FRASERS and Visa^® are pleased to bring you the final 2008 e-newsletter, designed to enhance the effectiveness of your commercial card program. In the previous issue, we discussed benchmarks to help gage the success of your card program. This issue focuses on recognizing the signs of fatigue of a commercial card program and strategies to reenergize it.

Signs of program fatigue
A large pharmaceutical company in Ontario, Canada, has had a commercial card program in place for five years. The company employs 4,500 people and has distributed purchasing cards to 350 staff members. The cards are used to procure a range of products, such as office supplies, laboratory equipment, consumables, travel and entertainment. Managers have distributed cards to key administrative or support people in each area of the business. These individuals use the cards to buy the necessary goods for their respective colleagues. The cards may be used for purchases under $2,500.

With the current p-card program, employees often engage in “maverick buying” if the holder of the p-card in their area is away from the office or unavailable. It’s common for staff to make purchases on their personal credit cards, and expense them, especially if the goods are needed immediately. Moreover, employees skirt around established travel policies to use their own personal credit cards for booking travel, largely to accrue airline and other rewards.

For those reasons, the CFO does not envision the program growing, and if anything, wonders if there’s an alternative the company should be considering to gain a bigger return on investment. In his view, the purchasing card program has hit a wall. Staff in accounts payable are still largely burdened with managing exceptions to the program, dealing with paper invoices, and manually compiling spend data for financial compliance requirements and contract management. For their part, employees are generally ambivalent about the p-card program. They’re willing to use the p-card as long as they perceive it’s convenient. But they’re equally ready to engage in maverick buying for time-sensitive goods and services.  

Reenergizing a commercial card program
As Palmer, Gupta and other commercial card program experts have discovered, successful programs require a healthy rate of card distribution. In the past, executives were nervous about increasing the number of cards in their program due to security concerns. But with the safeguards and visibility tools inherent in a commercial card program, most of these fears have been allayed.

In the case of the pharmaceutical company mentioned above, the program would benefit from an increase in the number of cards distributed. A spend analysis by employee would identify frequent buyers who should be given a card. Empowered with a card of their own, they wouldn’t have to rely on an individual cardholder in their department. They would be far less inclined to use their personal credit card or request a paper invoice for time-sensitive goods. Clearly, the program also stands to gain from a strong administrator or champion. Such a manager would be well versed in commercial card strategies, and would help develop reasonable and flexible administrative policies. He or she would also be charged with communicating the importance and benefits of purchasing card compliance to internal staff.

Regular communication and mandating card use
Experts at Aberdeen have identified regular e-newsletters as an effective vehicle for communicating savings, efficiencies and changes to a commercial card program. In addition, senior management at the company might want to consider mandating the use of the cards. At first, the strategy might consist of a note attached to a remittance, indicating the purchase could have been made with the commercial card. Other organizations are taking compliance further, by not reimbursing employee expenses that could have been put on a commercial card.

Best in class organizations
When aiming to reignite a commercial card program, it's helpful to benchmark against procurement leaders. Aberdeen, in its 2007 report, used two metrics to identify best-in-class performers: the percentage of spend processed through p-cards and the percentage of suppliers paid via p-card. Best-in-class organizations report 22% of total spend through p-cards, and 29% of suppliers paid via p-card. Those figures represent the top 20% of respondents to the survey. The largest proportion of respondents (50%) were deemed average—with 11% total spend through p-cards; and 19% of suppliers paid via p-card. Aberdeen also identified a “laggard” category, representing the bottom 30% of respondents. These organizations only have 6% of spend conducted through p-cards, and 11% of suppliers paid with the cards.

New merchant categories and higher limits
How are best-in-class corporations expanding their programs? Partly by allowing commercial cards to be used beyond the traditional categories of office supplies and equipment, MRO supplies, computer equipment and peripherals, printing services and education supplies. Leading firms are broadening p-card use to new and emerging categories, such as IT software and support, hardware, package and parcel shipping, and raw materials. Aberdeen 's report also refers to p-card success at the University of California in San Diego . To further promote the use of p-cards, the university raised the single transaction limit from $2,500 to $4,999, with a monthly maximum of $10,000. These new purchase limits included some items that previously required pre-approval. “In order to promote usage, we use a quarterly newsletter to update cardholders about program changes, as well as an information portal which allows us to display card usage tips and best practices,” said Susan Maciel, p-card program manager, in the Aberdeen report.

Best-in-class companies are also raising the maximum limits on their p-cards. According to Aberdeen, 35% of best-in-class companies in the survey have a maximum monthly limit on their p-cards of more than $10,000. Approximately half of these organizations reported a maximum limit of $40,000 to $50,000.

Automation improves spend visibility
In terms of the administrative requirements of the program, approximately one quarter of respondents currently use manual processes for administration of p-card transactions, while another 30% use somewhat automated systems provided by their bank or card issuer. But at the time of the survey, 47% said they planned to use fully automated solutions over the coming year—28% are using systems from their card issuer, and 19% are looking to a third-party solution. These automated systems ease the administrative burden, and also improve spend visibility. Aberdeen has found program automation can “significantly reduce 'maverick' spend, eliminate unauthorized purchases by employees and monitor transactions almost in real time.” Integrating the p-card program with the organization's larger e-procurement system is deemed a required action by Aberdeen to grow commercial card programs into the best-in-class category.

Visa Commercial Card programs 
Canadian businesses are continually challenged to gain control and balance of their procurement and travel & entertainment expenses. Visa Commercial Card programs can help companies manage the purchasing process more efficiently to meet this challenge head-on. A commercial card program can help you lower your purchasing costs and free up time for more strategic business priorities.