PURCHASE CARD

As a material user, If you want low value MRO material, office stationery, printer cartridge etc. Then

you raise a purchase request, this purchase request is approved by your immediate supervisor, then buyer raises PO, supplier supplies the goods and sends the invoice, your accounts department processes the invoice and makes the payment to the vendor.
Or, alternatively you go to the market, shop all these low value and less critical material and claim the expenses from your finance department.

All of the above are standard processes for any company but purchase value involved in these transactions is very less and transactions are higher in numbers and are a cause of higher administrative and processing cost

Use of procurement card is getting popular for low value and less critical materials as the use of purchase card brings down procurement processing administrative cost to a very significant level

Let’s see how it works
Procurement card is a special kind of credit card (VISA or MASTER) which is issued to the end user. The card carries the name of the user as well as the name of the buying organization. The liability of the payment lies with the organization of the employee not with the employee.

- Procurement card is restricted for few type of merchants i.e. if a card has been issued for the use of the stationery then the card cannot be used for the booking of airline ticket or buying liquor etc.

- Purchase card also has daily transaction value limit, nos of daily transactions, monthly purchase limit, maximum value per transaction etc to control the procurement transactions. The card is associated with the default GL accounts and cost center.

- The end user either places the order through web site or by phone

- The supplier processes the payment and after getting the payment authorization from -bank the supplier delivers the material at the destination. Supplier gets the payment from bank within two or three days of the transaction.

- Bank sends the electronic feed for the transaction to the buying organization. The electronic feed can be from daily basis to once in a fortnight depending upon the practice of the bank

- The reconciler (usually other than the person who has placed order) checks the transactions from monthly account statement and reconciles with the delivered goods(packing slip/invoice etc)

- Supervisor of the buyer authorizes the transaction

- The financial postings happen in the back end of the system based on the card no or MCC category code of the vendor.

- The payment is done to bank on monthly basis usually through payment gateways.

There are many benefits of using Purchase cards like expenses are controlled by defining card limit, supplier gets the payment immediately, no processing of invoice, automatic account and cost centre postings etc.

Drawback
The supervisor of buyer authorizes the transaction after the procurement not before the procurement. But the material procured is always of low value and less critical in nature.


To read the process of NC State University click here. To see the complete processing in a web based application click here




Related Words : Procurement Processing costs, e-Procurement Tools, Procurement Transaction cost, Procurement of non critical and low value materials