How can companies better manage employee-initiated spend? One way is to use corporate cards and purchasing cards (P-cards) to facilitate unstructured spend visibility and control. This approach offers additional benefits by unifying the reporting and reconciliation processes of these two spend streams to the audit and treasury departments. Let’s explore further.
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. These delays often result in additional costs due to a last-minute purchase – as is the case with airline reservations or seats at a sporting event or theater. Instead, many firms now have corporate and departmental policies that guide employees when they spend corporate funds. The tradeoff is that now employees decide when they will buy and how much they will spend, 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 avoiding 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. Without early notice of spend hitting their budgets, limits may be exceeded, resulting in a difficult conversation with the treasurer or 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 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. This way, they gain 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 issued by a bank or financial institution to employees to grant them 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 AP department but also the audit department when looking for patterns of employee spend or checking for potential fraud.
Purchasing cards are account numbers a financial institution – the issuer or provider – issues to an organization for the purpose of allowing employees to make purchases. 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 such as 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. Another benefit of P-cards is the controls the organization can implement for each P-card, for example, single-purchase dollar limit, monthly limit, or 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.
Expense report submittal, review, and approval processes are different for purchases made through the corporate card versus purchases made through P-cards. Hence, 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. Further, they are more likely to be reflected in the accounting ledgers that drive payments and departmental reporting.
Human error can easily occur because of the complexity of having two separate approval processes and the potential for duplicate payments – charging the P-card at time of order and paying the invoice with the corporate card. Auditing is facilitated when approvals for both P-card charges and corporate card charges flow through the same system. 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. 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.
Want to learn more? See why intelligent spend management is an essential component of SAP’s initiative on the intelligent enterprise.
This article originally appeared in the Concur newsroom and is republished by permission.