If you have a corporate American Express card that you use for travel and entertainment expenses at work then you are already familiar with the concept of a commercial credit card. Selected workers are issued corporate credit cards which can be used for low-dollar value reimbursable expenses. If an employee wishes to purchase an airline ticket, office supplies or training materials they simply present their card to the supplier. There is no need for the buyer to issue a purchase order or the supplier to send an invoice. The supplier will be reimbursed by the banks via the credit card network in two to three days. At the end of each month a statement will be sent to the employee with all of the charges they have accrued through the card. The employee is then responsible for submitting the appropriate documentation to justify the expense.
In many respects, commercial cards are very similar to the consumer credit cards that you carry in your wallet. However, commercial cards offer a number of advanced features specifically designed for businesses and government agencies. For example, extensive controls can be placed on card usage. The business or government agency sponsoring the card can limit the types of purchases for which it can be used. For example, you airlines, rental cars, gas stations, book stores, warehouse clubs and office supply retailers might be on the list of allowable merchants. However, department and apparel stores might be excluded. This type of restriction is a good idea until an employee loses their luggage and needs to visit the nearest Macys to purchase a new suit for the next day’s business meeting. The controls placed on commercial cards are designed to minimize abuse and fraud.
Perhaps, the greatest benefit of commercial card programs come from the rich data and reporting that is provided on spending activity. There are three different types of commercial cards each of which provide unique sets of data about their transactions. The first type of card is a travel and entertainment card. You may have one of these in your wallet if you work in sales or a role that requires you to travel for work. In addition to enabling purchases of airline tickets and hotel rooms, corporate travel cards also provide insurance coverage for lost luggage, travel accidents and rental car usage. The first travel card was introduced by American Express in 1966 as a program to simplify purchasing and accounting for regular business expenses.
For employees that frequently drive a company vehicle there are specialized “fleet cards.” For example, the federal government maintains one of the largest fleets of vehicles in the world. FBI field agents might be issued a government vehicle to use when conducting investigations. The military owns various types of specialized equipment to transport troops and equipment between various bases. Fleet cards can be used to refuel, repair or maintain the government owned vehicles. Fleet cards can also be issued to private sector employees. Automobile manufacturers might a fleet card to drivers of the specialized trailers that carry cars to dealerships. In the case of the government, fleet cards have special features. For example, federal purchases are exempt from many of the state and local sales taxes on fuel.
The third type of commercial card is called a Procurement Card or “P-Card” for short. Procurement cards are utilized by the purchasing department or office managers to make low-value routine purchases. For example, a P-Card might be used to buy light bulbs, printer toner cartridges, office furniture, laptop computers or other office supplies.
Retailers and suppliers that accept commercial cards gain benefits as well. For example, payments are made in two to three days versus the 45 to 90 days cycle associated with the traditional invoices. Suppliers which accept card payments are viewed by many buyers as being easier to do business with. The key challenge for retailers and suppliers is the ability to provide the data necessary for commercial card reporting. The typical Point-of-Sale (POS) system is not designed to transmit an extensive set of data such as line items details back to a bank. As a result, many of the retailers and suppliers which needed to invest in upgraded POS hardware and software. The ability of suppliers to provide the accounting details is, perhaps, the largest obstacle to greater adoption.
Commercial card data can be leveraged to perform spend management and analysis. Spending behaviors can be reviewed to identify instances of off-contract buying, maverick purchasing, employee waste, fraud or abuse. Spend analysis might also lead to opportunities to improve employee purchasing experience. For example, card transaction data might reveal that employees are frequently purchasing a particular SKU from a vendor that the procurement organization does not have a negotiated discount for.
Verticalogy by Steve Keifer 