It seems that for as long as there have
been businesses in the United States,
there have been expense accounts.
Employees would have to make sure they
kept receipts that accounted for every
penny that they spent while away on business if they wanted to be reimbursed.
Today, that process has become a lot simpler because of something called the purchasing card.
“It’s a total expense management solution,” says Paula S. Lee, principal relationship manager for Wells Fargo Bank in
Houston. “Users use it to pay for everyday
expenses as well as travel, supplies and any
other type of ongoing regular expenses.”
Smart Business talked to Lee about how
the purchasing card has revolutionized
company spending.
How does a purchasing card work?
Employees use it for any number of company, preselected services. Basically, the
card eliminates the need for processing
invoices, petty cash, purchase orders and
numerous other requests. When a purchase
is made with the card, the sale can be allocated to and actually interface with clients’
accounts payable systems. The charges are
downloaded each month into the designated general ledger reports without someone
having to go in and take the invoice, write
the check and put it into the accounts
payable system it’s been allotted to.
The program is great for companies that
have employees who travel a lot, use a P.O.
system or have numerous petty cash
accounts because not only can they use the
cards for their airline, hotel and car rental
but also for out-of-pocket expenses, such
as mileage, gas money or meals. And
instead of having to fill out a manual
employee expense report, the employee or
contactor can just log into the system. The
transactions then need to be submitted for
approval by the employee electronically. If
there are out-of-pocket expenses, upon
approval, the money is deposited directly
into the employee’s account of choice.
Do the cards have a preapproved limit?
As far as how much we approve each card for, the cards go through our normal
credit approval process. Each card is designated with a specific limit and you can
actually drill down to say a $1,000 limit,
which can only be used for specific purposes.
For example, a card could be given to a
driver with the specification that it can
only be used at the pump — meaning that
person couldn’t go inside and spend it on
snacks or other items in the store. Thus,
the purchasing card allows you to keep
more control over employee spending and
a better eye on employees’ spending activities.
Would it be difficult for the holder to abuse
the card?
Yes, because you can restrict use for business-related purposes; whether that be an
office supply store or wherever you go to
buy gas. A company can set up their own
unique parameters for their program.
These controls can be changed, by an
authorized agent within the company, at a
moment’s notice. In addition, should a card
be denied, the company can go directly
into the system and review where that
cardholder has tried to use their card, even
take away all spending capabilities, again at a moment’s notice. In addition, and subject to certain terms and conditions
imposed by Visa, Visa provides a Liability
Waiver Program which provides coverage
against employee misuse up to $100,000
per cardholder.
How long have purchasing cards been available?
Purchasing cards have been around since
the early ’90s. Initially, they were only used
for MRO (maintenance, repair and operating) expenses. Today, purchasing cards
encompass traditional MRO, as well as
T&E (travel and entertainment), repetitive
payments, such as cell phones, pagers, utility payments, even advertising. Initially,
large Fortune 500 companies, as well as
the federal government, were the only
users of purchasing cards. Today, more
small- to mid-size businesses are realizing
the benefits of the purchasing card program. Clearly, companies are re-engineering the way that they are managing their
payables and the purchasing card is an
excellent tool for companies to use.
Does it cost the vendor anything to participate?
The vendor would get charged on the
card side, similar to merchant card fees.
On the flip side, vendors get their money
quicker, usually within one to two business
days, because the purchase isn’t made on a
net 30-day purchase order. In turn, their
account receivables move quicker as well,
without the exposure or risk.
The company using the purchasing card,
on the other hand, can pay for the product
right away and their books are up to date,
in addition to the knowledge of what exactly was purchased, a huge benefit for any
company that is wanting to control costs.
PAULA S. LEE is principal relationship manager for Wells Fargo
Bank in Houston. Reach her at (281) 476-4527 or
[email protected].