By Jim Pratt
These days, in the fight to survive — much less thrive — in this economy, companies are continuing to look for ways to drive incremental savings to their bottom line. If this sounds familiar — and your business is one among many looking to streamline internal processes, boost efficiency and reduce costs — I suggest you look no further than your own procurement and payment method.
When it comes to purchases, we all pay by the same rules. But what if one method of payment could actually save us a bit of time and money in the process, too? More and more companies are looking to "go electronic," automate payments to vendors and smooth out and reduce costs from previous payment inefficiencies. These companies are opting to provide their employees with purchasing cards, or p-cards, and to convert their payment process into an entirely electronic transaction, known as "e-payables."
And the trend is catching on, as businesses small and large are beginning to put aside the checks, pull out the plastic and slide up to a computer to do business. According to a recent Ernst & Young cash management survey, business-to-business (B2B) electronic payments now compromise 40+ percent of cash management revenue and are growing at double-digit rates.
Electronic versus Non-electronic Payments
Writing a check has always been the traditional method of payment for most businesses. To this day, 65-75 percent of business payments are still made by check. Yet the drawbacks are overwhelming.
Ask yourself, what is the cost to my business of having to wait for a check to get paid? Many companies are forced to take out lines of credit as they wait for their clients or partners to submit payments, which oftentimes are lost in the mail or cannot be cashed because the wrong amount or a misspelled name was written on the check, which sometimes do not show up at all. On the other hand, many businesses struggle to keep up with too many invoices and checks, all written by the same company for multiple, separate purchases. And then there are the more menial annoyances of having to get to the bank before it closes, or being forced to follow up when your check is lost or never shows.
The point of p-cards and e-payable programs is to take unnecessary costs and time like this away from company processes. Any time a business uses a physical piece of plastic, it is demonstrably quicker and cheaper than a check.
Basic Elements of the P-card
P-cards require little work on your part. Business owners can set purchasing restrictions on each card that are relative to the employee who is using it; meaning you can determine how many times an employee's card can be swiped in a given day, how much they can spend and at what locations.
Every time an employee makes a purchase, a transaction detail is filed online in a database you can manage via an online account. This real-time information provides you with the ability to monitor company spending closely and proactively, and react quickly if an unusual purchase pops up.
Coupled together with an e-payables program that allows you to pay for purchases over an electronic network, p-cards can help you not only maintain strict control over finances but also reduce fraud, shorten payments times and increase overall customer satisfaction as compared to traditional check processing.
The Emergence of E-payables
Originally positioned to circumvent the purchase order process, p-cards in the past were used mostly for the purchase of small-ticket items only. At the time, corporations still preferred the integrated reporting and controls of the traditional procurement process for large-ticket requisitions.
Now, with e-payables, businesses are beginning to rely on the cost-effective purchase and procurement process of p-cards for both their small and large expenses. The e-payables process is simple:
1. You make purchases with your p-card.
2. Every purchase goes on file in your Accounts Payable (A/P) department.
3. At the end of every month — or whenever you choose — your A/P department sends all of its most recent invoices as a file to your e-payables host to pay.
4. E-payables handles payment to all vendors in a timely manner. Payments are made within 10 days, but you don't have to pull any money from your pockets for another 45-60 days.
5. After all payments to vendors are made, e-payables provides your business with in-depth reporting for that period and continues to track this information over time.
With this kind of quality control, businesses can rest easy knowing bills are being paid promptly and regularly, and vendors can close their books sooner. Additionally, e-payables provides a trusted payment process that boosts vendor confidence, improves supplier spend visibility and in turn enhances supplier negotiations leverage and increases the probability of your business obtaining discounts on purchased goods and services in the future. Several studies have suggested payments automation can help drive up to 4 percent supplier discount savings on indirect spend.
Improving Detection of Fraudulent Spending
With p-cards, when it comes to purchases made, business owners are ultimately in control over how much money is spent and on what. The purchase controls that come standard with most p-cards these days allow you to decide who can spend what and where, and online account management can alert you immediately if purchases ever fall out of your preset limits, allowing you to react quickly.
With an e-payables program linked to your p-cards, every time a payment is made to a vendor — whether it is for a solitary purchase or multiple purchases detailed on one invoice — a single-use account is generated to pay for that one ticket item. This means that once a user approves a purchase or payment request, a unique credit card number is generated for each separate payment that must be made. Single-use payment programs significantly minimize the risk of fraud by reducing the amount of time that an account is open — these accounts are generated instantly and only stay open for a certain number of days. As an added layer of protection, the single-use accounts are only good for the amount, merchant category and date range stated. And since the account is only used once, vendors an unable to maintain a credit card number "on file" for future transactions or add-ons that are not approved.
So What's the Hold-up?
If p-cards and electronic payments are becoming standard across industries, you might ask yourself why so many companies are still using the traditional, non-electronic check payment method.
Many businesses view delayed payments as an "interest-free loan" — a major profit generator. What they do not realize is that e-payables reduces vendor payment time without reducing float time, meaning your business still reaps the benefits of the interest-free loan because it does not have to actually settle up on bills for up to two months while satisfying the vendor with speedy payments made in less than 10 days.
Oftentimes clients are also unsure of whether or not the merchant will agree to use credit cards as a form of payment, as 2-3 percent of purchases paid for with a card are kept by the credit company. This can be an especially difficult pill to swallow for merchants that only account for a small number of purchases a month. Other companies lack the IT know-how and resources necessary for implementation, and many are unwilling to change, satisfied with the purchasing and payment systems they already have in place.
The truth is, the road to increased p-card usage and electronic payment processing will have its twists and turns, since many cash-strapped, budget-conscious organizations will have excuses to maintain the status quo. But with p-card usage and e-payables integration on the rise, it seems likely that somewhere down the line, all paper will be eliminated from payment processing due to the accessibility of these options.
With guaranteed savings of time and money, and no up-front software fees for implementation or any ongoing fees, both businesses and their vendors will feel the positive effects of p-card and e-payables integration. So encourage training your partners and those companies further downstream on the benefits of — and ways to get on board with — e-payables. There is really no reason not to go electric today.
About the Author: Jim Pratt is vice president for corporate payment solutions at Wright Express, a provider of fleet fueling card programs to businesses throughout the U.S. More information at www.wrightexpress.com.