P-card spending in North America jumped from $110 billion to $137 billion between 2005-2007

As the technology that drives purchasing-card programs continues to advance, more companies are able to use them for greater numbers of transactions. In fact, purchasing-card spending in North America jumped from $110 billion to $137 billion between 2005 and 2007, according to the 2007 Purchasing Card Benchmark Survey by RPMG Research Corp.

“In the 1990s, p-card technology was fairly limited, but this has changed dramatically,” says Lynn Larson, CPCP, manager of industry information and research with the National Association of Purchasing Card Professionals in Minnetonka, Minn. In particular, program management and auditing tools have become more robust. In addition, the emergence of payment gateways enables buyers to use the p-card system without divulging their account numbers to vendors, while some banks now offer solutions that allow them to settle customers’ PO-based transactions via purchasing cards.
One example of the enhanced program-management tools is the growing number of card systems that offer real-time visibility to transactions, including “the ability to track different types of spending on p-cards, including who is using them and how they’re using them,” says Nasreen Quibria, senior analyst for the financial value chain with Aberdeen Group in Boston.

Some programs also offer greater ability to limit cardholders’ purchases to businesses within specific merchant category codes (MCCs) or to put in place monthly transaction limits. “Card issuers continue to add functionality to provide more granularity with respect to putting in place transactional limits,” adds Kurt Albertson, head of the purchase-to-pay advisory group within The Hackett Group.

Similarly, more online program-management tools offered by card providers allow program administrators to make changes in real time, Larson says. For instance, some allow the administrator to reduce a cardholder’s spending limit, effective immediately.

More programs today also offer the ability to attach complex accounting code strings to individual purchasing-card transactions, Larson adds. Earlier versions of these applications often offered single fields for accounting data even though most companies’ accounting codes have multiple parts.

Another advance within purchasing-card technology is the emergence of payment gateways, says Jim Lister, vice president of e-commerce solutions with Atlanta-based First Data Corp. “This technology allows buyers to initiate payment and buying businesses to maintain control and a streamlined payments approach without having to share card numbers with vendors.” Instead, the gateways securely house the data from each party in the transaction.

In addition, a gateway allows the buyer, rather than the supplier, to decide when to initiate payment, says Marcie Verdin, group head of the large market segment with MasterCard Worldwide. What’s more, suppliers are able to receive remittance information on their transactions.

Most gateway systems can be integrated with many of the common accounting software packages, Lister says. The process typically takes between 30 and 90 days. Or a company can use a system on a software-as-a-service (SaaS) basis, with a one-time setup cost and a fee for each transaction. The managers in charge of the purchasing-card program would need to ensure they can access the system to update card numbers and vendor information.

Some financial firms also offer solutions that enable them to use the p-card channel to settle transactions that began through the purchase order process. “When we look at our clients, this is one of the hottest areas. A lot of companies are evaluating these programs,” says Albertson. The reason? Over the past 18 months, between one-half and two-thirds of companies have extended their payment terms to between 60 and 90 days, he says. At the same time, many suppliers need to get paid on a timely basis. When buyers settle their invoices through the payment gateways, vendors can be paid more quickly.

The process generally works like this: The purchases move through the normal purchase order process. Once an invoice or group of invoices is approved, the purchaser transfers its payment file to the card issuer, who works to enroll the supplier(s) in a purchasing-card program. To entice suppliers, issuers let them know that they can settle the invoices on behalf of the purchasing company within days, rather than the months payment might otherwise take. However, if the suppliers aren’t interested in a p-card settlement, the transaction can be settled via ACH or check, Albertson says.
For the process to work, the buyer and card issuer need to integrate their systems. That way, the buyer can upload its payment file, and the card issuer can pass back transaction information once it settles with the supplier.

The auditing function is another area that’s seen a boost from technology, Larson says. The emergence of automated data-mining and continuous monitoring tools makes it easier for program managers to uncover policy violations in a timely manner. Some systems even alert program managers when employees have used their cards at nonapproved merchants such as liquor stores, says Richard Palmer, chairman of the accounting and MIS department at Southeast Missouri State University who has done research into purchasing cards.

These automated control tools, as well as the enhanced security and visibility these applications offer, is critical as companies move more spending to their purchasing-card programs, Palmer says. “Some companies are putting $1 billion on their cards. They need automated mechanisms to review what’s going on.”