Bank of America Merrill Lynch (BAML) is among those to have invested heavily in its European card business, expanding its coverage from 10 to 26 countries in EMEA since 2009, adding local-currency options and focusing on card scheme build-outs as parts of efforts related to the 2014 introduction of the Single Euro Payments Area. “Travel and entertainment is one of the highest expenditure after salaries, but now with the new regulations and focus on working capital and cash management, commercial cards are playing an important role across the purchasing spectrum, including for high-cost items,” says Helen Mason, director of commercial cards, GTS EMEA at BAML. “The advantage to treasurers is to rationalize data, improve spending visibility and better manage relationships with suppliers.”
The use of cards for large purchases can increase costs for suppliers, but also means guaranteed payments can be processed in three days, rather than over conventional 60-day or 90-day invoicing cycles. From the buyers’ point of view, the solutions help improve cash flow, cut administration costs and monitor the responsiveness of the companies’ suppliers.
Another advantage is that employees who did not previously have the authority to make purchases can easily be given that authority, either through a purchasing card or a single-use virtual card number (VCN). Equally, restrictions can be imposed – for example, blocking entire groups of suppliers – which might help limit unauthorized procurement.
While better visibility and payment management are drivers of client demand, the key reason for increasing card use, bankers say, is the concrete financial benefits they bring in terms of treasury management.
“We work with the client on a case by case basis building a compelling financial reason to move appropriate payments to card,” Mason says. “Clients can also negotiate discounts because they are able to better manage the flow of quantity of payments to individual suppliers through reporting and account management software.”
Some clients have grasped the concept of expanded commercial card use and have moved up the purchasing scale to valuable items, Mason says. However, the majority of companies still restrict card use to non-strategic purchase.
The cost to process a traditional purchase order averages $91, according to a study by RPMG Research Corporation, reported by JP Morgan. Purchasing cards, meanwhile, generates average savings of 76% on individual purchases.
“Cards provide better spend visibility, which can lead to increased pricing leverage with vendors and suppliers as well as greater risk-management and control around spending,” says Catherine Moore, managing director of international commercial cards at JPMorgan in London. “This results in spending in the right places at the right amount and at the right time.”
JPMorgan leverages the MasterCard network to offers single-use accounts, where card details are generated in real time with specific pre-authorized control parameters.
“We work in partnership with our clients to develop a holistic approach so that card oversight and control is linked closely to the wider suite of payment options, with the aim of optimizing working capital management across the enterprise,” says Moore.
Alongside the roll out of cards into the procurement business, banks have moved to add a swath of enhancements to card services, including exact authorizations, controlling card spends to specific amounts down to the penny and push payments – a straight-through process which directs payments directly to supplier accounts without the need for supplier intervention.
Companies have historically split corporate cards used for travel and expenses from purchasing cards, which contain functionality to capture invoice data and electronic VAT reclaim. Now banks are moving to combine the two. For example, RBS onecard allows organizations to amalgamate travel, entertainment and general business expenses.
Alongside physical plastic cards, RBS has introduced a virtual card solution, called Approval2Buy, which gives organizations greater control by only approving transactions that meet a user’s pre-determined spending profile.
The web-based solution ensures reconciliation through assigning unique card numbers, and allows employee cardholders to access their transactions online, and re-allocate and approve them before forwarding them to their line manager for authorization.
One RBS client was a vehicle rental firm based in the UK, which saw 3,000 parking and speeding fines come into local offices every week, each of which would be paid using a commercial card, before the customer would be charged to recoup the cost. Approval2Buy, which sits on a MasterCard platform, centralized that process, creating VCN to settle individual transactions.