Purchasing Cards - E-procurement

1. Introduction
Organisations view purchasing cards as the payment vehicle of choice for low value transactions.
Over the past two years purchasing card spending has grown strongly and the US Government in
particular derived significant benefits by mandating the use of purchasing cards.
The General Services Administration Program for US Government Departments is the largest in the
world over !"# billion per annum$ and provides important pointers to help companies use their
cards more effectively. This purchasing card program saved the US Government over !" billion in
it%s last fiscal year.
Going forward& purchasing card spending is e'pected to double over the ne't two years& which
would e(uate to a mar)et si*e of appro'imately !+,billion by the year -,,-.
The most fre(uently cited factors driving spending to the purchasing card are the speed and
convenience for the end user& reductions in the cost and time associated with purchasing related
activities& and the ease of use to ac(uire goods over the .nternet.
According to a purchasing card benchmar) survey conducted earlier this year by a team of academic
researchers& the average saving per purchase transaction with the use of a purchasing card is noted
to be !/+.
This saving can be even greater if Purchasing 0ard Transaction data is effectively integrated with
business accounting and financial systems. This paper highlights the e'perience of 1o2 1an) and
focuses on the importance of data management to the success of purchasing cards.
2. What is the Purchasing Card?
The purchasing card was developed to streamline the traditional purchase order and payment
process and cut the cost and time of ac(uiring routine goods and services. These purchases are
typically described as 34O& maintenance& repairs and operational e'penses$ and include5
6 Office supplies& e.g. furniture& computer e(uipment& fa' and photocopying supplies
6 Stationery
6 Services& e.g. 0ouriers& Storage& Printing& Security& 7ygiene and 0leaning
6 0atering and canteen.
Purchasing 0ards can also be used for business travel and accommodation e'penses& if a business
re(uires consolidated e'pense management and data.
The area where Purchasing 0ards are li)ely to deliver most benefit is when they are effectively
integrated with 1-1 e8commerce systems.
The underlying infrastructure of a global payment association li)e 3aster0ard ensures that the
Purchasing 0ard operates according to standards and well established regulations govern the
acceptance and processing of Purchasing 0ards all around the world.
3. Key Features
3.1. Spending contros incude!
6 9imits per card and transaction value and volume$
6 4estricted use for selected supplier categories and even specific suppliers.
6 :ero ;floor limit<& therefore every purchase transaction must be authorised before the purchase
can be processed.
These controls are fle'ible and can be applied as strictly or loosely as the buyer re(uires.
3.2. Purchase detais "ith #inancia transactions.
The card system allows for line item detail such as product description& (uantities& price& ta' amount
and shipping charges to be lin)ed to the financial transaction. This information is normally only
available once the buyer receives the invoice. =ith the Purchasing 0ard& all purchase details can be
lin)ed to the financial transaction and viewed on a daily basis.
3.3. The 1an) ma)es electronic payment directly to the supplier within a - to > days of the
shipment& compared to ?# or more days with debtor%s accounts.
$. %o" is the card used?
1uyers are assigned a limit and spending profile
Orders are placed in the usual way
The purchase is charged to the card
Purchase details are submitted by the supplier to the ban) with the financial transaction
The ban) pays the supplier within - to > days
The cardholder receives a monthly statement and pays the ban)
2lectronic reports are available for reconciliation
=hile the process is simple& successful implementation is dependent on the e'tent of procurement
and payment re8engineering. 2'isting purchasing and payment processes for 34O goods and
services are often inefficient and costly so the Purchasing 0ard presents an opportunity to
streamline procedures and add convenience& without losing control.
As the supplier can now provide purchase details with the card transaction& the card effectively
eliminates the need for invoices. The added benefit is that these purchase details line8item8detail$
allow buyers to directly integrate purchase transaction information into their business systems.
&. 'E(EFI)S F*+ ',-E+S What the .o/ernment needs to do
#." 4educe cost of purchasing and payment by up to /,@.
This is made possible by5
6 0utting out unnecessary administration and reducing accounts payable to one monthly statement
and one payment.
6 4eplacing manual processes with electronic ordering& payment& reconciliation and cost allocation 8
e.g. receiving statements and reports by e8mail and online enables instant information sharing and
processing.
#.- .mprove control and accountability5
6 All purchases are authorised electronically
6 =ith fle'ible transaction spending limits as well as supplier restrictions& cards can be
6 configured to match the needs and usage profile of each employee and help reinforce purchasing
best practices.
6 1y not issuing the card plastic the ris) of card misuse is far lower only an account number and
related detail is needed for most 1-1 purchases$
6 3anagement reports are provided to reconcile transactions& raise (ueries and resolve
discrepancies
#.> Gain up8to8date purchase data and ta' information daily5
6 Aor e'pense reconciliation& cost accounting and to integrate with general ledger and accounts
payable systems.
#.? .mprove productivity as a result of5
6 A shorter Bcycle% from the purchase to payment and more efficient use of resources
6 0onsolidated statements& a single monthly payment and easy refund credit$ procedures which
streamline financial administration and accounts payable.
#.# Strengthen relationships with suppliers
6 The prompt& electronic payment guarantee by the ban)& is an incentive for (uic) and accurate
delivery.
6 1oth purchases and returns are easily processed and audited using the card data. therefore
(ueries or disputes can be efficiently handled with the ban)%s assistance.
0. 'ene#its #or Suppiers
/." 0ash flow improves5
6 This is because the ban) guarantees payment to the supplier within -8> days of the transaction&
compared with an average payment period of ?# days or longer and the payment happens
electronically.
6 1etter cash flow and lower financing costs is of maCor benefit to small businesses that are often
dangerously e'posed to cash flow fluctuations and slow payment.
/.- 3uch lower administration costs5
6 As the ban) guarantees payment in full to the supplier& the cost and effort of collecting on
accounts receivable and outstanding debt is virtually eliminated.
/.> 2nhanced customer relationships5
6 Processing purchase orders (uic)ly and efficiently on the card
6 2liminates disputes& as each transaction will be authorised electronically before fulfilling the order.
6 Providing purchase details line8item8detail$ with the financial transaction& which improves
customers% payment and reconciliation processes.
6 Opening up the business to any customer who chooses to pay by card and to do business
electronically.
/.? 0reate new business opportunities
Using software provided by the ban) or certified vendors& suppliers are able to accept Purchasing
0ards as well as other credit and charge cards that are already widely in use.
.n return for these benefits& the supplier pays the ban) a commission& which is a percentage of the
transaction value. A simple financial model can (uic)ly demonstrate the cost and benefit of
converting debtors accounts receivables$ into Purchasing 0ard clients.
1.What a2out E-Commerce and E-Procurement?
The purchasing card is the ideal electronic payment method for online business purchases.
Do purchase is truly an online transaction unless payment ta)es place online as well.
Using the Purchasing 0ard to pay for e8commerce purchases is probably the most effective way to
start doing business electronically. .t doesn%t re(uire a big investment& or the use of complicated
procedures.
1-1 e8commerce and specifically e8Procurement is an e'tension of e'isting business processes
using the .nternet as a channel. 28Procurement allows for efficient interfaces between trading
partners and more effective use of data& it is incomplete without integrated payment processes. 1y
using the Purchasing 0ard and online payment software& traditional business purchases can be
made Cust as easily online.
4egardless of how a purchase is made 8 on the internet& by phone& fa'& e8mail or in person& the
Purchasing 0ard will consolidate all purchasing activity across multiple channels.
After all the publicity about 1-1 e8commerce and. e8mar)etplaces. we suggest it%s time to get ;bac)
to basics< and implement best business practices.
The use of a purchasing card can play a maCor role in this by improving efficiencies& controls and
management& streamlining processes and improving the Bbottom8line%.
3. Integrating the Purchasing Card
The )ey to success is integration of data and processes& between the supplier& the 1an) and the
buyer.
To integrate a purchasing card into e'isting business processes& end8to8end data management is
re(uired& from re(uisitionEorderEpurchase to payment and reconciliation.
The purchasing card can be used in the real world physical in8store$& for remote purchases e8
mailEcatalogueEtelephone orders$& and the virtual world .nternet$. To integrate the card effectively&
systems are re(uired for each scenario.
Our goal at 1o2 1an) is to offer complete and seamless integration from the supplier%s bac)8end
system to the final reconciliation by the buyer and success depends on two )ey issues5
a. The payment solution must be generic and open8ended. .t would be simply too e'pensive to
develop customised interfaces for specific systems used by suppliers and buyers.
b. =e cannot do this on our own and must necessarily form partnerships with 24P and e8
procurement vendors& and integration specialists.
4. 5anaging data #rom Suppier to 'uyer
1y consolidating financial and purchase information& the Purchasing 0ard allows both suppliers and
buyers to provide and manage data in a standard format using commercially available software.
Our locally developed solutions are5
0PS card payment software$ and i8PayOnline to import data from suppliers Smart9in) and browser8
based electronic statements for buyers.
16. Suppier Card 7cceptance Systems
.n the 1-1 mar)et& where telephone& e8mail or ta'ed orders are li)ely to be used& merchants are
supplied with customised card payment software. This software is a P0 based =indows application
where payment details with full line8item8detail can be captured and submitted to the 1an). The
software can be integrated with suppliers invoicing systems to automate the transfer of data.
i8Pay Online is a web8based card processing system& specifically developed by 1o2 1an) to support
the Purchasing card and is typically integrated with an e8procurement system.
.t is a clientEserver application hosted by the ban)& with two )ey functions5
6 real8time authorisation of card payments
6 a remote browser8based transaction management system for settlement re(uests& refunds and
capturing of final line8item8detail
6 i8PayOnline meets the business need for online card payments in 1-1 transactions as an
affordable& efficient& secure and trusted solution 8 based on proven standards and protocols.
.f purchasing cards are presented for payment of online purchases& invoice detail is captured and
submitted to the card8issuing ban).
A uni(ue trace number is generated at the time of authorisation that can be used as a )ey element
in the transaction management interface.
The transaction administration interface allows the supplier to re(uest payment for authorised
transactions& edit line8item8detail& do refunds and en(uire about the status of transactions.
11. )echnica 8etais!
i8PayOnline is a clientEserver application with a small plug8in on client side ASP and 0O3 obCects$.
Digital certificates are used for authentication of the client application and the suppliers.
3essages are "-+ bit encrypted between the client application and the server at the ac(uiring ban).
i8PayOnline will issue a warning if cards from foreign or unfamiliar ban)s are used for payment.
12. Pro/iding data to 'uyers!
The data sent to cardholders includes a number of account management reports& e.g. Declined and
Disputed Transactions& which can be used to verify the control parameters for individual
cardholders& and to detect possible abuse of the card.
0ardholder statements are sent in electronic and paper form to individual cardholders and
transaction details are summarised by merchant category e.g. stationary and cleaning services.
Statement details can be provided on a wee)ly basis to reduce month8end administration.
0ardholders also have the option to access transaction data sent to the 3aster0ard reporting
system 8 Smart Data. 4eports can be viewed online and downloaded for analysis and cost
accounting. .n our e'perience& most corporate clients re(uire the purchase and financial data to be
downloaded directly into their 24P or proprietary systems and then use their own reporting tools.
3aster0ard Smart9in) is a customised solution to integrate the rich data available to card holders
into SAP 4E>. Smart9in) streamlines the e'pense management process and eliminates unnecessary
data capturing. Other features and benefits for SAP users are5
6 .nvoices from suppliers need not be captured in SAP as the invoice detail is retrieved from the
3astercard Smart Data system and automatically merged into SAP. Do ;goods received< note is
re(uired.
6 0ost and account allocation can be automated by means of a buyer%s profile that is set up in
Smartlin).
6 An invoice is generated within SAP with full details of the supplier and line items& made payable to
the ban)& but with Bbloc)ed for payment% status.
6 The cardholder%s statement is sent electronically by the ban). This data is imported into Smart9in)
and used to match the transactions on the statement with those on the invoices. Once reconciled&
invoices will be released automatically for payment to the ban).
13. Concusion!
The implementation of a Purchasing 0ard programme& is a low cost way to cut processing costs&
simplify procedures and improve controls and management information.
These benefits should be enough of a compelling case to use Purchasing 0ards& regardless of
whether your business uses advanced 24P andEor e8procurement systems.
University of 0ape Town has implemented the totally integrated 3astercard Smart9in) into SAP.
9inda 7arrower& the University Purchase Administrator is delighted with the product. ;=e are
discovering new applications daily& all ma)ing procedures and processing so much more hassle free
and smoother& and saving vast amounts of time& administration& paperwor) and
cost.<