Accounting Information Systems: The Processes and Controls, 2nd Edition

PROCUREMENT CARDS (STUDY OBJECTIVE 10)

Within the past couple of decades, many companies have instituted procurement cards as a method to eliminate or reduce the time-consuming steps in purchase and payment transactions. Procurement cards, often called p-cards, are credit cards that the organization gives to certain employees to make designated purchases. Procurement cards are normally not used to purchase raw materials or products, but are used for small-dollar-amount purchases such as supplies or maintenance, and to pay for travel and entertainment expenses.

THE REAL WORLD

General Electric Co. (GE) uses a procurement card for all purchases under $2500. GE switched to procurement cards after an investigation of its accounts payable processing revealed that 82 percent of its invoices were for less than $2500 and that it took 25 to 40 days to process an invoice. This caused GE to miss 77 percent of early payment discounts. This is typical for many large companies. They have a relatively small number of large-dollar-amount invoices from the purchase of raw materials or products for resale and a huge volume of low dollar-amount invoices for other purchases. This means that the accounts payable staff spends about 70 percent to 80 percent of its time processing and matching invoices for small dollar purchases.

Using a procurement card can eliminate much time and cost associated with this processing of small-dollar purchases. The procurement card accomplishes the following improvements: ...