A new approach to small purchases - company credit - Small Business Financial Adviser

Nation's Business, August, 1995 by Joan C. Szabo

Major credit-card companies have developed a new "purchasing card" service to help small companies save up to 90 percent of the administrative costs--paperwork, labor, postage, etc.--associated with routine buying transactions.

"Accounting offices need only process a single invoice for a multitude of monthly transactions and issue one check for payment," says Robert Levaro, senior vice president for commercial card products at VISA International in Foster City, Calif.

Companies don't really have to present the card when making a purchase. All they need to do is provide their card number to suppliers when placing an order, which generally is done by telephone.

Businesses using the card can restrict its use to specific employees, such as purchasing department representatives. They can also set daily or monthly spending and transaction limits per employee. This helps prevent abuses of purchasing authority.

Companies using the purchasing cards also receive comprehensive spending reports that help track expenses and tax data. "These reports enable a business owner to identify the supplier, how much sales tax was paid on the order, a customer code, who conducted the transaction, and where it should be charged in the general ledger," says Steve Abrams, senior vice president for commercial card products at MasterCard International Inc. in New York.

Businesses that buy goods with a purchasing card don't pay interest charges, says Abrams, because they are required to pay the card balance within 30 days. Annual fees range from $25 to $50 for each card issued.

This new card service also offers benefits to suppliers who accept it. It improves cash flow with the 30-day requirement for payment. Suppliers who accept a purchasing card pay the bank that issues it 2 to 3 percent on the amount of the purchase charged on the card. In return, "it means getting paid in two days, which is a tremendous benefit," says Abrams. "It is no longer necessary to keep receivables on the books for 30 days."

In addition, a supplier doesn't have to wait for requisitions and authorization forms to process an order. Because card users have preapproved spending authorization, transactions are electronically authorized at the point of sale.

Three major card companies--MasterCard, VISA, and American Express--are marketing purchasing cards with various types of features.

While the MasterCard A and VISA cards are designed for compaines of all sizes, the American Express purchasing card is geared to large corporations. All three also offer very small companies--usually consisting of only one or two persons--a "business card" that helps keep business expenses separate from personal expenses.

To apply for a purchasing card, contact your bank first. If the service is not yet available, contact the card company directly. Call MasterCard at 1-800-219-1013, VISA at 1-800-847-2221, and American Express at 1-800-5493.