Pcards soar to new heights
Large ticket spending and procure-to-pay automation drive Pcard use at CompUSA and PNC Bank.
By Maria Varmazis -- Purchasing, 11/2/2006 2:00:00 AM
With a little help, H.B. Staton, manager of accounting administration at Dallas-based CompUSA, got his suppliers to accept Pcards for big-ticket transactions. But initially, there was a problem: Suppliers told him these charges were, quite simply, too big for what they usually considered for Pcards.
Staton and CompUSA wanted to use their Pcards not just for their smaller invoices but also for large ticket items, which run well over $10,000 each. The reason for this push to large ticket Pcard transactions was the success of the existing Pcard program at CompUSA that had a high level of corporate support, says Staton. But when the CFO asked Staton to pay for a $740,000 deposit at the hotel that hosted the company’s yearly sales meeting with a Pcard instead of cutting a check, he got a phone call from the hotel.
“[The hotel’s CFO] was very concerned about taking our card for that large of a transaction,” Staton says. “Internally the bank the hotel used would not allow them to run more than $9,999 for a single transaction.” On top of that, the hotel worried the credit card fees on such a transaction would be astronomical.
Staton asked for some backup to help clear up some of the confusion and to convince suppliers of the Pcard’s mutual benefits. CompUSA uses MasterCard, issued by General Electric, for its Pcard transactions. Senior vice president of global business development at GE Robert Clarkson joined Staton to educate suppliers about large ticket transactions on Pcards, and how to make sure they paid the lowest fees possible.
“Some of these suppliers had already taken credit cards on smaller transactions, so their point of reference was the consumer rates they typically see on credit cards and not large ticket Pcard rates,” says Clarkson. The three parties—Clarkson, Staton, and the supplier—discussed the benefits of the Pcard program from CompUSA’s point of view, while Clarkson helped suppliers find out how to get the best large ticket Pcard rate—significantly lower than that of a consumer credit card—from their acquiring banks. A few suppliers chose to move to a different acquiring bank because they could not handle such large transactions all at once.
Questions to ask
Clarkson says regardless of the suppliers’ choice to stay with their current bank or partner with a new one, he gives them a list of four basic questions suppliers should ask their bank to make sure they get the lowest card rate and highest compliance:
• What is the limit that your acquiring bank allows you to charge on a single card transaction?
• Does the bank have ability to capture and pass Level-3 detail? (Level 3 detail includes sales tax, any PO or invoice number at point-of-sale, and a description of what was purchased.)
• Does the bank batch out transactions nightly?
• Does the bank differentiate its rates by the different card types?
An important point to make clear to suppliers, says Clarkson, is that the credit card fees are significantly less if the bank differentiates by card type, and not by card brand.
“Some acquiring banks may charge a certain percentage for MasterCard, for example. We emphasize that because these are such large transactions, they should be handled exactly the way that particular card needs,” Clarkson says.
Since a credit card fee for a consumer card is significantly higher than that for a Pcard, the savings are a real selling point to suppliers. Clarkson cites one CompUSA supplier as an example of this: After re-evaluating its credit card processing and speaking with its acquiring bank, the supplier was able to save over $300,000 from fees it previously paid using Visa and MasterCard.
“Most of the time I run into suppliers that haven’t looked at their credit card contracts and processes for 10 years,” Staton adds. “And many of them don’t understand the difference when it comes to consumer or Pcard processing.”
By working with suppliers and their acquiring banks, the primary benefit is a more streamlined payment process with no loss of control over the company’s cash flows. Instead of having to go through all the clearances for paying with a check, Staton can pay with his card using a web-based portal called vPayment on-demand. With that tool, he can define the exact window where a certain bill may be paid and to what dollar amount. The supplier gets its payment quickly. And if anyone tries to charge the card outside of the time and dollar amount dictated, the payment will decline.
Staton says that most of the suppliers he introduced to Pcards have not only accepted them for large ticket payments from CompUSA, but also have extended their compliance with other customers. “We can now reach out to other suppliers on a win-win basis and can accommodate their needs and improve cash flow,” he says.
Part of the bigger picture
In addition to helping companies streamline the purchase of big-ticket items, Pcards are helping close the loop on the procure-to-pay automation. Pcards fit in perfectly with the automated procure-to-pay process that was already underway at Pittsburgh-based PNC Bank, says the company’s chief supply chain officer, Gary Evans. Since 1999, PNC has been looking at how it could put more of its transactions through an automated process, and Evans says now easily more than one-third of the company’s $1.2 billion spend goes through its Ariba suite of online buying tools. After funneling MRO, T&E, technical, legal, and marketing spend through the suite, using Pcards to pay for regular expenses was the next logical step, says Evans.
“We now have a single electronic invoice that comes in from a supplier for different products and services, and we’re paying that with a Pcard,” he says. “We’re automating these paperless transactions from the front to back.”
This isn’t unusual, says Visa’s director of commercial solutions Laima Kardokas. She says that since the 1990s, companies have been looking for ways to automate their procure-to-pay process, and now she’s seeing an overall merging trend between Pcards and procure-to-pay. The reason for this, she says, can be as simple as the depth of details Pcard expense reports can offer, and automated procure-to-pay environments are primed to process that information.
Evans says that it hasn’t been completely painless for PNC, which uses Visa Pcards, but compliance with card use has already exceeded expectations. Using the company’s in-house compliance reporting system, Evans says that initially 40% of employees adopted Pcards to pay for travel and entertainment expenses. Their long-term goal was 75% compliance, but Evans says they just hit the 92% mark.
He points to his teamwork with PNC’s purchasing department for the marked overall success of the company’s Pcard program. “We’re working with purchasing so that all transactions, or as many as we can, are paid with a Pcard, whether it’s a one-time payment or we’re setting it up as a recurring purchase,” he says. “It clearly automates the process for us and for the supplier, making easier payments quicker.” M
Preferred Supplier Policies Aid Compliance
Dana Kirchman, vice president of purchasing cards at American Express, says preferred supplier policies greatly help improve compliance with Pcard standards and controls. Such lists are critical in light of heightened data transparency requirements and the increasingly global reach of Pcards. As the appetite for data to gather and analyze increases for the Pcard user, Kirchman says that a clearly outlined preferred supplier policy defines the level of control over cash flows for the p-card user as well as what degree of supplier compliance is required.
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