What are procurement cards?
Procurement cards are charge cards which work in a similar way to credit cards and can be used to purchase goods or services. They can be treated like traditional charge cards and can be open to use with any suppliers or they can have controls placed upon them by the employer, limiting them, to use with only certain commodities or suppliers.
Procurement cards are established across the UK Public Sector and if deployed effectively can deliver significant administrative cost reductions and benefits.
Why should I be interested?
There is considerable documented evidence that procurement cards deliver significant benefits to a public authority :
- KPMG study endorsed by the National Audit Office confirmed average savings in process costs of £28 (Central Government)
- Deloitte & Touche study for the National e-Procurement Project (Local Government) average savings in process costs of £33 per transaction
- Significant cost savings
- Current manual processes are costly
- Empowered staff with accountability
- Release of skills to focus on high value purchases
- Financial transparency and accountability
- Meeting prompt payment legislation
Reduction in paper consumption
Benefits to suppliers :
- Reduction in need for credit control
- Improved cash flow
- Reduced paper work
- Reduction in process cost
The Gershon efficiency review highlighted the need to realize back-office efficiencies through replacing manual administrative processes with automated electronic solutions. Process efficiencies and the reduction in administrative costs arise from automating the order to pay process : authorisation of purchase requisitions, issue of purchase orders, matching of invoices and supplier payments. Typically, these process efficiencies arise from a combination of e-purchasing and procurement cards.
The level of benefit achieved will depend upon the comparison between the manual, traditional order-to-pay process prior to the implementation of
e-purchasing and procurement cards.
How your business benefits
Reduce Manual Costs
The non-value add processes for payments and invoicing can be manually intensive – and hence costly – in many organization. Particularly receipt of paper invoices that require manual entry to core accounting systems, and the internal cost of receiving enquiries when, for example, the invoice received from a supplier is for a quantity or price different to that in the buyer’s internal system.
An electronic bank file containing multiple invoices can be uploaded onto the core finance system or general ledger and auto-matched in an electronic manner. The procurement card consolidates the invoices and provides an electronic consolidated invoice.
If a streamlined automated reconciliation process is used for the electronic procurement card statements then this can lead to reductions in the numbers of accounts payables staff required to process invoices. This is more applicable to public sector authorities which operate centralized processing as it is easier to release staff capacity for redeployment in these cases : from the “back-office” to the “front line”. On average a public sector accounts payable member of staff
re-keys and processes 10,000 paper invoices per annum. An electronic file containing 10,000 invoices can be uploaded, auto-matched and reconciled for settlement in 10 seconds.
Improve cash flow
Inefficiency in the payments processes often result in a failure to take advantage of favourable supplier terms on offer for early or punctual payments, and may even cause suppliers to raise prices to compensate for high maintenance or high cost of sales customers.
Inefficiencies also can lead to incorrect payments being made, and even duplicate payments, creating more work for supplier and customer, increasing the workload and costs.
The winning factor : lowest purchase-to-pay process costs
Procurement Cards allow organizations to achieve the lowest process costs among all order-to-settle processes in use today whether on their own or with
Reduced tax overheads
MasterCard is VAT accredited in the United Kingdom meaning that reports from Smart Data OnLine can be used as VAT reclaim invoices by clients. Customs and Excise accreditation for Summary and Line Item Detail (LID) VAT enables an electronic, paperless process. This accreditation replaces the mandatory paper VAT records with electronic records which can be used as evidence of VAT transactions. Automating the processes reduces both the cost of reporting and claiming taxes as well as ensuring their correctness to obtain full entitlements.