Such corporate card perks as insurance, rewards or discounts may be nice, but corporations are increasingly focusing on the savings that card programs can generate. From travel and entertainment to purchasing, higher spending and transaction volumes are being handled by designated payment cards as studies document the benefits of process efficiencies, enhanced negotiating clout, simpler reconciliation and overall transparency.
North American firms spent about $205 billion on business travel in 2006, according to a survey by consulting firm RPMG Research Corp. Of that amount, $143 billion was billed to a card, up from $120 billion in 2004.
RPMG expects travel card spending to rise 12 percent annually during the next five years and total $227 billion by 2011, according to founders Richard Palmer, the Lumpkin Distinguished Professor of Business at Eastern Illinois University, and Mahendra Gupta, the Virgil Professor of Management and Accounting at Washington University in St. Louis. RPMG garnered responses between Sept. and Dec. 2006 from 1,040 corporations that were either customers of one of 19 financial institutions or members of one of two associations, the National Association of Purchasing Card Professionals or the National Business Travel Association.
T&E CARD SPENDING RISING Source: RPMG Research Corp. "2006 Corporate Travel Card Benchmark Survey" of 1,040 companies, published in May 2007
"At moderate to higher levels of travel, the average discount obtained by using travel card data is 3 percent to 5 percent higher than that of organizations that do not use travel card data in negotiations with vendors, a significant savings that can be attributed to enhanced visibility into organizational spending patterns when travel cards are used," according to the report.
Three-quarters of respondents said they used cards to reduce cash advances and 47 percent used them to reduce "petty cash."
Updating a study that they first conducted four years ago of purchasing practices at more than 30 companies, American Express and Accenture also found that companies are boosting spend on purchasing cards. Their 2007 study showed that companies used a procurement card to process an average of 21 percent of their indirect spending, up from just 6 percent in 2003. Manual or paper-based processes were used for 77 percent of the indirect spending, although 25 percent of respondents were using electronic payment instead of checks. The responding companies--which use American Express, Visa and MasterCard products--reported that 57 percent of their purchasing transactions were now on a p-card, versus just 16 percent in 2003.
Other studies focus on the savings from process efficiencies in using payment cards. In a study sponsored by Visa and the Association of Corporate Travel Executives, Aberdeen Group noted that purchasing card spend "is on the rise around the globe," partly due to the average savings of $20 per transaction.
With such savings, the cost is 70 percent to 75 percent lower than manual processing. Based on an average of 56,509 annual transactions by participating companies, "this amounts to a savings of approximately $1.1 million." Aberdeen surveyed 263 enterprises in Feb. and March 2007.
Aberdeen researchers concluded that the main reason for implementing T&E cards is "enhanced visibility into spend," though eliminating cash advances also is "a significant objective" for many European and Latin American enterprises. Aberdeen also noted a more than 20 percent rise in T&E spending from 2005 to 2006 in all regions except for Latin America, where growth was 17.5 percent. Researchers also suggested that mandating corporate card usage "is the key to driving growth" of card programs.
For T&E cards, RPMG noted opportunities to drive additional savings by integrating card programs and automated expense reporting solutions. Such integration "can improve the expense reimbursement process significantly, reducing clerical expense report processing time by 58 percent, traveler time to complete an expense report by 23 percent and supervisory time to evaluate an expense report by 44 percent," the researchers stated. "Further, the technology reduces the average time elapsed between the date an expense report is submitted and the date reimbursement is issued by 27 percent. The net effect of these changes is a reduction in the average cost to process an expense report by 58 percent and an increase in clerical staff productivity of 169 percent."