The shortest distance between two points is a straight line, but that doesn’t mean it’s always the best route to take. Sometimes you need to detour; take a step back before moving forward. That strategy enabled a major bank to expand its purchasing card program transaction volume ten-fold, from approximately $100,000 a month to more than $1.1 million.
The First Step
The journey began following a study of the processes and procedures used by the bank’s accounts payable group. One of the recommendations arising from that study was that, based on the number of invoices the bank was paying and the average dollar amount of those invoices, greater use should be made of its purchasing card program.
“The initial problem with our old purchasing card program was that we didn’t have the capability of doing any detail cost allocations,” explains the vice president and procurement operations manager. “Whatever the card user’s cost center was, that’s where the purchase was going to be billed. There really wasn’t an opportunity to use the program in any kind of procurement function, for any large-dollar purchases.”
That’s when the bank began working with Works, Inc., an Austin, Texas-based automated payment software solution provider. Works’ payment manager application uses Web-based technology to connect payment management authorization with the global Visa payment network. The ability to link its purchasing card to a request process afforded the bank several benefits. The first was access to more robust purchasing information and the ability to allocate those purchases more efficiently.
When a purchasing agent receives a requisition to purchase a product for an end user, the agent “tags” cost allocation details such as general ledger account or cost center information to the request. When the completed transaction is reported through Visa, the bank is able to match it to the original purchase requisition.
“Unless you’re lucky enough to be working with a vendor that supplies Level II or Level III information, you receive very little transaction information through Visa,” the VP explains. “Being able to match the transaction to the original requisition, we’re no longer limited to one cardholder/one cost center. We can take multiple purchases and break them down to different accounts.”
Large-Dollar Purchases
The Work’s Payment Manager application accommodates large-dollar purchases made through the procurement process. Individual cardholder could have access to the software’s request process. The process begins when a cardholder requests that an additional sum of money, say $5,000, be added to his or her credit line for a specific purchase. All details and specifications for the purchase are entered into the requisition, which is then reviewed by purchasing.
“You can build a hierarchy just like you would in an ERP system,” says the bank’s VP. “The requisition has to pass through levels of approval. And depending on the dollar amount of the purchase, the requisition may only need one level of approval, or it may need six. You can make the approval process as simple or as difficult as you want.”
Cardholders are notified via e-mail when the requisition has been approved and the spending limit on their purchasing card has been temporarily increased for the purchase.
Following the recommendation that came from the accounts payable study, the bank began its push to “get more dollars on the purchasing cards,” says the VP. But because the bank is extremely centralized in its procurement strategy, the first step was to back off slightly and remove some of the purchasing card spend. The bank’s strategy was to concentrate on repetitive purchase activity within procurement functions, rather than providing each employee with a card.
“We felt that some people were using the purchasing card for inappropriate purchases,” the VP explains. “They were using the card to purchase office supplies and paying retail price when we already had a Web-enabled, very centralized process for those purchases. So with the new reporting capabilities from Works, we worked first on compliance and actually reduced the number of transactions that were going through the card. At the same time, however, we went ahead and started using the card for some big-dollar purchases.”
The result, at least initially, was a reduction in transaction volume even as dollar volume increased. However, now that the bank has begun to focus on the use of the purchasing card for repetitive purchases that take advantage of contracted agreements, the transaction count is rising. Each transaction translates into one less invoice for Procurement and AP to process.
The Sales Tax Non-Issue
Prior to revamping its purchasing card program using the Works’ payment manager application, most of the bank’s card purchases were point of sale transactions. And the government is pretty comfortable that if purchases are made on site at Office Depot, the proper sales tax will be applied. Utilizing the Works’ application, however, as well as making large-dollar purchases, brought new light to the sales tax issue, but only temporarily.
“We began to identify and audit every purchase that wasn’t supported with Level II or Level III data, just to verify that we were getting taxed on a case by case basis,” explains the VP. “We found that in most cases, vendors were charging us the appropriate sales tax. We spent a lot of time proving that the sales tax concern wasn’t really a problem.”
That doesn’t mean the bank plans to ignore the sales tax issue. On the contrary, the bank has asked Works to add a flag to the requisition process so that the purchasing agent, at the time the request is made, can verify if a particular vendor will be charging tax or not. “Inevitably, you’re going to purchase something from a vendor in Tennessee and ship it to Florida while you’re sitting in Virginia,” says the VP. “And that vendor in Tennessee might not be licensed to collect tax in Florida. But as long as we know that up front during the request process, we can identify that transaction as one that will require an accrual.”
Using the Works request process has been one of the keys to success for the bank’s purchasing card program. “The request process, and being able to get cost distribution information up front, that’s an important part of our strategy. We are not far into our rollout. The initial progress within Procurement Services is just a pilot. It is our intention to begin using the card in other purchasing functions such as Real Estate and the technology group.”
