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All schools have tight operating budgets these days, and you need to ensure your school spends every dollar properly. No matter the size of your school or the amount of your budget, a purchasing card program could fit with your procurement goals and — moreover — help you achieve the bigger benefits of time and cost savings.
The key is to structure your purchasing card program correctly. Find the right mix of controls that provide the comfort level you need to eliminate your current paper-intensive procurement process. With built-in card features and robust reporting capabilities afforded by purchasing cards:
Structuring your Program to Address Control and Cost
A purchasing card is a payment method, not a procurement process. Purchasing cards eliminate an unwieldy and costly process for making payments by removing the paper trail associated with receiving, processing, and paying invoices. Procurement policies and controls must still be in place. A purchasing card enables different controls that should satisfy any lingering concerns. Controls include, for example, transaction size limits and monthly spending limits. Merchant Category Codes (MCC) enable you to block types of vendors or purchases. School policies can still stipulate certain procedures. For example, you can require that a competitive bidding process precede certain purchases. You can still maintain a preferred vendor program. Remember, too, that a purchasing card offers protection against fraudulent transactions and includes insurance and a dispute resolution process for unauthorized transactions and vendor problems. Back-end reporting can be as good as what you get from the purchase order process.
The key to a program's success is finding the right balance. Controls should facilitate — not hinder — card usage. Using a purchasing card must be easier than the current payment process. If a card is too restrictive, no one will use it. For example, you may want to give a limited number of staff responsible for the purchasing function a higher transaction spending limit. Your card provider's software should allow you to allocate and adjust individual spending limits online in real time.
The program should enable you to remove small dollar transactions from your accounts payable process. You can run a query to determine how many transactions fall within a specified size range (e.g., under $500, $500-$1000, $2500-$5000). Many purchases — both products and services — may be processed comfortably with a purchasing card, including: postage, tuition payments, conference fees, leasing contracts (e.g., copiers), office suppliers, office equipment, computers, furniture, and even automobiles. Schools are increasingly widening the scope of card usage to include higher-value transactions, as long as the purchasing process is accompanied by proper controls.
Don't let the card become a fashion accessory, i.e., it looks good but never gets used. Anyone doing the actual purchasing should get a card. If the assistant to a department head does all of the purchasing, then that is the person who should have the card. Most offices need a card. For example, the facilities department can use the card to make purchases related to plant and equipment. Some schools can use the card for oil and utilities payments. (Allowance for this varies from state to state and city to city.) The athletic department can use it for bus rental and sports team travel expenses such as hotels and meals.
Online reporting facilitates proper oversight and compliance review. Your program manager can continue to review each and every transaction at the individual cardholder level. But it is likely that 80 percent of your transactions account for less than 20 percent of your school's total spending. Ironically, it is also likely that the 20% of dollars spent takes 80% of your staff's oversight time. In that case, it makes sense to stop reviewing every small dollar transaction and focus your staff on performing a quality review of higher-value payments. For all of the time that you send invoices back, because of missing documentation, how often do you actually withhold payment? Reports facilitate your monitoring of policy compliance. For example, you can track who is buying from preferred vendors. And if an employee is always tardy about turning in statements on time, you can simply turn off that card until the employee's behavior changes.
A few providers enable you to institute real-time changes to your program over the Internet. Look for a provider who does not delay critical changes by batching transactions for processing at the end of the day. Secure online cardholder maintenance — including changes to credit limits and account closures — should be effective immediately. The ability to manage the program over the Internet means you don't need resident software. Therefore no cardholder is ever stranded. Your program manager has maximum flexibility in signing on during weekends, school holidays, and off-site meetings.
A well-designed program should have no annual membership fees. The fee waiver is based on the average annual spend per card, which a properly structured program should make easy to achieve. There may be nominal fees for specialized reporting. The program also should provide a rebate. Rebates are calculated based on the speed of payment, the average spend per card and your school's total spend. Finally, training your cardholders not to pay sales tax (if applicable in your state) will save your institution unnecessary expense.
Saving Time: The Big-Picture Benefit
The big benefit to your school will be the time saved on transaction processing. That is particularly significant in light of today's economic reality. Whether you are a state or private institution, you are asked to do more with less. State schools face the impact of state budget gaps, while private schools face shrinking endowment spending allocations and restrictions on hiring replacements for retiring staff. By streamlining the approval process and related paperwork, you are freeing your staff's time to focus on other responsibilities. Today, with staff at colleges and universities stretched so thin, lessening the administrative burden around the purchasing process is a smart way to improve productivity. It removes cost from the procurement process. It also contains costs as your school's payment activity grows. Systems integration also increases staff efficiency. Transactions should interface directly into your general ledger system.
Implementing your Program
The time you spend setting up your program — including establishing policies and procedures — will pay off exponentially. Many schools with successful programs have their policies and procedures posted on the Internet. Find a school similar in size and get them to share their policies with you. Benchmarking is an important aspect of implementation.
Your best salespeople internally are those with a positive experience in using purchasing cards. Gaining the high-level support, from your school's president, controller, and/or VP of finance, makes adoption easier.
Your provider should be experienced in working with institutions of higher education and should work with you to structure the program. For example, the provider should advise you on establishing transaction limits and instituting MCC blocking. Set-up should be painless. For example, can you list all cardholders in an Excel spreadsheet? Preparation should include a review of eligible transactions. There should be a pilot period for getting used to the system, followed by a rollout. Finally, your provider should work with you to determine where you want to be in one year. It usually takes three years for a program to be fully mature.
Making an Educated Decision about Purchasing Card Programs
Albert Einstein said, "Insanity is doing the same thing over and over again and expecting different results." The problems you resist will persist. With cost and time pressure mounting, now is a good time to reconsider a purchasing card program. When structured correctly, there should be minimal cost and tremendous opportunity for time savings and rebates, too! Proper controls must accompany any payment option, and purchasing cards are no different. Ask yourself if you can benefit from a purchasing card program at your institution.
Considerations for Choosing your Purchasing Program Provider
Your program provider should add value throughout your process of evaluation and during implementation and post-implementation. Look for a provider that offers the following support:
J.P. Morgan Solutions
For more information about J.P. Morgan's Purchasing Card program, visit www.jpmorgan.com/commercialcard.
