<B> Visa Poll Promotes Purchasing Cards</B>
By Mary Ann McNulty
<i>San Francisco</i> - In one of the first studies on the benefits of purchasing cards, results indicate that corporations can slash invoice processing costs by an average of 73 percent. Results were released by Visa International, San Francisco, which commissioned the benchmarking study conducted by Deloitte & Touche Consulting, Parsippany, N.J.
Studying the practices of 18 multinational corporations, the consultants found that by adopting a purchasing card program, the businesses saved an average of $60 per transaction. The savings were achieved by eliminating much of the paper that is typically processed in corporate purchasing of everything from pencils to computers. By activating controls on who can use a purchasing card and for what purpose, corporations are finding out that employees can use the cards to pay for approved purchases and quickly reconcile the acquisition on a monthly statement or more frequent electronic reporting.
The study found that corporations using the traditional, time-intensive purchasing processing practices spend $83 to reconcile each invoice or purchase order, a particularly costly process when the goods purchased are less than the administrative cost. Included in the costs were all labor to request and process the purchase order, reconcile it, review it and manually enter it into the accounting system. In contrast, companies that adopted purchasing card programs and reengineered their purchasing practices to take advantage of the most efficient processes, slashed their costs to an average of $23 per transaction.
"When you look at the average transaction being under $5,000, you really have to question the benefit the company enjoys from paper processing," said Bill Schoch, director of Visa Purchasing for Visa USA.
Corporate America went through a phase when purchasing controls were paramount, Schoch added, "But now, it has gotten to the point when corporate executives are questioning, 'How much is this control costing us? Are we really getting benefits?'"
The study analyzed practices at companies using purchasing card programs of all three issuers, American Express, MasterCard and Visa. The study did not separate benefits by card brand.
The study identifies 37 specific best practices for purchasing card programs, many very similar to recommendations for corporate travel policies. Among the most effective were:
<ul><li> Establishing program objectives which include the issuance of a purchasing program policy.
<li> Obtain senior management support and provide management with compelling business cases. One senior manager should serve as a "program champion" to ensure long-term commitment to the program.
<li> Adopt a marketing focus strategy to sell the program internally.
<li> Actively encourage (maybe even mandate) card usage.
<li> Minimize use of merchant category blocking to restrict purchases.</ul>
As with successful corporate travel management programs, Schoch said, policy, senior level support and a full-time card administrator are crucial to the success of purchasing card initiatives.
Of the 18 companies studied, 100 percent said they "had a well-defined policy, and 93 percent said that they are actively reviewing and updating the policy," he added. The more successful programs go into greater detail on the use of the purchasing cards, Schoch said. "A number of Visa issuers have sample policy booklets that are 10 to 15 pages long," he added.
Like its payment systems competitors, Visa has been stymied by Corporate America's slow adoption of purchasing card programs. Even many of those who have piloted purchasing card programs have been slow to launch the program throughout their entire organizations.
In the latest resizing of the purchasing card market, an industry group estimates the business to be in excess of $450 billion. Yet, in the annual survey of the business travel market (<I>BTN,</I> May 25), BTN estimated purchasing card volume at only $15 billion, 3.2 percent of the potential market. Visa began the purchasing card program in 1990-91 and today has 40 member banks issuing cards, three more than the number of banks issuing travel and entertainment cards.
In some instances, companies have deployed programs, but haven't given them the resources needed to take full advantage of the benefits, Schoch said. "Like anything else, if you plant it and don't water it, it won't grow. This is one of the things we're really trying to communicate with this study," he added.
Among the 18 corporations, with purchasing card programs in both the United States and the United Kingdom, 98 percent had full-time purchasing program managers, he added. The organizations represented a cross-section of industries, including consumer products, pharmaceuticals, technology, manufacturing, financial services, public sector and entertainment. Information was captured from purchasing managers, account payable managers, senior executives
and representatives from tax, information technology, audit, accounting and even users.
The participating companies' annual net sales ranged from $500 million to $40 billion, with an average of $10 billion. Average purchasing spending in 1997 was $2.2 billion, with the largest budget approaching $10 billion.
In commissioning the study, Visa executives acknowledge that they hope to provide the business case that some managers might need to justify to senior management why they should try a purchasing card program.
"What Visa wanted to do is learn from real-world examples, from companies that have well-established programs in place," Schoch said. "We learn from their experiences things that can improve the process and develop a collection of knowledge."
Visa intends to distribute copies of the study to its member banks in October. Later this month, Visa intends to debut a CD-ROM-based tool drawn from the survey results that corporate decision makers can use to analyze their own purchasing practices and compare them to the best practices identified, Schoch said.
"One hundred percent of the corporations responding to the survey said they were 'satisfied' to 'extremely satisfied' with their purchasing programs, and are looking to expand them," Schoch added.