One option for low-dollar purchases is the use of petty cash. Every organization has some method of getting cash, usually from the cashier, for small purchases. However, it entails the individual making the purchase with his or her own funds, filling out a form, getting it approved (sometimes at an administrative level) and going to the cashier – who hopefully has enough cash to cover the request. This is not a simple or easy process.

Another option is to get a check in advance. This also avoids a purchase order but is another complex transaction. The exact value of the purchase must be determined in advance, a check request form must be completed and approved (almost always at an administrative level), the form must be sent to accounts payable, a check is cut on the (hopefully) next check run, and the check must be sent to the company or the individual. Not only is it complex, but it also takes a long time.

A third option used by many organizations is to establish arrangements with selected local suppliers for small purchases. These arrangements are often open blanket purchase agreements where individuals – sometimes selected individuals – can purchase goods – sometimes limited by type or dollar value – just by charging it to the organization and providing the blanket purchase order number. This option has several drawbacks including very loose control, very loose recordkeeping and a reasonable opportunity for abuse.

Credit cards with a twist

There is another option – the use of procurement cards. Procurement cards are very much like credit cards with a couple of very important differences. With procurement cards, authorized individuals can make authorized purchases from local and national vendors in exactly the same way they would with credit cards.

The difference, from the organization’s point of view, is that the cards can be individualized. Cards can be limited to types of establishments. You might get cards for facilities engineering that were only good at hardware, plumbing and electrical retailers. You might get a card for the library that is only good for books and magazines. Alternately, cards can be programmed to restrict purchases. You might restrict them from restaurants, hotels and car rental if you didn’t want them used for travel. Further, the amount charged at any one time can be restricted. For instance, you might want to put a $50 or $100 limit per transaction for some cards. The options are almost limitless. You can generally build the program any way you want.

Responsibility generally rests with the department manager with oversight by the materials manager. Cards can be issued to individuals and/or departments. Where cards are issued to individuals, there is generally an agreement form that must be signed. This form outlines the user’s responsibilities and the potential consequences if abuse is discovered. The card company generates a monthly bill that is broken down by department. Each department gets its charges for review and coding. Materials management gets a full copy for review as well. Any issues are addressed, and approved bills are forwarded to accounts payable for payment. Accounts payable cuts one check each month for all these low-dollar purchases. Depending on the size of the organization, this can eliminate literally hundreds of purchase orders and checks.

Don’t leave the office without it

One stipulation with a procurement card program is that the bill must be paid within the normal payment period – usually 30 days. This can be difficult for some institutions with cash flow problems. However, most organizations will see the value of the real dollars saved and carve out the funds necessary to pay this on time.

There is one other side benefit to a procurement card program. Many financial institutions that compete for the procurement card business actually offer cash back for purchases made. This can be a nice little extra that can be used to help convince administration of the program’s value. Some organizations have maximized the cash back feature and are using the procurement card to pay for their purchases from their major suppliers. When this is done the cash back amounts can be substantial.