Reduces Organizational Cost.  Minimizing unnecessary transactions reduces backroom costs because less people are needed in Purchasing and Accounting to handle such transactions.

However, and contrary to popular belief, managing a Corporate Card program starts with every individually-issued Payment Cards and is far from being free:

Payment Card Administration.  A qualified person/team is needed to run the card program.  The cost of a single Payment Card Administrator is $85-100K per year, inclusive of salary and benefits. Depending on the size and complexity of the organization, this staff cost can quickly increase to ensure the following card responsibilities are discharged appropriately: 

– Payment Card Policy.  Develop, implement, and assure compliance to the organization’s payment card policy, which outlines the rationale and boundaries for using the cards.  Some organizations have a separate P-card policy and a separate T&E card policy while others have one combined policy that includes the guidelines for both cards.

– Card Training Program.  Development and upkeep of a Payment Card training program requires skilled resources.  Additionally, conducting card use training and monitoring successful completion of payment card training also requires such resources. 

– Issuing Cards.  Card Administrators are the only ones allowed to issue payment cards to employees and set the card spending limit. This is a key control point for the organization.

– Updating spend limits and card controls. Managing a Payment Card Program is a specific skill set and therefore an organization will need to have more than one person available to cover for card administration staff absences, vacations, etc.

– Questions from Cardholders.  Cardholders realize they are accountable for the use of their card, and hence they ask questions, which requires knowledgeable staff to respond.   

– Monitoring Cards. Card Administrators are responsible for monitoring all cards in use to assure they are used for company/organization-appropriate purposes and within approved spending limits.  This assurance is typically confirmed via periodic audits.

– Fraud Risk.  The issuing of payment cards to employees (card is in that employee’s name) opens up the organization to potential fraud from stolen, lost or  mis-used cards.      

– Monthly Card Statement Reconciliation.  Card Administrators are responsible for ensuring that all cards in circulation have their statements reconciled, together with all properly filed receipts, each month per Card Policy.  The Administrators are also responsible for contacting/following up with cardholders who fail to get their expenses filed and their statements reconciled on time/each month.  This is another key control point because the organization wants to ensure that it is only paying the card-issuing bank for appropriate and timely employee expenses that are charged on the cards. 

– Canceling Cards.  Card Administration, the organization’s only authority for card management, is responsible for canceling cards when an employee either fails to comply with Card Policy or exits the organization.  This requires skilled staff resources to manage.