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 company’s 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) items—namely 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 USA’s 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.
Visa’s 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."