FRASERS and Visa are pleased to bring you the second issue of a series of e-newsletters in 2007, designed to enhance your commercial card program. In our inaugural issue, we discussed the importance of creating an effective controls framework to optimize your card program. This issue demonstrates, via an example, the potential gains when balancing both program controls and cost savings. When control is optimized, organizations can realize cost savings and process efficiencies. On a higher level, optimizing control also instills more confidence with investors, customers and other stakeholders.

Optimizing card controls

Many organizations approach commercial card programs with legitimate concerns about controls. Management worries that without appropriate controls, organizations risk significant losses as a result of misuse, fraud and spend outside policy (SOP). In reality, the actual financial losses due to these concerns are negligible (less than 1% of commercial card spend per year). The potential savings from introducing a commercial card program far outweigh the risk of loss, typically by over 250 times.¹

It is equally important, however, to understand that too much control can be detrimental to a card program. An over-controlled card program does not promote widespread usage and therefore severely limits the value of a card program. Too much control (e.g., low transaction limits, low monthly spend limits and many MCC (Merchant Category Code) blocks) is also costly and may not be justified by the small risk of financial loss.

Organizations in early stages of card program maturity often fear that by relaxing controls they risk facing as outlined earlier. In reality, card programs with relaxed controls (when implemented correctly) can achieve much higher net financial gains.  Organizations can overcome barriers and expand their card programs by better understanding the costs and benefits of card programs and realigning their controls towards the point of optimal net gain, as demonstrated in the above diagram.²

Cost-benefit analysis

Commercial cards present significant opportunities for transaction cost savings.  According to a 2005 study³ of commercial card programs in North America, the average total cost (A/P labour, financial institution fees, etc.) of a transaction paid by traditional purchase order with a cheque is $103.40. The same transaction paid with a commercial card costs only $25.30, a savings of 76%.

The same survey indicates that there are, on average, 0.67 misuse and fraud incidents per 10,000 transactions and each incident costs an average of $1,619. Spend Outside Policy occurs much more frequently and averages 6.82 times per 10,000 transactions and each incident costs an average of $278.⁴

The following anonymous example demonstrates the net financial benefits of a commercial card program to an actual organization using the cost benefit analysis statistics from the previous page:

Visa Card Programs

Canadian businesses are continually challenged to gain control and balance of their procurement and travel & entertainment (T&E) expenses. 

Lowering operating expenses is an ongoing management challenge. Visa® Commercial Card Programs can help companies manage the purchasing process more efficiently to meet this challenge head-on. This not only helps to lower costs, but also speeds up the delivery of goods and services and frees up time for more strategic business priorities.

For more information on Visa® Commercial Card Programs and how they can help your business, or to contact a Visa Issuing Financial Institution, please visit www.visa.ca/largecorporate