One of the many challenges of running a business of any size is properly allocating and managing corporate purchases. Although company checks and business credit cards have long been the standard form of payment among businesses, many companies are now turning to procurement cards as a fast, efficient, and cost-saving measure.
Practice What You Preach
Teachers Credit Union (IN, $1.7B) has been offering procurement cards, also called “purchasing cards,” to their members’ businesses. Before doing so, however, Teachers tested the product internally. “You have to know what you sell,” says Amy Sink, Chief Financial Officer for Teachers. So employees at Teachers were given procurement cards in an attempt to see how they liked the product and how it could best be used.
The ability to make procurement more electronic, coupled with ease of use and resulting efficiency, made such an impact at Teachers that the employees were excited to begin offering the procurement card product to their members’ businesses. Although the procurement card product is available to large corporations through many of the bigger banking corporations, most banks have stayed away from the small business market, leaving a niche for credit unions.
Making the Card Available
When Teachers began offering the procurement card to current members’ businesses – initially there was no effort to reach out with the product to potential new members – the selling was easier because so many of the Teachers employees had personal experience with the card. They could give first-hand accounts and field questions readily. And the product fit seamlessly with the rest of Teachers business services — business checking, lending, and investing.
Nevertheless, understanding the business you are selling to is key. Says Sink: “You truly have to know the business and the way it operates. This isn’t a product that lends itself to mass marketing. You cannot base the decision on the size of the company, or any other sole indicator. Purchasing cards may not be a good fit for a business where all the purchases go through one individual; the cards usually work best where the payables process is more decentralized.”
Benefits of Procurement Cards
“Businesses can benefit in terms of both time and money when using procurement cards,” notes Amanda LoBiondo, Managing Director for Procura, LLC, a CUSO that issues procurement cards. The purchasing process for many businesses can be a lengthy one. “For many businesses the process can cost $65-$90,” says LoBiondo. Purchasing cards can not only cut down on the time necessary to complete this process, but they can also drastically cut the associated costs. “A Palmer & Gupta study of 2005 data for all business institutions, including some financial institutions, shows the benefit of using a purchasing card over the traditional ‘Rec & Check’ process averages 76.1% of the cost.
Along with this direct savings in the cost of the accounts payable process, there are additional benefits. “Since 2005, we have given $500,000 in interchange income back to members,” remarks LoBiondo, “We also offer rebates on up to 100 basis points in interchange.” This monetary savings, coupled with the flexibility that results from an increased float time, gives businesses both hard and soft cost savings that directly impact their bottom line.
Although the concept is relatively new and may be unfamiliar to many people, the benefits of the card, coupled with Teachers’ staff’s ability to discuss its merits and operations, have helped the product succeed. It has become a strong component of Teachers’ business service package.