You have heard this common advice: Benchmark your Purchasing Card process costs and savings against your peers. Under the right circumstances, doing so can give you a decent indicator of the efficiency of your P-Card process. However, more often than not, this exercise paints a false picture of your program, whether positive or negative. Keep reading to find out why this might be the case and what a better alternative is. Also access a seven-minute podcast by Mary Schaeffer, AP Now, that pokes necessary holes into the popular cost-to-process-an-invoice metric. Her insight can be translated to P-Card programs as well.
What’s in a Number?
When you benchmark your process costs, how often do you know the criteria that each peer organization used to derive their total? Further, does anyone’s criteria match what your organization uses? There are too many different variables that can come into play. In many cases, an organization does not even do an actual calculation; they merely guess. These are just some of the points that Mary Schaeffer shares in her insightful podcast. Check it out to learn about other pitfalls related to process cost metrics: https://www.youtube.com/watch?v=KqtzC5TVWuY.
A Better Alternative
Start internally. Calculate your organization’s purchase-to-pay (P2P) process costs, both “traditional” (PO, invoice, and check payment) and P-Card. If the P-Card process cost is not notably lower, then identify the steps that are making it overly complicated and/or do not add any value. After all, P-Cards were designed to yield significant efficiencies, but it’s up to each end-user organization to make this happen. Share your internal research with management, along with any recommendations you have to increase the savings.
Too often, P-Card program managers only report industry numbers to their management to demonstrate the value of P-Cards. Such data cannot help your organization improve. While calculating P2P process costs can be a tedious task, it is the only way to get a clear idea of what’s happening within your organization.
Final Thoughts About Benchmarking
Do not abandon benchmarking altogether, as it can be very useful for evaluating your card program. Just be thoughtful about the metrics you choose to benchmark and the sources from which you obtain data.
Focus on metrics that are more straight forward than process costs, such as the percentage of payments under “X” dollar amount that P-Cards capture. If you still want to benchmark process costs, then strive to find organizations that align with yours in size/type and try to determine the criteria they included for their calculations.
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About the Author
Blog post author Lynn Larson, CPCP, launched Recharged Education in 2014. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…