Features : Cards That Count The Costs

An increasing focus on corporate expenditure and on transparency is bringing a renewed focus on the potential benefits of corporate credit cards and purchasing cards.
In sharp contrast to the consumer world, commercial cards are not necessarily equated with unbridled expenditure but instead can be used to control and ultimately reduce companies travel and entertainment (T&E;) and procurement expenses, leading to potential savings worth millions of dollars.

Companies might fear that issuing an employee a commercial card is tantamount to writing them a blank check. “There is a perception that if you give an employee a credit card, you are giving them temptation to go and buy a fur coat or diamonds,” notes Gary Schneider, global business manager, Citibank Commercial Cards. Yet unlike cash or a check, controls can be built into a commercial card that prevent the user from making certain purchases. Schneider says each industry has its own four-digit merchant category code, which means that if an employee tries to use the card to buy, say, an expensive coat, it can be blocked at the point of sale.

But are the benefits of commercial cards compelling enough for them to become the predominant form of payment for a companys T&E; and procurement expenses? Mark Webb, senior vice president, global clients, American Express Global Corporate Services, distinguishes between corporate cards, which are typically used for T&E;, and corporate purchasing cards used for small ticket maintenance, repair and overhead (MRO) itemsnamely office, telecom or computer equipment. “Using a corporate card to manage and control expenses has been going on for decades,” says Webb, adding that the corporate purchasing card evolved out of the practice of companies putting T&E; on corporate cards.

However, while most Global 2000 companies have migrated their T&E; expenditure to corporate cards, according to the Association for Financial Professionals (AFP) 2004 Electronic Payments survey, paper is still king, with more than 75% of B2B payments made by check. Visa USAs Commercial Consumption Expenditure (CCE) Index, published in September last year, estimated that commercial spending by American businesses and government entities would reach almost $15 trillion by 2005. Less than 2% of that expenditure is captured on payment cards.

Visas 2004 cash management survey of more than 400 executives from 20 industries found that commercial payment cards were used by 34% of respondents for an average 22% of their total commercial spending, which suggests that the migration to commercial cards is likely to be evolutionary rather than revolutionary. But the card providers are optimistic, with that same survey indicating that 40% of companies plan to increase their use of commercial cards.

Proponents claim the advantages of commercial cards are compelling enough to encourage companies to dispense with cash and checks. “Commercial cards are better than cash, which is difficult to track, has the potential for fraud and provides no record of expenditure or insight into suppliers,” says American Express Webb. “Check is not much better. If you use a card, companies have the opportunity to better control and understand their expenses.” He cites the example of an employee putting a $300 procurement expense on a corporate purchasing card. “Traditionally, the cost of issuing a purchase requisition, the level of approvals required, then invoicing and writing a check would have been extremely costly,” he says.

An Accenture study of procurement card use by US and European companies, which was commissioned by American Express, found that companies that used a purchasing card incurred an average administration cost of $19 per transaction, compared with $97 for a manual paper-based process. “So for large companies that do a significant number of these transactions a year, that is bottom-line savings of tens of millions of dollars,” asserts Schneider of Citibank. “Most of that cost saving is in the time gained in not having to wait for purchase-order approval or incurring the cost of a bank transfer.”

Cost-Saving Opportunities


Citibanks Gary Schneider

Columbia, MD-based chemicals and materials company W.R. Grace & Co. started putting travel expenses on an American Express corporate card in 1993. Lorraine Rostanzo, director, global travel and support services, then focused on improving global procurement expenditures on meetings, air express shipments, copiers, office supplies, telecom and computers using an American Express corporate purchasing card, which led to year-on-year spending reductions across a range of commodities. These incremental savings were achieved by eliminating expensive paper-based processes and monitoring card spending data using American Express @Works reporting feature, which allowed Rostanzo to spot opportunities for negotiating discounts with larger volume suppliers. She saved an additional 15% on commodity budgets, above and beyond discounts that were already in place. For individual items such as office supplies, she delivered incremental savings of 28%.

Companies use of corporate purchasing cards is on the rise, but, according to Patricia Loria, vice president, product development, MasterCard, overcoming ingrained purchasing behaviors still presents a challenge. “Implementation of corporate cards tends to be fairly smooth,” she says, “but with purchasing cards it really is a re-engineering effort.”

But as purchasing managers realize substantial cost savings and benefit from the back-end data corporate purchasing cards generate, David Cramer, senior vice president, Visa Client Services, believes a natural evolution is for higher ticket items ($100,000) to be procured using purchasing cards. “The purchasing card started out as a replacement for petty cash,” he explains, “but as purchase managers gain more control over spend, we are looking beyond MRO to the next layer of transactions with a finite number of suppliers.”

According to Webb, the leverage of corporate cards also remains compelling. An Accenture study commissioned by American Express found that companies that analyzed corporate card spending data effectively saved an average of up to 9% of their T&E; budgets (7.2% of that was incremental savings on air, hotel and car rental) above and beyond existing discounts. “We can help a company understand what they are spending by trend, division, country or vendor,” Webb explains. “So they can go to an airline, for example, and say, We spent $68 million with you last year; wed like a bigger discount.”


Mark Webb of American Express

As regulatory measures such as Sarbanes-Oxley force companies to address corporate governance, card providers anticipate that more companies will gravitate toward commercial cards. “They are paying particular attention to the tracking and compliance aspect of the card,” says Webb. Sarbanes-Oxley will become our “best friend,” says MasterCards Loria, underscoring the value of commercial cards in terms of the ability to aggregate spending data within a global data repository. “We can provide companies with a holistic view of their spending and, in some cases, detailed information about what is being purchased and by whom,” she explains.

The card companies are investing heavily in data and reporting capabilities. The card providers are looking to differentiate on the back end in terms of the level and quality of card spend and compliance data they can provide to T&E; and purchasing managers. Citibank Commercial Cards has developed Web-based tools that allow companies to drill down into expenditure by merchant segment to try to counteract potential card misuse.

American Express Web-based tool allows T&E; and purchasing managers to view card spending data at any time online, access customized reports and easily administer cards. Using American Express reporting tools, W.R. Graces Rostanzo is able to tie corporate purchasing cards to lists of preferred suppliers. In this way she can monitor employees adherence to individual suppliers and, via exception reports, nip any maverick card spending in the bud. For some commodities, she has achieved almost 100% compliance with preferred suppliers.

Anita Hawser