Tweet

Procurement and Purchasing Cards

Guest post by: Arthur Rothberg

Article Overview: This article looks at how procurement cards - or P-cards - work to control misuse through setting of parameters on types, amounts, locations and frequencies of purchases. Also addressed are benefits and drawbacks of procurement card programs.

Procurement and Purchasing Cards

Typically, small routine purchases make up only 5% to 10% of a company's total purchasing spend. Yet whether the item purchased is a $10 stapler or a $5 million data management system, the internal cost to process and document the transaction ranges from $80 to $150 or more.

A procurement card program offers a simplified, streamlined procedure for making and documenting routine, low-cost purchases. A procurement card (P-card) is essentially a corporate credit card that allows employees to purchase designated products and services without going through the company's purchasing department and all of its pre-approval procedures and paperwork requirements.

A procurement card program can be structured in various ways and tailored to meet a company's individual purchasing needs and patterns. Card users are generally designated and approved by the program manager and given a spending limit. Expanded purchasing limits require the approval of higher levels of company managers. P-card use can be limited to approved vendors or certain types of goods. They may be limited by dollar amount, by store type, by SIC type, by geography, or by number of uses per day/month.

The benefits of P-card programs include:

• Efficiency: The purchasing process is simplified and streamlined. Fewer people are involved and less time is expended. Paperwork is reduced so internal handling costs go down.
• Convenience: All monthly P-card purchases are summarized on a card statement, eliminating the need for multiple invoices from or multiple payments to the same vendor.
• Rebates: Companies can receive rebates of up to 1.5% back from the card issuer. .

At the end of each month, the card issuer provides a statement summarizing purchases made with each P-card. The statement goes to the cardholder, who reviews, reconciles and approves it prior to forwarding it to accounting to be processed. The itemized statement resembles an individual credit card statement and gives information on each transaction.

A statement's level of detail is dependent on the merchant's point-of-sale system, and these systems can be grouped into the following three levels(1):

Level 1

The basic information provided includes the name of the cardholder, the purchase amount, the purchase date, as well as the name, city and state of the merchant.

Level 2

Level 1 information is included. Additional information can include sales tax, point-of-sale code (the cardholder provides a reference number during the purchase), and minority/women-owned or 1099 information.

Level 3

Level 1 and Level 2 information is included. Additional information can include line-item data like a description, quantity and amount. Level 3 detail requires that merchants must be using more advanced systems rather than credit card terminals. Examples are electronic cash registers or PC-based systems.

Card statements are available electronically, as well as in hard-copy format, making it easy for data to be automatically imported and posted to the appropriate GL account. Many card companies will also code accounts to facilitate posting of purchases to internal GL accounts. The statements provide sufficient line item detail for management to track the type, quantity, frequency, date, and location of purchases and thus monitor cards for possible overuse or inappropriate use by employees.

For example, an employee may be authorized to purchase plumbing parts up to a given dollar amount from Lowe's stores within specified zip codes. If charges for other types of products - say, paint, power tools or lawn care products - appear on the card, they will be immediately obvious.

These benefits are clear and compelling; however, there are also drawbacks to procurement card programs. Firstly, there are the obvious concerns about potential abuse and/or misuse of P-cards. Strong internal oversight is essential, with strict spending limits imposed on each card. Prior to issuing cards to employees, management should clearly stipulate how, when and where the cards can be used and specify penalties for misuse, abuse, fraud or payment delinquency. Some firms require employees to undergo a credit review before issuing them company P-cards.

Another potential negative has to do with the amount of detail provided in the card program documentation. In most jurisdictions, businesses are expected to collect sales taxes from consumers and remit them to the appropriate taxing authority. Businesses also are required to assess a use tax on their own non-taxed purchases and remit these amounts as well. However, monthly P-card statements generally do not contain the level of detail required to accurately calculate and substantiate sales/use tax figures. Thus, companies may be unable to make informed decisions regarding monthly accruals and accurately report use tax on non-taxed purchases. Large companies with locations in numerous tax jurisdictions often face complex issues with regard to sales/use tax, and this situation can be further complicated by use of procurement cards. There are also questions relating to the documentation of deductible business expenditures and information reporting requirements with P-cards.

These issues would clearly be problematic if a taxing authority were to come calling with an audit notice. Thus a review of internal recordkeeping policy is in order prior to implementation of a corporate procurement card program to ensure that card purchases are properly analyzed for monthly use tax accrual and reporting purposes and properly documented for later review in the event of an audit.

To prevent compliance problems and defend against audit challenges, companies must put procedures in place to accrue and record use tax on a frequent, regular basis. Monthly card statements and appropriate backup documentation should be cataloged and archived for audit purposes.

It is also important to ensure adherence to internal procedure so that cardholders provide the necessary tax information and transaction documentation in a timely manner. For these reasons, it is imperative that companies dedicate appropriate resources to the organization's tax reporting and internal audit functions.

Supporting documentation that should be maintained includes:

• Any and all vendor issued receipts or statements giving amounts purchased, purchase dates, general ledgers being charged and sales tax paid/charged.
• Cancelled checks and other bank records regarding purchases.
• Computations of self assessed use tax accruals.
• Records of where, when and how goods or services are used or consumed.
• Data in support of any claimed exemptions.

Sales/use tax auditors in state and local jurisdictions have become more sophisticated and more aggressive with regard to corporate taxpayers. As procurement card programs become more common, they will likely come under greater scrutiny by these taxing authorities. Companies will need to weigh the obvious benefits of P-card programs against the possibility of fines, penalties, interest assessments as well as the corporate and personal liability associated with non-compliance and strengthen their P-card program documentation procedures.

While P-card programs involve some upfront expense and may require review and adjustment of internal policy and/or procedural methods, they offer significant savings in terms of efficiency and convenience. These benefits far outweigh the costs and risks incurred with such a program. Moreover, if a business is challenged to dedicate the resources to setting up a P-card program, processes can be put in place by an outsourced CFO services provider with the capacity and expertise to implement a successful, effective, money-saving P-card program.

(1) Materiel Management Guidebook; University of California Riverside

Related Articles
  Is There a Difference Between Purchasing and Procurement? (A PI Q&A)
  How does policy either motivate or undermine employee performance?
  Is There a Difference Between a Material Requisition and a Purchase Requisition? (A PI Q&A)
  What is the best type of Graduate Degree for a Supply Chain Professional?
  The Value of the Certification Process A PI Q and A
  How Your Procurement Practices Affect Your Sales and Brand
  What are the 3 biggest challenges faced by supply chain/purchasing professionals today? (Survey Result 10)
  Newest PI Sponsor Receives Patent That Will Forever Change The Software Vendor Landscape (e-LYNXX Corporation)
  Canon Reaffirms Green Procurement Program for Earth Day
  Procurement considerations when dealing with a merger? (A PI Q&A)
  Negotiation- fundamentals!
  It's Time for a Balanced Budget Amendment
  What are the 3 biggest challenges faced by supply chain/purchasing professionals today? (Survey Result 8)
  The Greening of Procurement Revisited (Part 2)
  Profitable Supply Chain?
  Credit cards: how do we use them?
  The Greening of Procurement (Part 1)
  How can I turn my company's operations into a competitive advantage?
  Enclose 2 Business Cards
  What’s In A Name? Everything! (Canadian Institute for Procurement and Materiel Management Profile)

Article Tags: benefits, cfo services, controls, corporate credit card, drawbacks, outsourced, p card, p cards, procurement card, procurement cards, program, purchasing, purchasing cards



Related Forum Posts
What is your age - Hi there, Life is not dull. It is amazing, how one thing can lead to an entire different subject. It began with the age question. Finally it referred to 'Credit Cards'. I was interested to know, the age groups involved in the forum. It indicates that most of the users are between 20 - 35 years old. I am sure there are some visitors who are in the older group. Let us have your vote. Kindest Regards, Beat "Unlock People's Potentials!"
Re: Recommendations for going Wireless - GT, I've used "Air Cards" from Sprint, T-Mobile and Verizon. I've also use a Blackberry as an external modem. Like any device there are limitations. The down side to these devices is whether or not your computer is in a dead zone. As for getting onto the Internet via these devices, they do well, but there in again it depends on where you are at. Dead zones are common and can disconnect you from the Internet without warning. But just as quickly as you get disconnected your device can easily detect a signal and reconnect without you having to log back in. Now the bad news. Monthly rates are a huge factor for this convenience and do not provide any real savings. Check your local provider for packages and pricing.
Seek Venture Capital & Funding - Hello, Greetings from India. I am Seeking Venture Capital for Offshore Software Company Start-up. Need advise along with Business Model Sample. I have a basic outline for an offshore company. 1. Technology - like Microsoft Dot Net, Java, LAMP 2. Talent Team - Found Good Technology Developers. 3. Where I can get the leads/potential customers - Leads have been identified who are willing to move forward offshore projects. 4. I do not have resources like funding. It is a very critical factor to me Industries: Manufacturing, Real Estate, Retail, Insurance, Distribution & Logistics, Healthcare, Industry Associations and Software Product Development, Agricultural Industries and Etc. Services: Offshore Software Development Company. Offices to be located: Hyderabad, Andhra Pradesh, India and USA. Products/Services/Applications in areas like POS & Billing, Sales & Distribution, Production Planning, Material Management, Inventory Control, Plant Maintenance, Purchasing, Accounting and Logistics. Dynamic Web Programming with Database Driven Content Management Systems, Online Stores for E-Commerce, B2B Solutions, Community Portals, Website Redesign and Development, Custom ERP with Enterprise Wide Functional Modules such as Marketing, CRM, Accounting, Inventory Control, Sales & Distribution, Production Planning, Purchase & Stores, Logistics and Supply Chain. Seek your further questions and help. Thank you, Best Regards, Jayapratap.
Business Card = Money $Machine$! - Chris, I'm not sure the line of business you are in but something to consider. I got this idea from Dan Kennedy's Gold Inner Circle Newsletter. He stated in addition to just stating what you have to offer you also need to position your business cards to get people to actually contact your place of business so that you can capture their details and keep in contact with them. By keeping in contact you build trust and credibility and usually after 7-8 contacts they can potentially become a paying customer. How do you do that? Dan suggests offering intriguing, valuable information that helps a customer save money, relief from a particular stress or fear etc. but it has to be free so that they are encouraged to make contact with you. This works for B2B and B2C. B2B have been providing numerous whitepapers for a while now addressing different ways they have helped other companies with similar problems and end with how their product/service helped remedy the situation. Has anyone toyed with including "An Irresistible Offer" on their Business Cards? e.g. Free one hour consultation on your website to identify ways to increase your Lead generation by 40%"
Manufacture of POTATO Flour / POTATO Powder - Manufacture of POTATO Flour / POTATO Powder About Project Setting up of a unit for manufacture of potato powder About Product and its use: Potato powder is increasingly being used in a variety of food preparations like snack foods (Mc Donald, Pringle, Haldiram namkeens etc.), soups, curries and other dishes as a thickening agent. Its use at present is mainly in hotels, restaurants, but acceptance in household is growing due to its inclusion in items like ready to cook soups, dals, curries, etc. Market Potential: The potato powder is supplied in bulk to the manufacturers of the various snack food items and restaurants/ hotels. The major demand is in cities like Mumbai, Delhi , Chennai, Nagpur , etc. The demand is much more than the supply at present and is likely to grow with the increasing popularity of the snack foods and other items where potato powder is used as input. There is good potential for its export also. Production process and technology: Procurement of potato -> Washing -> Cooking -> Pulping -> Drum drying -> Potato Powder -> Packaging -> Marketing The plant and machinery can be used for producing other products like fruit powder, tomato powder, etc. Key risk factors: Availability of adequate quantity of suitable chip varieties, which are used for powder making (like Kufri Jyoti, Kufri Chipsona) is the major factor which could affect the project. Availability of alternatives to potato powder for thickening like tapioca, corn starch etc., could affect the market of potato powder adversely. However at present there is no problem Quality control and Statutory Requirements The unit need to obtain a licence under FPO 1955 from the Ministry of Food Processing Industry Clearance from State Pollution Control Board Capacity of processing raw material (potato): a) Indigenous technology - 32 MT/ day of potato for 90 days per annum. b) Imported technology - 96 MT/ day of potato for 90 days Capacity utilisation is assumed on 90 days basis as the storage facilities for these varieties are not commonly available. However, capacity utilisation can be increased if the existing cold storages are modified suitably with an additional investment of about Rs 2000/ MT. Potato powder recovery: 17% of the raw material. Cost of raw material (potato): Rs 2500 per MT, Sale price of powder: Rs. 55000/ MT. Manpower requirement: a) Indigenous technology: Skilled and trained - 2 Nos; Unskilled - 3 Nos b) Imported technology: Technical - 2 Nos; Skilled - 2 Nos; Semi-skilled - 3 Nos. Power requirement: a) Indigenous technology: 40 HP b) Imported technology: 60 HP Water requirement: a) Indigenous technology: 1,50,000 litres per day. b) Imported technology: 5,00,000 litres per day. Contact Us for FULL Project Report and Project Implementation Consultancy alphabeta24365@yahoo.com


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

How To Be A Management Legend

Leading with Discernment

The Value of Small Businesses

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.