How to save time, money and hassle by optimising your firm’s purchasing card programme

Krista Mcgill                 Expense management and charge backs are a major administrative cost for legal firms. Many firms use purchasing cards to manage the process but most could be getting far better value from them. Krista McGill from Westpac’s Commercial Card Solutions team explains how.

Purchasing cards (P-card) are a type of credit card used by organisations to pay for goods and services.

They are also known as payment, procurement, corporate, or commercial cards. P-cards are commonplace in firms that want to improve process efficiencies and gain more control over low-value, high-volume procurement expenditure.

They improve cost efficiencies by enabling staff to quickly and easily purchase goods and services, thus reducing transaction costs and improving the way transactions are monitored and reported.

P-cardholders can also complete transactions by dealing directly with suppliers, thus avoiding the need to involve procurement and accounts payable staff.

The first step in optimising P-cards as a powerful cost and budget management tool is to know whether your firm actually needs a card. The best advantage will be gained if one or more of the following criteria are met:

  1. A significant proportion of payments are less than $2,500;
  2. The firm is regularly reimbursing staff for out-of-pocket expenses;
  3. Many suppliers are used infrequently and a supplier rationalisation exercise would be beneficial;
  4. The business would benefit from a controlled, cost-efficient procurement process; or
  5. A change to the current accounts payable systems, technology or process requires a more efficient method for settling low-value purchases.

Most law firm expenditure fits this model, with travel, entertainment and sundry expenses featuring significantly. Their biggest challenge typically involves allocating P-card users’ expenses to client jobs and there is usually a significant lag between incurring the expense, and reimbursement.

All too often, legal firms opt to write off the expenses rather than dealing with the administrative hassle. In many cases there is little visibility or understanding about exactly how much is being spent on different types of purchases.

These problems can easily be solved by taking the following steps to get the most from your P-card programme:

  1. Be strategic;
  2. Have clearly stated P-card policies;
  3. Establish (and enforce) P-card processes that work for your business.

How to take a strategic approach to your P-card programme

Spend time assessing the firm’s purchasing profile and establish clear objectives for the P-card that align with the business strategy.

This will ensure that you are clear about what you want to achieve from having the card. Is it reduced administration costs? Fewer accruals? Better expenses forward planning, forecasting and budgeting? Increased visibility of who is spending what? Reducing (or eliminating) administration costs involved with reimbursing staff expenses?

Law firms typically focus on managing travel and entertainment costs, so taking a strategic approach to the P-card programme can help to identify additional money saving opportunities, such as: improved cash flow, rebates from card issuers, preferred supplier discounts, supplier rationalisation, and petty cash reduction or elimination.

It can also identify opportunities to streamline or eliminate processes such as data entry and expense coding.

Establishing benchmarks for the P-card objectives and strategies, and regularly reviewing and reporting against them, will help to ensure the strategy remains on course and eliminate unpleasant expense management surprises.

Have clearly stated P-card policies

It is important to establish policies around P-card allocation, usage and reporting. These policies can be enforced through manual administrative processes, or embedded into automated expense management systems to ensure more robust enforcement and increased transparency.

Typically policies should establish guidelines on who can use P-cards, permitted approvers, spending limits, approved suppliers and permitted transaction categories. Policies should also specify mechanisms, such as defining targeted and restricted transactions, in order to prevent P-card abuse and misuse.

Establish (and enforce) P-card processes that work for your business

Taking a more strategic approach to P-card usage can require a degree of culture change within organisations and it is not uncommon to experience resistance or attempts to circumnavigate the new processes.

Support policies by developing clear, consistent and workable processes for P-card usage, and communicating them – along with the rationale – to all users. Continue the education process by regularly reminding staff about the processes and why it is important to follow them. Be prepared to enforce non-compliance.

Processes and accountabilities are also necessary for P-card approvers, such as partners and cost centre managers.

Many law firms still use manual paper-based processes when managing P-cards but moving to an automated expense management solution can significantly enhance the firm’s ability to gain optimal benefits from its P-card programme.

A customisable and scalable expense management system is an invaluable tool for providing a superior degree of visibility and control over P-card expenditure, authorisation, reconciliation and reporting. Automation enables quick and easy P-card management, which greatly reduces administration costs associated with processing expense claims and charge-backs.

It also enables firms to work with actual costs rather than accruals. Global studies indicate that effective P-card management and automated processes can help organisations realise efficiency savings costs of up to 75 per cent.

Cost centre managers can therefore review their expenses at the end of every month or quarter, and plan accordingly, thus eliminating the potential for budget blow-outs and financial year-end spending freezes.

Aligning reporting to the objectives helps to ensure that P-card usage remains efficient, effective and enforced. It also provides access to up-to-the-minute data which supports effective governance and promotes compliance. Reports could include:

•  Spending category analysis;

•  Cardholder account statements;

•  Merchant and supplier transaction details and status;

•  GST detail for New Zealand and Australian transactions;

•  Card programme analysis, etc.

A well-executed P-card programme can streamline the procure-to-pay process and reduce financial risks and exposure by moving the business away from amassing accruals, to dealing with actuals.

Utilising a strategic approach, effective policy and strong processes – combined with regular reporting and review – will enable you to gain optimal and long-term value from your P-card programme. 

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