At the GE purchasing-card user group meeting held in Mystic, Conn. last month, attendees were buzzing about new initiatives that promise to wring more benefits from the payment tool. Purchasing card program managers listened to keynote speakers such as Dave Piazzi of Houston, Texas-based Marathon Oil, talk about business process transformation and sat in on sessions on best practices with Laura Flandrick of the National Association of Purchasing Card Professionals (NAPCP). Card association MasterCard was on hand to respond to questions about its analytic tools and other products and services.

This meeting is a good indicator of what's been happening in the industry. Nationwide, pcard managers are working to streamline their companies' procure-to-pay process by evaluating use of the tools. They're reviewing accounts payable (AP) data looking for transactions their companies are settling by check to suppliers that accept pcards—and learning that switching payment methods is one way to reduce cost and improve efficiency. Comfortable with the controls they've put in place and the spend data they're receiving from the card companies, pcare programs are adding cardholders and commodities, including some services and high dollar items. They're helping integrate the cards into e-procurement systems, ERP (enterprise resource planning) systems and financial supply chains.

While MasterCard, Visa, American Express and card issuers such as GE and other financial institutions have been helping pcard program managers with these activities for some time now, there appears to be new interest among purchasing professionals to optimize the tool's value.

A new metric created by Visa called the Commercial Consumption Expenditure Index shows that payments made via commercial cards such as pcards represent only 2% of more than $15 trillion in business-to-business spending in the U.S. The index also finds that based on current economic data, this spending could rise to nearly $18 trillion by 2010. Maintenance and operating supplies (building materials, utilities, telecommunications equipment and office supplies), items typically paid for with pcards, account for 31% of total commercial spending.

Another study conducted by Richard J. Palmer, Lumpkin distinguished professor of business, Eastern Illinois University, and Mahendra Gupta, professor, Washington University, St. Louis, also produced data that shows pcard programs may have more room to grow. The 2003 Purchasing Card Benchmarking Study found that 90% of transactions less than $10,000 are for amounts less than $2,000; companies typically put low-dollar expenditures on pcards. The study also shows that 43% of e-procurement purchases are paid by check. By 2006, respondents to the study expect this percentage to be cut in half and replaced by pcard, wire and other payment tools. What's more, the study shows that pcards contribute to a 74% reduction in procurement cycle time, a 57% reduction in the number of petty cash accounts and a 42% reduction in the number of MRO suppliers. Palmer is expected to publish data from an updated study in the coming months.

A new pcard benchmark report by the Aberdeen Group in Boston and the NAPCP finds that the chief trait of best-practice pcard programs with greater than average growth over the past five years is the depth of attention placed on the program. Jeff Pikulik, director, buy-side research at Aberdeen, writes in the report that best practice programs "do not confine the use of purchasing cards to off-contract, nontraditional, nonpurchase order, or ad-hoc, incidental purchasing requirements. The best purchasing card programs are changing historical paradigms."

The benefits can be huge. In addition to streamlining the procure-to-pay processes and reducing costs, working to optimize a mature pcard program can help to improve a company's cash management, says Chris Jones, strategic initiatives manager, GE Corporate Payment Services. From his experience working with pcard program managers, Jones identifies three areas of opportunity for growth. One is transactions. Jones and his colleagues work with pcard managers to identify suppliers through which cardholders typically order small-dollar, high-frequency items such as MRO and office supplies. He suggests first that pcard managers work with cardholders to try to steer more purchases to these suppliers.

Another area of opportunity is commodity spend. While most companies use pcards to pay for MRO items and office supplies, cardholders can readily settle expenses for such other commodities as computer and telecom equipment and temporary help and other services. A third is suppliers. Often, a company may not pay for purchases from certain suppliers because they don't provide adequate spend data (level 2 or level 3). All it takes to turn the tide, Jones says, is to spend some time educating the supplier on the importance of providing such line item detail.

To help grow pcard programs, GE offers a range of value-added services. Among them are regional forums for managers to exchange pcard and e-procurement best practices, Six Sigma projects and quality training and opportunity analysis. With opportunity analysis, GE works with pcard program managers using AP transactional data to identify optimal settlement methods for each supplier. In addition to the traditional pcard, GE also offers its vPayment tool for settling purchases made through e-procurement systems such as those offered by Ariba and SciQuest. The company also provides a cost/benefit analysis. Other value-added services include sessions on managing change, team effectiveness, new manager assimilation and conflict resolution.

Marcie Verdin, vice president of large markets, MasterCard International Corporate Payment Solutions, characterizes recent excitement in the industry as "a second wave" in pcards. After using the pcards for a few years, program managers feel confident in the tax practices and controls they've put in place and are ready to extend card benefits to other, more strategic spends. "The pcard is becoming an alternative payment tool," she says. "Depending on the way a company is structured, a card manager can easily obtain all of his or her spend reports in one place." A company with multiple locations using one e-procurement system integrated with its pcard program while employees use the actual plastic card to pay for some other items, can leverage the data generated in these reports for supplier management. Card managers can expect MasterCard to launch a new benchmarking tool to compare programs in such areas as tax practices, compliance and auditing.

As Verdin sees it, card managers looking to grow mature programs are asking the following questions: Do I have penetration of all the cardholders, commodities and suppliers I initially identified? And, more important, do I have the proper controls in place to ensure that I have compliance? This, she says, is basic pcards 101.

Other companies that like the benefits of pcards, but are not interested in using an actual card per se, are looking to card providers for ghost cards (an account number that "cardholders" use instead of an actual piece of plastic) or virtual accounts used in conjunction with an e-procurement system. Verdin compares this wrinkle in the evolution of the pcard as a payment tool to use of a corporate card to settle travel expenditures. Employees use an actual physical card to pay hotel, rental car, and restaurant expenses, while air travel is centrally billed.

"Improved communication between purchasing, accounts payable and audit is leading pcard program managers to realize that the cards can play a more dramatic role in the procure-to-pay process," says Dave Costa, vice president, commercial solutions group, Visa USA. Visa has developed a list of best practices for pcard program managers. The card company through its member banks provides program managers with insight into the payment process and helps determine the best use for the card.

Visa also has an online performance gauge that helps encourage discussion between the issuing bank and the card program manager. Based on responses to 40 questions related to best practices, the tool reveals a program's successes and opportunities and provides a basis for an action plan. An AP analysis tool helps identify payments currently settled by check that could be paid for with a pcard, improving efficiency and reducing costs. (Please see accompanying story on p. 49).

In addition, Visa's relationship officers can create a three-year plan based on issues identified with the tool, says Laima Kardokas, program optimization director, Visa USA. "We can calculate specific ROI potential if various best practices are implemented and if target volumes by merchant are achieved," she says.

The benefit of taking a new look at pcards? "With a pcard program, a company has improved visibility to transactions which can help to improve cash flow management," says Costa.

American Express provides consultative support for its pcards from an account management team as well as use of proprietary spend analysis tools. "I think that deep insight is really the first step," says Dana Kirchman, vice president global b-to-b payments, American Express. "It's like a doctor's check-up."

The American Express Spend Analysis Workbench "is a full analysis of a client's AP files so we can help spot new opportunities to deepen their relationships with their suppliers as well as identify out-of-policy spend," says Kirchman, adding that employee noncompliance is one of the greatest barriers to growing a pcard program.

Once the analysis is complete, Kirchman suggests pcard managers look at the ordering process; many clients are increasing ordering through e-procurement systems. One initiative is to seamlessly integrate use of the card with e-procurement systems. American Express has an alliance with Ariba that the two are extending to Europe later this year.

A deeper dive provides additional opportunities to remove paper from the process, particularly from invoicing and reconciliation steps. Online invoicing, she says, "provides almost close to perfect data capture at the line item detail level." American Express is pilot testing a solution with some clients and is expected to launch a new product in 2006.

Kirchman says that American Express sees a dramatic increase in interest in streamlining the procure-to-pay process this year. Companies are benefiting from cost reductions generated by pcards and are thinking about putting additional commodities such as services on the card. "With services, approval workflow and the management of paper invoices is important," she says. "Clients really do need a level of efficiency. Further down the line, managing a client's entire portfolio of spend is definitely part of our vision." With American Express' Web reconciliation tool, cardholders can manage their expenses while pcard managers have a full control-panel view of the company's spending.