Cards on the Table

Noted friend-maker and people-influencer Dale Carnegie observed that one of the six best ways to become liked is to 'talk in the terms of the other man’s interest'. Executives in finance and procurement would be wise to heed this advice because their leaders, the chief financial officer (CFO) and the chief procurement officer (CPO) share common goals – improving financial performance, ensuring process and regulatory compliance, and mitigating risk and fraud – but differ greatly in their approach to achieving them.

While the average CFO is aware of the strides the purchasing department has taken in recent years to deliver more strategic value to the enterprise, less than 20% view purchasing's impact on overall competitiveness as very positive.

This presents an extraordinary opportunity for purchasing leaders to promote the value proposition of their function and begin a new dialogue with their peers to get them on the same page. Our recent survey of over 200 European enterprises shows that best-in-class enterprises are using their commercial card programmes as a means to align finance and procurement on enterprise-level objectives and drive greater levels of collaboration between the two functions.

Commercial card programmes

At a time when corporate spending is subject to the highest level of scrutiny and control, commercial cards offer enterprises the means to closely track spending while providing a faster and more efficient payment process. Additionally, the enriched data available from card transactions can enable enterprises of all sizes to better monitor and identify spending patterns.

At the same time, commercial payment card programmes make it easier to enforce employee compliance with enterprise policies. While other types of commercial cards exist, the vast majority of enterprise spend is placed on either purchasing cards (P-cards) or travel and entertainment (T&E) cards.

T&E cards

T&E cards, also referred to as corporate or travel cards, offer greater employee convenience and, from the buyers' perspective, greater visibility of spending and an opportunity to leverage supplier discounts and rebates.

The benefits of transaction cost savings alone warrant a T&E card programmes because savings of €40 an expense report are gained over manual methods. Aberdeen's research shows that the top objectives the European enterprises cite for putting a T&E card programmes in place are spend visibility and the elimination of cash advances.

In fact, all of the goals are aligned to a finance perspective so it is not surprising to see that CFOs oversee T&E card programmes. But, with only 53% of total T&E spend captured in the average European T&E card programmes, a great opportunity for programmes expansion exists. European respondents believe that mandating usage will drive growth in their programmes, while they are also looking to expand card spending into other travel-related categories like strategic meetings management.

The next level

A significant benefit of using commercial cards is the ability to capture and present detailed transaction data that can be leveraged in a variety of ways to the benefit of both finance and procurement. Detailed transactional data provides a more comprehensive view of spending across those categories captured in the card programmes. That detail allows an enterprise to review expenses to ensure compliance, monitor and track trends, and identify areas for potential aggregation and saving in the future. Enterprises credit their card programmes as helping to achieve cost savings of between 1.3%–3% on total travel spend.

Level 3 enhanced data provides better visibility into purchasing data by including fields such as product code, taxes, freight and duty amounts, and line item product / service descriptions. Level 3 data is now generally available in the marketplace and becoming a standard feature in most card programmes.

Its main usages are for reconciliation, expense management, and financial reporting. 47% of European enterprises nevertheless audit every expense, even though 62% of European enterprises have individual liability and payment tied to their corporate cards. Despite this recent trend, 46% of enterprises in Europe do not receive Level 3 data.

Most enterprises regard integration with general ledger (G/L) and other transactional systems as very important and a majority of enterprises value the ability to get line item detail and support regulatory requirements.

When moving to more automated transaction reporting and processing programmes, an enterprise can significantly reduce 'maverick' spending, eliminate unauthorised purchases by employees, and monitor transactions almost in real time.

Commercial card trends

The drivers of card programmes are primarily linked to processing efficiencies and employee productivity. Over the next few years, the drivers of successful card programmes will shift to compliance, cost savings, fraud prevention, and working capital optimisation.

These new drivers and the opportunity to improve existing card programmes' performance have driven and will continue to drive significant investment by the card companies, issuers, and technology providers in solutions that improve compliance and visibility and strengthen process controls.

In April, MasterCard introduced its inControl platform to the European market through its partnership with Royal Bank of Scotland. The inControl solution seeks to reduce maverick spending and provide enhanced control and visibility over card programmes and corporate spend.

MasterCard's solution will establish controls at the category and supplier levels to ensure that only pre-defined categories may be purchased from approved suppliers. Time and geography-based constraints may also be applied to the usage of cards in the future. Additionally, unique card numbers may be established to provide flexibility in card usage by an extending the potential number of card users.

Control through integration

Incorporating card usage into the standard purchasing and travel booking processes is a critical factor for the continued growth of the commercial card marketplace and requires the technical integration of card platforms with other enterprise systems – accounting, e-procurement, travel and expense management.

Companies like Concur Technologies and Ariba, that offer end-to-end solutions for T&E and purchasing respectively, have developed open platforms so their solutions may link to card platforms and networks.

Conversely, the majority of issuers, like HSBC, SunTrust, and American Express to name a few, have either developed their own automated expense reporting tools or partnered with technology providers to provide their own closed-loop solution.

Summary

Benefits from operational excellence within the purchasing function are constrained without a strong partner in finance to validate and help bring the fruits of their labour to bear. Likewise, leading finance departments cannot reasonably stake a claim to their own operational excellence if they leave an important function like purchasing to its own devices in the achievement of its main objectives. Aberdeen research has shown that commercial card programmes are an ideal platform to bring the two functions together and jointly drive operational and financial improvements.