Royal Bank of Scotland: Cost Control - Raghav Prasad

Given the current economic downturn, many finance directors will be keener than ever to control expenditure and manage cashflow. The Royal Bank of Scotland’s head of commercial cards, Raghav Prasad, tells FDE that organisations should consider commercial card programmes to control costs.

There are three key benefits of The Royal Bank of Scotland’s (RBS) commercial card programmes: tight controls on spending, reduced need for cash with its risks of misuse and loss, and provision of an audit trail of spending.

In the current economic climate the cost benefits of commercial cards are an important attraction for finance directors. Helping to reduce costs, directly and indirectly, is the raison d’etre of the commercial cards business, says Raghav Prasad, head of commercial cards at RBS.

‘When you look at costs, there are two kinds,’ he says. ‘There is the cost of locking up your cashflow in the purchase-to-pay process and the cost of processing and reporting after the purchase.’

A commercial card service provides substantial opportunities to free up cashflow and save money, for buyers and sellers in the business-to-business world. If a company uses RBS cards, for example, they can get an interest-free repayment period of up to 45 days from the transaction, which frees up cashflow that might otherwise be locked up in making payment for goods and services that have been acquired.

For the seller, RBS makes payment in 48 hours. Whereas, in a business-to-business situation, the seller would send an invoice, which would sit on someone’s desk and eventually get processed, taking anything from 45 to 90 days to get paid.

Commercial cards also help cut transaction processing costs. A purchase on a card can be completely automated end-to-end, from the order being placed, to the invoice coming in, and payment being made.

Although figures vary, it has been estimated that the average cost of processing an invoice manually with a paper based system is over £50. Multiply that figure by the thousands of invoices processed through a large organisation and the cost easily runs into the millions.

Using commercial cards and an automated system, however, says Prasad, those processing costs can potentially be reduced quite dramatically, down to somewhere between £15 and £18. The information involved in automating and processing commercial card transactions can also be used to reduce costs.

For example, says Prasad, a lot of VAT information is carried with the transactional information. ‘The reports that are sent to our customers are certified by the HMRC, so this means that, in certain circumstances, a company does not need to manually prepare VAT returns,’ he says. ‘It can simply send a copy of our reports to HMRC to fulfil its regulatory obligations, as well as reclaiming the VAT.’

Commercial control

Companies can exercise a high level of control over the spending of employees through a commercial card system. RBS has recently introduced Approval2Buy™. Eighteen months in the planning and driven by demand from its corporate customers for greater control over transactions, RBS worked with partner MasterCard to build the programme on its InControl platform.

‘Companies can control every transaction,’ says Prasad. ‘They can decide where, when, on what and to what value the card can be used. For example, it can be specified that a card only be used up to a £100 limit at the office for the next two days to buy staplers, or only for the duration of a conference, at the conference centre, and not for bar bills.’

So parameters are set beforehand and, if the transaction does not meet those parameters, it is rejected. On top of that, Prasad says, Approval2Buy can be embedded deep into the existing purchasing systems of the company. ‘If one of my marketing team needed to order key chains, for example, they would send out an order through the Approval2Buy system,’ he explains.

‘This would automatically go to the line manager to be approved and, only when it is approved, could the order be placed using the card.’ With this tight control of expenditure, organisations have a high level of reassurance regarding the prevention of fraud and loss or misuse of the card.

‘For a start, card products are more secure and are easily replaced in the event of loss or theft, unlike cash,’ says Prasad. ‘And, if you limit cash transactions as much as possible, you reduce the chances of employee misuse.’ Often misuse will show up by looking at a pattern of spending over a period of time.

With a commercial card service like that provided by RBS, the management information provided to companies about spending going through the cards is extremely detailed and can be tailored to each company, allowing them to track and understand patterns of spending on an ongoing basis.

‘From the perspective of loss or misuse, the combination of these features means we are able to provide companies with a way of reducing the need for cash and tracking and controlling transactions,’ says Prasad. ‘This is a huge comfort, particularly for smaller companies where, as they grow and move towards providing more widespread employee expenditure policies, they may have some concerns about giving people cards.’

Plus, in the case of RBS at least, there is also employee misuse insurance provided free of charge, so that should there be employee misuse it will be covered, providing it falls within the terms of the policy.

Commercial cards appear to be the perfect answer to a finance director’s need for tighter internal controls and accurate reporting. Finance directors need to tightly track and manage cashflow. With the commercial card programme embedded deep in the ERP systems of the company, using a commercial card for all travel expenses, and for purchasing goods and services, allows the spend data to flow directly into financial systems, providing an up-to-date, real-time view of cashflow commitments.

Another issue Prasad highlights, is the cost involved in matching data in the purchasing environment. For example, a travel management company will book hotel rooms on behalf of customers, then receive invoices from, and make payment to, those hotels. Once it has made those payments it bills its own customers to reclaim the money. But, if it cannot match the hotel booking, and the invoices from the hotel, to the payment made to the hotel, it cannot bill its customers.

Some companies employ large teams just to focus on matching payments, and even then, many firms write off a significant amount of revenue each month, because they are unable to do 100% matching.

Put all these transactions on an RBS commercial card, says Prasad, using the transactions data matching capabilities and, even with RBS’ standard product, a 98% match is possible. With the Approval2Buy product that figure can rise to 100%.

Meeting a range of needs

At RBS there are commercial card products to cover a range of commercial circumstances and corporate needs. One key segment, for example, is the mid-market, says Prasad – companies with a turnover of between £5 million and £500 million. These companies are usually very tightly managed, have spending needs large enough to need sophisticated card programmes, but do not require very complex highly bespoke implementations.

These companies have often had to make do with a simplified version of a large corporate programme, or an upgraded version of a small business system, but RBS has specifically targeted the sector with its onecard programme.

‘We are able to give mid-market companies the same kinds of benefits, with management information and reporting facilities, as if they were a huge corporate with a major investment in an ERP system,’ says Prasad. Other programmes offered by RBS include its pre-loaded card, Trade onecard™, and onecard lodge account.

‘So the Trade onecard, for example, allows companies to manage trade customer programmes. A large trade supplier could have thousands of small trade customers to whom it provides goods, and it actually provides a line of credit to buy those goods, which locks up a lot of its cashflow financing those trade consumables,’ says Prasad.

‘Our card completely automates the programme, frees up personnel who can be redeployed in revenue generation, and most importantly takes the receivables off the books of the company. That means that its cashflow locked up in financing the trade customers is released, which can then be used for building the business and investing in other things.’

It is clear that commercial card programmes offer a number of advantages for corporations. Much of the benefit, though, comes from the services that support a card programme, like the one at RBS.

‘When we sell commercial card programmes, they are not sold as standalone programmes, but as part of a package of products and services,’ says Prasad. ‘So there is a banking relationship manager who understands the customer’s business intimately. We ensure that all their transaction services needs can be met in one place.’

Raghav Prasad The Royal Bank of Scotland’s head of commercial cards, Raghav Prasad.