Companies Shift To Central Pay

Companies increasingly have been shifting to central rather than individual corporate payment and liability structures due to improved expense reporting capabilities as well as a need for tighter spending controls, and issuers and consultants said the economic climate could accelerate that growth in coming years.

More than half of Fortune 500 companies participating in a survey had corporate liability in their card programs, up from one-third in 2004, according to preliminary data, said Richard Palmer, professor of business at Eastern Illinois University, who has conducted that research for MasterCard Worldwide. The study should be released in a few months, he said.

"The direction is very clear," Palmer said. "It's been very steady in all the categories, and the economy has made the case clearer for everybody."

Programs with a central payment structure—some of which still carry individual liability—are even more widespread. Preliminary data from an upcoming BTN survey of large-market companies show that more than half have a central pay system in place.

While the growth has happened for several years, it is a turnaround from a number of years prior, when companies were moving in the other direction, said Jeff Rankin, senior vice president for U.S. Bank Corporate Payment Systems. "When individual liability reared its head 11 or 12 years ago, the shift was for the companies to get the liability off of their books," Rankin said. "As it's become a little more onerous, companies have moved back to company liability."

Advances in expense reporting technology have played a large role in the shift. About three-quarters of Fortune 500 companies have electronic expense reporting tools in place. Of those, almost 90 percent have automated expense management software, Palmer said. Without it, central pay and especially corporate liability programs are more difficult to manage.

"Central pay theoretically has always been a best practice because the company has more control over the cash flow and more control to ensure their rebate situation," said David Hillman, principal at Consulting Strategies. "Since you only want to pay on approved expense reports, if your culture is one that doesn't promote timely expense report submission, it becomes a very cumbersome process."

Reconciliation has been the biggest obstacle to central pay programs, said travel management consultant Carol Ann Salcito, president of Management Alternatives. "Tools are not perfect but are much better than they were," she said. "Corporations are looking at these tools and making informed decisions as to whether the gain overcomes the pain."

At the same time, companies have been looking for ways to get tighter controls around their travel and entertainment budgets. Richard Crum, president of AirPlus International, said he's seen interest in central payment accelerate from corporations needing to increase compliance. A central payment structure, for example, guarantees that travelers book through the proper channels and gives companies a way to see non-compliant bookings as they happen, not when the employee files the expense report after the trip already is complete, he said.

Biopharmaceutical services provider Parexel International, for example, expanded its AirPlus-issued lodge card use, including a U.S. rollout last year (see story, page 6). The shift cut agency leakage between 30 percent and 50 percent, said vice president of worldwide procurement and travel Cynthia Crooks-Garcia.

Individual liability programs, since they require employees to pay off the bills anyway, also increase the likelihood of employees using their personal cards for T&E purchases, perhaps to gain points on their own rewards programs, said Terry Wellesley, managing director of spend and payment solutions for issuer BMO. "At this point, there is less control, transparency and data collected by the corporation, a situation that is certainly less than ideal and does not allow the organization to extract full value from its corporate card program," he said.

Rewards programs for corporate cardholders, touted as a way to increase corporate card compliance, also are falling out of favor in travel programs, giving room to a rise in central pay and liability programs, said Marcie Verdin, group head of the large market segment for MasterCard's global commercial products. Aside from the cost to the company, letting employees earn points based on how much they spend on trips might not encourage the best behavior, U.S. Bank's Rankin said. "Rewarding an employee just for utilizing their credit card is a very difficult decision and not one of which we're a high proponent," he said.

Tighter controls and expense tool advancement predated the economic downturn, and as of yet, issuers said they haven't seen a seismic shift directly attributable to the economy. Some issuers, including BMO and American Express, said in general many companies remain comfortable with whatever program they already have in place.

Even so, the full impact of the economic downturn on corporate payment structures might not yet be fully realized, particularly in light of the credit crunch. "We anticipate seeing a delayed reaction in the increased demand for central pay programs from companies that experience challenges with their individual pay programs during the recession," BMO's Wellesley said.

Difficult economic times make it more likely that cardholders in individual pay card programs fail to make payments on time, leaving corporations liable for outstanding balances, according to Wellesley. The corporations in turn will have to dedicate resources in tracking down those cardholders.

"This can be very challenging and time-consuming, especially in cases where the employee is no longer with the company," he said. "Late payments may also be subject to interest or late fees for which the corporation is ultimately liable."

Companies just embarking on setting up a credit card program will find some issuers offering only corporate liability programs, MasterCard's Verdin said. That's part of an effort by the banks to reduce their overall risks, she said.

Consulting Strategies' Hillman said he has not yet seen reluctance from issuers to issue cards, but the tighter controls allowed by a central pay and liability structure could gain importance as banks tighten policies. "Banks and the other card companies will keep a close eye on their receivables, and they're not going to allow companies to extend themselves more than they should," Hillman said.

As individual credit ratings can sour due to negative economic factors, central pay and liability will prevent corporations from having to guarantee credit on such individuals. "That we're moving in the other direction probably forestalls a problem we might have had," Rankin said.

When it comes to smaller companies, Palmer expects individual liability programs to disappear completely.

Christopher Russell, executive vice president of outsourcing for the Americas for international payments supplier Travelex, said companies are exploring some other options to allow them to keep spending within required limits. Some, such as using prepaid cards for contractors or other infrequent travelers, are encouraged by consultants as extra tools to the payment programs. Not all of the shifts are in the right direction, however. A few companies have been eliminating their card programs and instead are asking employees to use their personal cards, Russell said.