They arrived on the procurement scene back in the late 1980s, promising to change the way buyers bought and paid for business-to-business (B2B) goods and services.
Used initially by the U.S. Federal Government’s General Services Administration (GSA), procurement cards (or “p-cards”) were meant to streamline the traditional purchase process. They did this by allowing buyers to circumvent the age-old purchase order (PO) system and use their p-cards to order maintenance, repair, and operations (MRO), along with business supplies that fell under a certain monetary threshold.
“P-cards were introduced as, and continue to be, central liability/central pay payment vehicles, and this attribute of liability and billing remains the primary distinction between commercial card types,” the NAPCP points out, noting that wider market acceptance (outside of the GSA) of the cards started in the mid-1990s, and that p-card usage “continues to expand as the cost of traditional procurement increases.”
Using the traditional procure-to-pay process—with a requisition, purchase order, invoice, and check payment—is the same regardless of the dollar amount of the purchase, the NAPCP notes. Put simply, the process cost of a $25 purchase is the same as that of a $10,000 purchase. And the process cost often exceeds the value of the item being acquired (e.g., the cost to acquire a $25 wrench may exceed $100). “Estimates of the process cost of the traditional process range from $50 to $200,” the group reports.
Suppliers also benefit when buyers use p-cards, with a few of the “wins” being cost reductions (i.e., eliminating invoice creation, handling, and mailing; depositing payments and collection activities electronically deposited funds); faster receipt of payments and improved cash flow; increased sales (many organizations solicit only suppliers that accept p-cards as payment); and better customer satisfaction.
With all of these advantages working in its favor, why isn’t the p-card more ubiquitous in the procurement field, where streamlining processes and improving supply chain performance have both become imperatives for companies across all industries? Mahendra Gupta and Richard J. Palmer may have the answer. For a recent Treasury and Risk study, these researchers found that while p-card use has grown from about zero in 1990 to more than $350 billion annually, the cards really haven’t lived up to their potential.
“Our research over 25 years indicates that although the p-card value proposition remains true and valid, significant challenges to successfully implementing a p-card program continue to reduce the benefits companies are actually achieving,” the report’s authors write. “The overall p-card market in North America is robust, but a high proportion of that spending is conducted by only a small fraction of p-card adopters.”
In most cases, just 20% of buyers were responsible for more than 80% of total p-card spend, with the top 40% of them generating in excess of 90% of total p-card purchases. The bottom 60% generated just 7.3% of such spending, the authors report. The same pattern repeated itself across all industries and company sizes.
What’s the Hang-up?
Gupta and Palmer see the p-card implementation process as the primary stumbling block for companies that want to use this form of payment. As with any major technological changes—many of which fail to delivery the promised value—success requires organizational buy-in, cultural shifts, and mindset changes.
“Few technology implementations fully meet every expectation, and p-card programs are no exception,” the report’s authors point out. Poorly implemented p-card programs, for example, deliver little value in their early stages. “Improving the program’s performance will require p-card spending to increase, but if the program isn’t performing, management may deem it unworthy of continued investment,” they note.
3 Ways to Rejuvenate a P-Card Program
The good news is that there are ways to reverse that tide and gain more value from a corporate p-card initiative. Here are three ways Gupta and Palmer say buyers can help move that needle:
- Assess the current state of the program, and review the choices that got you there. “Objectively assess the current state of your p-card program, using industry-specific benchmark norms and well-recognized best practice configuration options,” they advise.
- Find your community. There’s no need to reinvent the wheel: “You can get insights from other organizations in the same industry that have overcome barriers to achieve significant and enduring value from p-card use,” Gupta and Palmer write.
- Address the fear. “Educate your organization’s leadership team to overcome the fear factor,” they advise, acknowledging that many executives operate in a preternaturally defensive mode, focusing on what can go wrong. “Card program managers must clearly communicate to management each aspect of the p-card value proposition and every lever of control over cardholder activities.”
Other good ways to rehabilitate an existing p-card program include using data to assess the risks associated with card misuse; developing p-card controls with the help of internal compliance and control advocates (e.g., internal auditors); and defining clear program goals (i.e., cycle time or headcount reductions).
“Regularly measure performance tied to those goals,” Gupta and Palmer advise, “and develop policies that encourage p-card use as the company’s preferred payment option.”