P-card program pitfalls and success strategies
Regular reviews should be part of your ongoing Purchasing Card (P-card) program management efforts. When doing a checkup of your P-card program, consider the variety of factors that contribute to its success or, conversely, its stagnation. The National Association of Purchasing Card Professionals (NAPCP) has identified 10 common P-card program pitfalls to avoid. There are clearly more than 10, but the ones described below are at the heart of program development and management. The goal is to transform the pitfalls into success strategies to put your program on the right path.
10 common P-card pitfalls
- 1. Lack of infrastructure to support the program
If your P-card program infrastructure is still missing something, take the steps necessary to fill the gaps. Growing a program before the infrastructure is solid will only compound the problem. Many components of a solid infrastructure are discussed below.
- 2. Program administrator/manager (PA/PM) not suited for the position
Your organization should look for a self-motivated professional with a combination of strong communication skills, analytical abilities, training experience (creating and delivering), technical abilities, knowledge of accounting principles and past success with project leadership and management. Also, consider the Certified Purchasing Card Professional (CPCP) designation, which ensures someone’s grasp of the P-card industry and program management best practices.
- 3. Lack of partnership with card issuer
Even a well-conducted RFP can transition to a less-than-ideal situation if the end-user and/or provider fail to put forth the necessary effort to build a partnership. Discuss roles and responsibilities with your issuer so that both sides are clear about expectations.
- 4. Lack of communication to internal organization and to suppliers
Effective communication is critical for getting people to embrace the process changes associated with P-card program implementation. Your organization should convey the P-card business case, tailoring the message to fit each audience. For example, communicate your P-card-related requirements to suppliers.
- 5. Lack of program goals and benchmarking
Without program goals, policies and procedures cannot be properly developed. Benchmarking, in one form, serves to measure progress and success against the goals. Benchmarking against peer organizations and industry averages can also reveal if your program is on track. Use benchmarking to identify improvement opportunities.
- 6. Ineffective training
A mandated training program is essential and commonplace. Are employees learning what they are supposed to? Regardless of training method, your organization should have ways to identify the effectiveness of the training.
- 7. Unclear, undocumented and/or outdated policies and procedures (P&P)
First and foremost, P&P must be documented. P-card P&P should align with program goals, not conflict with other organizational P&Ps and must be updated as the program changes and grows.
- 8. Over- or under-controlling the program
The ultimate challenge is striking the right balance of controls, and effectiveness is more important than the sheer number of controls. Auditing every transaction for every cardholder in every period reduces the process savings inherent to P-cards. A better long-term approach is for an organization to review the cost versus benefit and consider its level of risk tolerance.
- 9. Complicated, inefficient and/or manual processes
For utmost efficiency, do not simply add P-card payment to the end of a current, inefficient procure-to-pay process; this provides little benefit to your organization and its suppliers. The key is to eliminate the inefficiencies while re-engineering the “traditional process,” which is often paper-based. Your organization should pursue electronic reporting, data integration between systems, online statement delivery, electronic review and approvals and, when appropriate, automatic transaction reconciliation.
- 10. Ineffective card distribution
Cards may be in the wrong hands, under-distributed and/or over-distributed. First, determine which employees tend to initiate purchases or requisitions; they are prime targets for the cardholder role. Issuing a card to just one employee per department may represent under-distribution, as that one employee may have nothing to do with some of the purchasing activity within his or her area. Similarly, over-distribution is a potential problem, usually resulting in a high number of inactive cards.
- Read the “Orange County, Fla., Public Schools ink P-card agreement” sidebar to learn about their plans.
About the author
Lynn Larson, CPCP, is manager, Industry Information and Research for the National Association of Purchasing Card Professionals (© 2009 NAPCP, used with permission). For more P-card tips and guidance, consider Purchasing Card Essentials: The NAPCP’s Guide to Establishing and Managing a Program, available from www.napcp.org/P-CardEssentials.
Orange County, Fla., Public Schools ink P-card agreement
Orange County, Fla., Public Schools have selected Bank of America Merrill Lynch to provide purchasing card services for its staff. The district expects that the agreement (an open-ended agreement with 90 days’ cancellation notice) will improve cash management, streamline the procurement process and eliminate costs associated with expensive manual paper-based processes.
The agreement leverages the group purchasing power of all 180 public schools in the district. Currently there are 1,079 card holders with an annual expenditure of $10.8 million. The district expects that using the purchasing cards can save an average of $110 per transaction over a conventional purchase order-based system and reduce procure-to-pay time by five days.
The district uses the Works management tool, which enables account administrators to monitor card usage in real time, pre-assign and modify spending limits, reconcile transactions with the district’s financial reporting system and run more than 12 detailed transaction reports, such as vendor analysis, unusual activity analysis, travel purchase report and fuel purchase report.
Additionally, cardholders within the system can monitor their transactions online, thus allowing improved oversight of departmental budgets. The purchasing cards also facilitate the purchase of items valued under $999 without the need to use petty cash or purchase orders.
Orange County Public Schools are continuously improving their purchasing processes and continue to search for new methods to save money.