FRASERS and Visa^®are pleased to bring you the fifth e-newsletter of 2007, designed to help enhance your commercial card program.  In our fourth issue, we discussed how the development of an overall Procure-to-Pay technology strategy helps ensure the success of a commercial card program. This issue demonstrates how an expanded purchasing card (P-card) program can yield more visibility in spend categories, thereby better leveraging your spend data.

Between 2003 and 2005, P-card spending in North America grew from US$80 billion to $110 billion, according to “The 2005 Purchasing Card Benchmark Survey Report,” compiled by Palmer and Gupta. The impressive growth is expected to continue, and by 2010, P-card spending will soar to $185 billion, according to the report.

Though card usage is typically higher in the U.S., Canada is posting favorable numbers of its own. In 2003, Canadian firms used commercial cards for $4.8 billion in transactions. In 2006, the number increased to $6.1 billion. According to the same study, growth is expected to occur at a rate of 11% through to 2010.

Some of that expansion can be attributed to new users of P-card programs. But more significant is the push among procurement managers to expand their existing commercial card programs to non-traditional categories.

In Canada, commercial cards are used mainly for travel and entertainment, maintenance and repair, and capital asset expenditures.  They’re also popular for office supply purchases.  But a new trend is emerging in the U.S. and other countries, to extend commercial card usage to non-traditional categories, such as professional services, leasing and rental payments, temporary help, office equipment, advertising, marketing and computers.

Aberdeen’s “Global Commercial Payment Cards: Cutting Costs and Boosting Control on a Global Stage,” study found the trend is picking up speed overseas. According to the data, 73% of companies in Europe plan to use commercial cards for temporary or contract labor; and 67% for IT services. In Latin America, 83% of companies plan to use cards for advertising and marketing services. The top category to be addressed in North America and Asia-Pacific is system integration services, at 80% and 75%, respectively. In Asia-Pacific, 78% of organizations are looking to expand commercial card use to non-travel categories as a means of driving growth. In Latin America, 53% of companies share that goal. Clearly, organizations that have reaped the benefits of commercial card programs for traditional categories, hope to see those efficiencies repeated in other areas of spend.

The biggest perceived advantage of commercial card programs is enhanced visibility, the Aberdeen study found. Nearly 70% of respondents identified visibility into corporate spend as the primary reason for implementing card programs. Equally significant, 86% of companies around the world identified the reduction of administrative costs as the number one priority for commercial card usage.

Gaining visibility

Looking back, commercial card programs, in their early days, made many a financial manager uncomfortable. They were concerned it would be difficult to control where and how P-cards were used. Discussions around disappearing paper trails—as more data was stored and presented electronically—often exacerbated those fears. It didn’t take long however, for executives to realize commercial cards actually provide more security than traditional processes of manual expense reports and reimbursement.

First of all, managers decide which employees should be given a card, and what their transaction and spending limit will be. Merchant Category Code (MCC) blocking prevents the cards from being used at certain types of retailers. Many of these controls are put in place before the employee uses his or her card for the first time. Managers also have access to data-rich reports—often on a website—to easily track card usage.

Many P-card users can integrate their card transaction data into their financial systems, without a costly integration investment. The integration with common Enterprise Resource Planning (ERP) systems allows executives to view, share and leverage spend data—a powerful tool for supplier negotiations. In a few keystrokes, the procurement manager may view exactly how much business was given to a particular supplier across all divisions and departments within the organization. The reports also help identify duplicate vendor entries, which may be masking the true total volume with that particular supplier. Reports may be customized and tailored to help meet visibility and reporting requirements of the finance department and compliance officers.

Spend data is often circulated to budget owners within the organization, to ensure they remain within plan— another effective strategy for controlling enterprise costs. Automated and customized P-card transaction data flows from card issuers, allowing managers to monitor, analyze and report on expenditures, negotiate with suppliers and ensure compliance with purchasing policies.

High-level reports give senior managers a broad overview of spend within the card program, including merchant statistics and exception reporting identifying any spending occurring outside of corporate policies.

Some P-card users also enjoy access to enhanced data services, which provides more detailed line-item information on card transactions. The data is useful for maximizing the efficiency of purchasing and tax reporting while minimizing administration. With more detailed information on the source of purchases, procurement managers have much greater leverage when negotiating with suppliers. More cost-effective negotiations can result in pricing reductions of five to 10%, according to the “Visa International Enhanced Data Study,” conducted by Deloitte Consulting in 2002. Financial institutions can work with procurement managers to bring key suppliers on board with the program.

Expense reporting

Not only is card data used to enhance strategic sourcing, it also streamlines expense reporting applications. Large and mid-size companies in particular, have widely adopted technologies to automate their travel and entertainment reporting and reimbursement processes, according to a 2006 study byVisa and Deloitte Consulting, called “Commercial Card Integration with Expense Reporting Applications.”

The research involved U.S.-based travel managers, procurement managers, accounts payable managers, purchasing card administrators and information technology managers in a range of different industries.  Companies in the study that chose to integrate their commercial card programs with expense reporting systems realized annual savings ranging from US$900,000 to $4.5 million. Savings resulted primarily from a more efficient expense reporting process for employees and the accounts payable department, according to the study.

With an integrated system, employees have access to expense reporting forms that have been pre-populated with commercial card data. The process makes it faster and less cumbersome for employees to fill out the form. It also ensures they provide sufficient amount of detail to meet accounts payable policies.

Companies that pre-populate employee expense reports with commercial card data find their employees have a larger incentive to purchase using the card, according to the research. They appreciate the reduced manual entry of data on card purchases. Card integration also allows management to run detailed compliance reports to confirm commercial card use is within preset contract and spend policies. Because the system is automated, less time is spent managing hard-to-read manual forms.

One company in the study realized a 60% reduction in expense reporting processing costs after integrating its travel and entertainment reporting system with commercial card data. Those tangible benefits are spurring senior executives to mandate the use of commercial cards, and to encourage more suppliers to accept this data rich method of payment.

Supplier support

In fact, bringing more vendors into the commercial card space is a relatively new goal.  The relatively slow uptake of P-card acceptance in nontraditional categories such as services, temporary staffing and IT systems integration, has obstructed the proliferation of the programs in these categories. But that too is changing.  Commercial cards issuers are providing clients with lists of suppliers who accept commercial cards. Managers are comparing their own supplier list against their issuer’s list of accepting merchants, to identify more opportunities for P-card payments.

If a company finds that one of its suppliers isn’t willing to begin accepting commercial cards, a decision might be made to award the business to another vendor that does accept. Through that type of encouragement, even small suppliers who traditionally preferred to be paid by cheque, are beginning to express interest in commercial cards.  If the trend continues, the list of vendors accepting cards may gradually become larger and more diverse. For procurement managers, that could mean more control and visibility over categories that have long eluded them.

As the trend to globalization continues, commercial cards will have a clear advantage over other types of payments because the cards are accepted worldwide, and offer a convenient method of paying overseas suppliers, and equipping employees for travel.  Vendors of every size are finding that commercial cards are more efficient for their mobile workers, who may require equipment or parts while out in the field, because P-cards eliminate the need for them to return to the office to requisition an order.

For their part, smaller organizations enjoy the delayed payment associated with card programs, which helps them maintain healthy cash flow.  Buyers and suppliers worldwide are realizing how commercial cards can enhance their overall business performance, and alleviate challenges around paperwork, financial compliance and accounting. With several spend heavy categories still existing outside the scope of commercial cards, purchasing managers have a clear road ahead.

With the help of card issuers, executive support, and supplier education, purchasing managers will bring nontraditional categories into the fold, increase the volume of card transactions, and take their commercial card programs to higher levels of success.

Visa Commercial Card Programs

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

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