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P-Card : Payment Accounts (A / P) accountants are well aware of how most of their working hours are used in the supplier invoice process. The following are some of the common routines of daily life:
- Registering trademark and putting in place new vendors on the system and physical filing folders;
- Receiving work papers (PO, receiving slip, invoice);
- 3-way matching the work papers;
- Routing invoices for approvals;
- Entering data into the system;
- Separating and expediting invoices that have discounts;
- Creating month-end accruals;
- Processing cheque;
- Obtaining cheque signatures;
- Mailing payments to vendors; and
- Filing the cheque copies.
When there is no time, routines leave an account for analytical work. Significant cost audits are not mentioned, so cost audits are often left behind. Such a situation always happens with small and medium businesses.
What’s the easiest way to speed up the invoicing process without putting the company at risk? “
The answer is regrettably “there is no simple way”. Above all listed assignment are must done in that way to ensure Adequate control. EXCEPT, small purchases that the cost of carrying all those tasks exceeds the amount of the invoice. often referred to as “low-risk purchase” or “low-risk invoice”. By speeding up the process to reduce the cost of invoicing at the company-wide level. The company can change its approach to. How to handle low-risk purchases? The good news is that, with my clients, up to 1/3 of all payment transactions fall into the category.
“How?” You may ask.
As far as I know, using “p cards for business (procurement card)”—instead of issuing write a cheque and PO —is the most powerful way to process such minimum purchases.
What is a Procurement Card ( p-card )
A “procurement card,” also known as a “purchase card” (P-Card). P-Card is simply like a consumer credit card or purchasing cards for business. But numbers of extra features on company p card.
So, in place of using a cheque or purchase order to purchase. Buyers instead use a corporate p card for minimum and daily purchases.
The p cards for business is issued to those people, who form repeated purchases. With instructions to keep on making the matching purchases, but to do so with the card. This eliminates the plethora supplier invoices by consolidating them all into a single monthly credit card statement.
According to Bizdoz, the use of p card business or procurement cards has seen a suddenly rise in this years with a lot of government organizations now using corporate p card to reduce costs. For instance In 2001 the Department of Defense (DOD) had 230,000 corporate p card holders with an annual spend of $6.1 Billion.
Another report titled “2005 Purchasing Card Benchmark Survey” by Palmer and Gupta (2007) notes:
- 2003 procurement card spend = $80 billion
- 2005 procurement card spend = $110 billion
- 43% of electronic procurement transactions are paid via cheque
- By 2008 over 70% of all organizations will have a procurement card program, up from 60% in 2005.
The study also highlights that, “although right now pcards are not in widespread use, their popularity is increasing day by day.”
Traditional purchasing card transactions below $2000, the report reveals, grew 1.4% from 2003 to 2005. The most dynamic growth was in transactions from $2000 – $10,000 representing a 6.1% growth. A/P transactions fall within this range and can extend into the 100 of 1000 of dollars.
An organizations can use purchasing cards for business as a strategic form of payment in its accounts payable (A/P), instead of issuing PO and write a cheque for minimum risk purchase. Using the approach, the firm can deduct the amount of invoice processing in the firm-wide level.
Why Using Pcards ( Procurement Card )?
The use of Pcards ( procurement card ) is for sure helpful. Here are why:
Pcards declined numbers of buying transaction
– A whole range of buying activities in business are minimised in volume, including creating and mailing purchase orders, contacting suppliers for quotes, closing out orders and resolving invoicing differences.
Purchasing cards for business results in fewer invoice signatures and reviews
– Organizer never again have to review a substantial number of invoices for settlement approval, nor do they have to sign so many cheque addressed to suppliers.
Company p card minimizes petty-cash transactions
– If employees have procurement card program, they will—somehow—no longer feel compelled to buy items with their own cash and then ask for a reimbursement from the company’s petty-cash fund. So, the use of purchases credit cards reduces such tendency.
Corporate purchasing credit card results in less frequent cash advances
– Employees often request cash advances and the accounting staff must create a manual check for that person, record it in the accounting records, and ensure that it is paid back by the employee. This can be a very time-consuming process. A purchase with credit card can avoid this entire process, because person can go to an automated teller machine and they can withdraw cash, which will appear in the next monthly buying credit card statement from the issuing bank—no cheque issuances required.
P-card business reduces supplier list
– The number of active vendors in the purchasing database can be greatly reduced, which allows the buying staff to focus on better relations with the remaining ones on the list.
A/P staff is always available for other tasks
– Having fewer A/P transactions, when start using purchase credit card, some of the employee may be redirected to other tasks— especially analytical works.
P-card program reduces mailroom volume
– Even the mailroom will experience a reduced in volume, since there will be far less incoming supplier invoices and outgoing company cheque.
In addition, the payable employee can contact a supplier, just before an business invoice is due for payment, and see whether the supplier will accept payment of the invoice with a credit card for purchases. By doing so, the firm has just extended its payment time (it may be depend on the cutoff period for the purchase credit card), since it can now wait extra period of time until the monthly credit card for purchases statement arrives before making a payment.
Knowing the p cards for business Features and p-card policy:
A worth questioning on the use of corporate purchasing credit card probably is the possibility of getting bad used by fraud purchasers.
As there is every time a hazard of having fraud purchasers buy personal items (for personal use) with a cash advances or excessively expensive purchases by using corporate purchasing credit card, the procurement process card adds a limited features to control promptly what is purchased or buy from that person. Here are two built-in controls a purchasing visa offers:
Buying Limitations – For instance, process card can have a restriction on the over all total daily payment purchased, the total payment purchased per transaction, or the total purchased per month done by buyer. purchase credit card may also limit purchases items to a particular store or to only those stalls that fall into a particular or specific Standard Industry Classification (SIC code) category, such as a plumbing supply stall and nothing else. These built-in controls effectively minimised the hazard that blink card will be bad used and this is the p-card policy best practices.
Expenses Statement of american express corporate purchasing card – Once the best p cards statement come, it may be happened too jumbled, with 100 of purchases, to find the costly accounts to which all the stuffs are to be charged. To help matters, a firm can define how the credit card statement is to be sorted by the credit card processing firm. For instance, it can list expenses by the location area of each buyer, which can be determined by Standard Industrial Classification (SIC) code, or by currency i.e. dollar amount, as well as by date. It’s even possible to receive an e-transmission of the credit card for purchases statement hence that a organization can do its own sorting of expenses.
Note: The buying limitations and expense payment statement changes are the key differences between a regular credit card and a pcards ( procurement card ).
In addition to the common features, certain corporate p card providers (issuers) even offer more detail information through which the firm is able to do control tasks on the transaction using the purchasing cards for business, such as followings:
Vendors’ Status Information – Certain purchasing cards for business providers (issuers) even provide what is called “Level II” information; this includes a incorporated status , supplier’s minority supplier status, and Vendors’ tax identification number.
Transaction Details Information – Another most useful features to look into when reviewing the process card option is the existence of “Level III” describing, which includes product codes, such line-item details as quantities, freight and duty costs , product descriptions —in short, the bulk of the data needed to maintain a detailed specific knowledge of exactly or accuratly what is being bought with a firm’s p-card.
Though the use of procurement card or process card is so much easy to so many companies, but Thich Nhat Hanh ever said that, “good-and-bad, is an inter-are” which means that, in this context, the benefit of using procurement card (p-card) comes with the big problem that require solution.
Overcoming the Challenge of Using Purchase Cards or Procurement Card
Susan Avery, in 2005, has defined that according to the Aberdeen Group Purchase Cards benchmark report, best practice procurement cards programs “do not confine” buying to the traditional spending of minimum-dollar, high-transaction items and services, because of numbers of reason.
One hurdle in the A/P process card ( pcard ) amount conversion is in the area of location what is called “supplier enablement”—often referred as to “process card supplier enablement” or “pcard supplier enablement”—on which each supplier must be informed and contacted of the payment amount change from cheque to the process card, even if the supplier is already a pcard supplier.
A combined research study by the 1st Annapolis Consulting & the National Association of procurement card program Professionals (NAPCP), in 2010, suggests:
“In terms of impeding an comapny’s procurement card program growth, 61% of clients or end-user respondents reported that suppliers’ resistance to (or non-acceptance of) procurement card payments amount is, at a less, somewhat of a difficult. Not surprising, the transaction acceptance fee factor amount is overwhelmingly the number-1 reason suppliers give clients for resisting or not accepting procurement card payments. Further, closely 50% of respondents defined they occasionally or frequently dismissed suppliers that impose a surcharge in conjunction with procurement card acceptance. clients employ differing approaches in response to the challenges to opposition; for instance, educating suppliers on the benefits of pcards payments—a activity that is often full filled by program management department and/or procurement employee.”
On ward today, in 2013, banks offer help in the p-card supplier enablement and many other software organisation provide highly security technology to make the conversion easy and efficient for the end users.
The p card supplier enablement is mostly solved problems but, in a controller sight, the following problems must be surely considered by the business owner in order to ensure that the p card program operates as it is look forward to:
1. Overcoming P-Card Fraud
When purchasing credit card are handed out to a maximum number of worker or employee, there is all the time harm that someone will misuse the advantage & use up very valuable company funds amount on wrong or very excessive purchases. There are several ways to prevent this risk and minimised its impact. One approach is to hand out the purchase credit card only to the purchasing employee, who can use that purchase credit card to pay for product for which they would or issue a purchase order. However, this doesn’t address the hug quantity of very less purchases that other worker may make, so a better approach is a gradual rollout of p cards to those staff who have shown a continuing pattern of making small amount of purchases. Also, the basic features of the p card itself can be set up either by limiting the dollar payment amount of purchases per transaction, even per department or per time period.
2. Buying on Capital and Special Inventory product
Capital purchases traditionally have to go through approval process and a detailed review before they are acquired; since a purchase pcards offers an simple way to buy limited capital product, it show a easy way to bypass the approval process. Thus, p card aren’t a good choice for capital buy. The use of a purchase cards can actually interfere with manage internal procedures for the purchase of few product, rendering those systems minimized efficient.
For instance, the use of an automated system connected to the inventory system that doesn’t allow manual intervention, including an automated materials planning system—adding inventory product items to this state that were purchased through a different methodology can interfere with the integrity of the database management system, requiring more manual reconciliation of inventory quantities. Thus, the use of pcards is worst idea when purchasing inventory items.
3. Summarizing General Ledger Accounts
The summary statements that are received from the corporate purchasing card processor will not contain as many expense line product as are probably already contained within a organization’s general ledger account. For instance, the p-card statements may only classify by office supplies, shop supplies and shipping supplies. If so, then it’s best to exchange the general ledger accounts to same the categories being reported through the p-card. This may also need changes to the budgeting system, which probably mirrors the accounts used in the general ledger accounts.
4. Purchases from unjustified Suppliers
A firm may have negotiated favorable cost of prices from a limited select suppliers in alter for making all of its purchases for certain product items from them. It is a easy matter to ensure that purchases of items are made through these suppliers when the purchasing department is placed in direct control of the purchasing process. However, once purchases are put in the hands of anyone with a purchase credit card, it is much few likely that the equal level of discipline will occur. Alternatively, purchases will be made from a much bigger group of suppliers. Though not an simple issue to control, the holders of p-card can at least be issued a “yellow pages preferred supplier,” which lists those suppliers from whom they should be purchasing. Their adherence to this list can be tracked by differentiating actual purchases of items to the yellow pages list & giving them feedback about the problems.
5. Use Taxes and Paying Sales P-Card
Sometimes, a state sales tax auditor officer will arrive on a organisation’s doorstep, demanding to see documentation of paying sales that proves it has paid a sales tax on all product items purchased. The requirement becomes a serious problem when p-card are used, because the sales tax noted on a purchase with credit card payment slip amount defines only the grand total sales tax paid, rather than the sales tax for each and every product item purchased. Please note that. This is an important problem, for few product items are exempt from taxation, which will result in a total sales tax that appears to be too minimum in differentiation to the total dollar amount of product items purchased. One way to address this problem is to obtain sales tax exemption certificates from all states with which a organisation does business; workers then present the sales tax exemption number whenever they make purchases of product so that there is no doubt at all & no any sales taxes have been paid. Then the accounting staff employee can calculate the grand total payment for the use tax (which is the match thing as the sales tax, except that the buyer pays it to the state, rather than to the seller of that product ) to pay, and forward this to the appropriate taxing authority to proceed feather process.
6. Overcoming the Unwillingness on the Banker Side
If one think that a p cards for business is simple to implement (just hand it out to workers), she might be not right. It’s best to keep a significant difficulty in mind. Actually, the banks that issue credit cards must expend extra labor to set up a p-card for a firm, hence each one must be custom designed. As a result, they prefer to issue pcards only to those firms that can defined a significant volume of credit card business—usually at least dollar one million per year. This volume limitation makes it not easy for a smaller organisations to use purchase credit card. This problem can be partially avoided by using a group of supplier-specific purchase credit card. For instance, a firm can sign up for a credit card with its office supply shop, another with its building materials shop, and another with its electrical supplies shop. And the final results in a somewhat greater number of credit card statements per month, but they are already sorted by supplier, so they are essentially a “poor man’s purchase credit card.”
7. Negotiating purchase credit card ( p-card ) Rebates
Last but not least. If a firm has shifted a large part of its purchases to purchase credit card, then this represents a significant revenue source for p-card organisations. Once a organisation has built up a limited volume of p card business, it is in a position to negotiate for better terms with it is process card supplier. One best such business deals is to obtain a rebate percentage that is tied to the volume of payments amounts made with a limited p card. Such possibility is specifically available for a any company that can surpass about dollar five million per year in p card purchases. If so, then such firm can bargain for a few rebate percentage that can rise as its purchases rise.
Although the issue are minor in relation to the possible profit of using p card, they can lead into a failure. Hence, realizing and then preparing the firm to overcome the problem is the best.
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