As we continue exploring how to better manage employee initiated spend, this article focuses on using corporate cards and P-cards as a means to facilitate unstructured spend visibility and control. Furthermore, it highlights the benefits of unifying the reporting and reconciliation processes of these two spend streams to the audit and treasury departments.
Why is spend visibility important?
Timing is everything when it comes to effectively managing spend. Because of this, many organizations have done away with pre-approvals for employee initiated spend because of the delays associated with supervisors’ approvals, which often result in additional costs due to a last-minute purchase – as is the case with airline reservations or seats at a sport event or theater. Instead, many firms now have corporate and departmental policies that employees are guided by when they spend corporate funds. The tradeoff is that now the employee decides when they will buy, and for how much, resulting in less visibility for the business.
There are multiple corporate departments that can benefit from advanced visibility on payments due. The accounts payable (AP) department is the most obvious as they are responsible for making payments, ensuring that the firm takes advantage of early payment discounts, and avoids late-charges. For instance, when employees use their own cash or credit card to pay for home-office expenses, meals and entertainment with clients, or attendance at a local conference, AP does not know how much is due. Further, they won’t know which corporate department’s budget will be charged until the expense report is created and approved and/or the conference invoice received for payment.
But visibility extends beyond AP. The department heads that are eventually cross-charged for the expenses, such as engineering, field services, marketing, and sales, also have an interest in knowing how much their employees are spending. Each department has an expense budget they must adhere to from month to month, and without early notice of spend hitting their budgets, limits may be exceeded, resulting in a difficult explanation to the treasurer / controller. By having advance visibility on charges coming their way, department heads can ask their employees to withhold spending until the next cycle or spend within the current budget if doing so will enable the department to stay within budget from one budget cycle to the next.
Firms that provide employees with corporate credit- or travel-cards, or that process payments with P-cards have the benefit of receiving feeds from the financial institution within days of when the charge is made – gaining visibility on amounts-due and payment-due dates usually days or weeks before the expense report or invoice is processed and approved for payment.
The difference between corporate cards and p-cards
Corporate cards are cards issued by a bank or financial institution to employees that the firm wants to grant access to corporate funds. Each card is associated with an employee name and/or number, which helps track any disbursement made by that employee to any vendor. This association helps not only the accounts payable department but also the audit department – when looking for patterns of employee spend or checking for potential fraud.
Purchasing cards, also known as P-cards, are account numbers a financial institution – referred to as issuer or provider - issues to an organization for the purpose of making purchases by its employees. Suppliers are set up to accept and process payments via P-cards through the existing credit card system. Information about the purchase, captured by the vendor’s point of sale system, may include the vendor’s name and transaction amount, as well as information like customer-defined codes and line-item detail. The organization receives feeds from the financial institution with notifications of charges as they are incurred, and a billing statement once per month. Charges are allocated to the appropriate department and expense-type based on the employee making the purchase, the supplier code, etc. In addition, a benefit of P-cards is the controls the organization can implement for each P-card, e.g. single-purchase dollar limit, monthly limit, merchant category code.
Substantiation process for p-card and corporate card charges
Whereas charges made through corporate cards are typically matched to expense reports submitted by the employee or invoices processed, purchases made through P-cards have a higher degree of substantiation:
- P-card purchases are matched with invoices and the P-card statements.
- The employee making the purchase must verify that the charges are correct and the goods were received.
- The company’s card-program administrator must validate the transaction and load it into the accounting ledger for payment.
Because expense report submittal, review, and approval processes are different for purchases made through the corporate card versus purchases made through P-cards, it is not unusual for organizations to have to train employees on both processes, and to account for P-card spend and corporate-card spend as two distinct spend channels – even if they are both parts of what we consider employee initiated spend.
Benefits of combining corporate card and p-card spend channels
Since employee initiated spend is carried out through both corporate card and P-card channels, organizations that combine the corporate card and P-card spend streams onto a single platform have much to gain. The extent to which the user experience for submittal, validation, and approval of charges made through the corporate card and P-card payment channels are similar, the more likely charges for purchases and expenses will be reported and submitted for approval sooner and reflected in the accounting ledgers that drive payments and departmental reporting. Using artificial intelligence and machine learning to automate these tasks can help minimize a large part of the work involved, resulting in enhanced employee satisfaction. Auditing for human error due to a) the complexity of having two separate approval processes, and b) the potential for duplicate payments – charging the P-card at time of order, and paying the invoice with the corporate card – is facilitated when approvals for both P-card charges and corporate card charges flow through the same system. And the treasury department benefits from more predictable cash management as a result of the unified approval interface for P-card and corporate card charges.
Putting it all together
Organizations pay for employee initiated spend through a number of different channels: cash, corporate credit cards, P-cards, ACH, and checks. Payment to vendors, reimbursement to employees, and reporting to department managers across the business are driven by how soon the employee creates and submits an expense report or substantiates, verifies, or reconciles charges that come through via the organization’s corporate card or P-card statements. The sooner the charges are reconciled, approved, and recorded in the accounting ledgers, the more visibility AP has on payments due, and the more visibility department heads have on actual expenses against their spending budgets. Integrating vendor lists across these channels means a more accurate reading of volume spent by a vendor, resulting in additional opportunities for the procurement department to negotiate favorable pricing. Combining corporate-card and P-card spend into a single platform helps the internal audit department check the accuracy of recordkeeping and accounting and helps the treasury department with enhanced visibility on cash needs.
Intelligent spend management is an essential component of SAP's initiative on the intelligent enterprise. By becoming an intelligent enterprise, organizations can respond to individual customer needs, engage talent in new ways, create disruptive business models, and more. SAP Concur’s Customer Improvement Group can help SAP Concur customers identify ways they can obtain increased value from better management of their employee initiated spend. For additional information contact your SAP Concur account representative.