Improving Accounts Payable Using P Cards

One of the newest ways to re-engineer Accounts Payables is through the use of procurement credit cards or P-Cards (Purchase Cards). Accounts Payable is often a very non-value added type of activity. It involves a lot of time and expense with marginal benefits. For example, accounts payable may involve processing purchase orders, preparing checks, stuffing and mailing-out payments, posting entries from all kinds of source documents, etc. Suppose you could reduce this activity by simply using procurement credit cards to consolidate much of the process. That's what P-Cards are all about!

Here's how they work. Instead of purchasing with requisitions, purchase orders, invoices, and checks, you now streamline this entire process by issuing purchase cards to certain people in your organization. Processing costs are reduced and you receive special reports that itemize your purchases on one single statement. Purchase Card Programs require a "buy-in" by all participants: Management must OK the P-Card Program, employees must accept using them, vendors must honor them, and the bank has to offer a quality P-Card Program. If you can get all four of these lined-up, then it's well worth investigating.

Make sure you look at your current payables workload before selling the idea of a P-Card Program. For example, how many invoices will you eliminate with P-Cards? If P-Cards will cover only about 1% of your spending, then it probably isn't worth implementing. However, most researchers have indicated that the typical payable function has 80% of its purchase transactions accounting for less than 20% of total purchase dollars. Therefore, considerable time and effort can be saved through a P-Card Program.

You can also setup unique controls within a P-Card Program. For example, purchase credit cards can be programmed for purchase limits by transaction, by day, by month, etc. Special reports can be used to reconcile purchase transactions directly with general ledger accounts. The reconciliation process can be streamlined by having users submit on-line monthly reconciliation's to the Payables Department.

matt evans photo Written by: Matt H. Evans, CPA, CMA, CFM | Email: | Phone: 1-877-807-8756

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