When P-Cards are NOT the Best Option: A Real-life Example

Purchasing Card, Virtual Card, or other payment method? A company for which I did some consulting work was initially planning to adopt P-Cards for certain orders under $2,000. After all, this is where P-Cards traditionally excel. However, a review of the facts revealed otherwise in this case. My ultimate recommendation to them was to back away from their P-Card plan and instead consider Virtual Cards. Keep reading to see why and how this case might align with circumstances within your organization. 

The Situation

The company thought it was spending too much time on low-dollar purchases. Specifically, buying departments had too many invoices to approve and, subsequently, accounts payable had too many invoices to pay. It sounded like a great P-Card opportunity until they mapped out the related purchase-to-pay (P2P) process for these orders. The purchases in question utilized an eInvoicing model for which the suppliers, in conjunction with invoice submission, electronically provided various order details requested by the company. The P2P process was quite slick. The main drawback was the invoice volume; orders under $2,000 comprised approximately 55% of the activity.

Changing to a P-Card process would have actually complicated everything, negating the benefits of P-Card usage. They had cost analyses to prove it. Ironically, the company had a separate P2P process (not their eInvoicing model) that could have benefited from P-Card adoption.

A Better Solution

In their eInvoicing model, Virtual Card payments could have helped by retaining the existing process efficiencies, but providing a secure, electronic payment option. Low-dollar invoices could be consolidated into fewer payments for AP to make and tweaks to their invoice approval process could reduce the burden on buying departments.

Key Takeaways

When contemplating a change to your payment strategy, be sure to:

  • specifically identify the pain points you are trying to solve
  • revisit your P2P requirements, as perhaps some simple tweaks could resolve the pain points
  • document today’s P2P process cost and what it might be after implementing a particular change
  • research various options before making any decisions
Every new payment strategy plan deserves another look before pursuing. You might find that a Plan B would be better. 

Every new payment strategy plan deserves another look before pursuing. You might find that a Plan B would be better. 



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About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

4 Reasons Organizations Resist Virtual Cards

There are at least four reasons why some organizations have not yet adopted Virtual Cards or, more broadly, an electronic accounts payable (EAP) solution. Do any of the following pertain to your organization? Revisit the reasons for their decision and ensure they had the right information first. You might be able to reopen the case.

1. Few Regularly Used Suppliers

A common target for Virtual Card usage is regularly used suppliers. This list might be short for some organizations, thereby a Virtual Card program may not be the best fit. For example, one end-user told me they do not use Virtual Cards because, as a research laboratory, their suppliers were always changing due to their always evolving purchasing needs. They found that traditional Purchasing Cards worked best. This is a valid reason. However, for other organizations, there are few regularly used suppliers because no one has pursued strategic sourcing. Besides not gaining the benefits of a Virtual Card program, they are potentially losing out on cost reductions that can be obtained through negotiated pricing.

2. Too Hard to Convert Suppliers

Your organization might be under the impression—without concrete evidence to support it—that your suppliers will not accept Virtual Cards. Before casting Virtual Cards and other ePayables aside, work with your current Commercial Card provider (or even a provider who is trying to gain your business) to do a “supplier match.” You might be surprised at how many of your suppliers are already accepting Virtual Card payments from other customers. In addition, many providers offer supplier on-boarding services, with or without an extra fee, to make the process easier for you. It pays to explore provider options.

3. The ERP System Cannot Support It

In response to this excuse, I have to ask, “Are you sure?” ERP systems are more robust today than ever before and include many different payment choices (or you might be able to add one). Further, you might be able to apply a default payment type by supplier. To accommodate Virtual Cards, the “payment release” step of the accounts payable process may simply generate another output. Instead of just checks and an ACH file, there would be a Virtual Card file to upload to the provider. Talk with your ERP system vendor to learn more about the capabilities.

4. Organization Resistance to Change

This is the catch-all reason that, unfortunately, often prevails above logic. If decision makers reject a sound, factual business case for Virtual Cards, then there is not a lot you can do until there is a leadership change or shift in organization priorities. Wait for the right time to bring this up again and ensure your business case includes the fraud protection aspects of Virtual Cards/EAP. Read more about getting EAP in the door...

Open Fraud Survey

Speaking of fraud, I encourage you to participate in the current survey by AP Now, Newer & Less-commonly Occurring Payment Frauds. It digs into all sorts of frauds that your organization might be overlooking.

Two Upcoming Events

  1. July 24 Public Sector Virtual Symposium: Preparing Public Sector Auditors for Tomorrow’s Terrain
  2. July 25 Webinar: P-Card Fraud Prevention and Detection Best Practices 

Visit the Events page for more information.

Separate the facts from the myths to ensure you are making a sound decision about Virtual Cards and other EAP solutions.

Separate the facts from the myths to ensure you are making a sound decision about Virtual Cards and other EAP solutions.



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About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

Virtual Card reconciliation hurdles

Paid in full? In a perfect world, suppliers would process Virtual Card transactions within a day or two of receiving the payment notification, thus simplifying your accounts payable operations. In reality, some Virtual Card payment processes get stuck midway; that is, the supplier is slow to act or, worse, does not act at all. Sometimes this aspect is why AP may be lukewarm to Virtual Cards. Given the potential snags, how should your organization treat Virtual Card payments from an accounting perspective? While every organization is unique and may take different approaches, following are suggestions plus tips for easing potential frustrations.

For an overview of Virtual Cards (pull payments) versus buyer-initiated payments (push payments), click here.  

Accounting Entries

Again, every organization might be a little different, but the following types of entries could occur:

  1. Upon receipt of goods (e.g., debit an asset account and credit accounts payable)
  2. Following invoice processing, when AP initiates the related Virtual Card payment through its electronic accounts payable (EAP) provider (e.g., debit accounts payable and credit a designated Virtual or Commercial Card payable account to keep these payments separate from other payment types)
  3. When AP pays the EAP provider (e.g., debit the designated payable account and credit cash)

Reconciliation

Chances are, the statement total from the EAP provider does not exactly match the amount in the associated payable account because you are still waiting for one or more suppliers to process Virtual Card transactions. The key is to streamline your reconciliation process. Pay the EAP provider and then focus on the remaining amount in the payable account.

  • Which pending Virtual Card transaction(s) does the remaining amount represent?
  • Which pending transactions are associated with Virtual Cards that have expired while waiting for the supplier to act?
  • What does your EAP provider offer in terms of reporting to help you easily identify pending transactions (Virtual Card payments you have initiated but suppliers have not acted on), including any expired cards?
  • If needed, does your ERP system offer any reporting to simplify the reconciliation?

 

To maximize Virtual Card payments, plan ahead for how to prevent and address potential hurdles.

To maximize Virtual Card payments, plan ahead for how to prevent and address potential hurdles.

Additional Virtual Card Tips

As you add suppliers to your Virtual Card program, include relevant training.

  • Work with suppliers to identify who within their organizations will need training. 
  • Train the applicable supplier personnel on the Virtual Card process. See a related blog post on Virtual Card acceptance.
  • Provide documented instructions for their ongoing reference.

Within your organization:

  • Determine your Virtual Card expiration date strategy.
  • Decide if you want to send reminders to suppliers before a Virtual Card expires.
  • Document procedures for how AP should address Virtual Card payments that suppliers do not process in timely manner. Besides training and communications with suppliers, this might involve extending the card expiration date if possible or reissuing a Virtual Card. While you do not want to wade into the waters of unclaimed property, try to avoid defaulting back to a check payment for the offending supplier, which can derail your Virtual Card program.

Access more content on ePayables/Virtual Cards.


About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

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