05 Jun 2011 Is it the end of the road for the purchasing card?
The purchasing card is a great business tool. It empowers people to make purchases without the need for a complex and often expensive purchasing process. When a low value item costs less than the cost of the purchasing process itself, it makes sense to cut through the purchase to pay red tape.
But the purchasing card is beginning to show it age. It hasn’t really kept up with technological change surrounding it. The merchant fees are excessive, in a low interest rate economy the business case makes no sense and as far as reporting goes, purchasing cards have been trumped by electronic invoicing. Is it the end of the road for the purchasing card?
When it was new, the purchasing card was a great innovation. It predates much of the technology enabled purchasing process that are taken for granted today like electronic catalogs and it was a good way to address low value spend and circumvent the hassle of approval, whether before the event or retrospectively. But in 2011, the technology has moved on. Where e-procurement is in place, many low value goods are can be ordered easily. (It’s easy to forget that when purchasing cards were first developed, the internet was not common in the workplace.) And if AP automation tools like electronic invoicing are in place, even the payment end of the purchase to pay cycle is straightforward. The p-card doesn’t add any value.
And persuading suppliers to accept purchasing cards if getting harder. There was always the business case that said that the cost to the supplier, typically in the region of 2%, would be offset by the cash flow benefit of being paid early, but with interest rates so low, 2% is an excessive charge for the benefit of early payment. Certainty of payment and prompt payment is absolutely an advantage but again, the technology has moved on. Supply chain finance methods can do everything a purchasing card can at a fraction of the cost.
Indeed, the purchasing card merchant fee should be a cause of great concern. Not only is it excessive, it is becoming increasingly difficult for the card issuers to justify it as a fair and reasonable charge. The now standard practice of offering card users a rebate is, in the eyes of many, a clear indication that these fees are unnecessarily high and suppliers and can justifiable claim a share of the fee back in the form of revised pricing.
The card issuers and the card schemes have been slow to show imagination on supply chain finance and over the last decade seem to have preferred cards. Perhaps the supply chain fiance proposition is too complex. Perhaps the market hasn’t been ready for supply chain finance. But it is now and I wouldn’t bet the farm on a cards business.