NAPCP Report Puts Revenue Share in Perspective
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Executive Summary
Organizations wishing to improve the financial success of their Purchasing Card (P-Card) program often look to issuer-sponsored revenue sharing as a strategy for generating hard dollars. These funds, combined with the cost reduction associated with P-Card payment processing, help justify the program’s value and may indeed offset administrative expenses.
While revenue sharing can provide a tangible financial benefit, it must be viewed as only one beneficial component of a well-managed program, not an absolute, steady source of income. Best practices for maximizing revenue sharing are defined within the organization’s policies and procedures, with consideration and an appreciation for the liability and profitability incentives of each key player: merchant acquirers, processors, networks and card issuers. The purpose of this report is to help program administrators (1) understand the best practices that maximize revenue sharing, (2) negotiate favorable terms, and (3) become aware of the factors and trends that might limit the overall revenue-sharing benefit. To optimize revenue sharing, a P-Card program administrator must:
Maximize the total charge volume and implement controls to reduce risk. Program administrators must understand the risks and internal controls necessary if they transition the organization to high-dollar-value purchases. Internal controls are even more critical if an organization is required to absorb costs for fraud or misuse.
Educate cardholders and enforce P-Card use policy. Develop an employee education program to ensure that cardholders understand policies and procedures and the inherent value in the P-Card program. Education is key to enforcing P-Card policy and building total charge volume that could help build revenue share.
Track charge volume to justify each card. If each card does not produce enough revenue to cover the costs of issuance, revenue share may be compromised. By tracking charge volume, an administrator can take prompt action to ensure that each card is warranted and each cardholder is complying with card use policy.
Negotiate the best payment terms for a favorable net gain. Some revenue-sharing arrangements increase incentive in relation to speed of payment. This report offers formulas for calculating the cost of funds utilized vs. the revenue-sharing benefit so you can see just how the speed-of-payment component affects net gain.
Make sure revenue-sharing potential increases as program growth increases. Negotiate milestone bonuses — an incentive schedule with smaller divisions increases the revenue sharing potential as the program grows. The report includes revenue-sharing grids to illustrate this concept.
Stay abreast of the global changes taking place in the P-Card industry. Many issuers and bank associations offer resources to help you expand your program. You can also become a member of the National Association of Purchasing Card Professionals (NAPCP) to keep up with current issues and learn successful approaches from industry peers (www.napcp.org).
Promote the value of your P-Card program. It’s important to regularly evaluate and present revenue-sharing statistics to management to encourage participation and defend policy.
This report discusses many other considerations the program administrator and management team must examine to optimize revenue sharing. Understanding the card issuer’s perspective, and what makes a program profitable for them, can help end users negotiate and manage their program in a manner that is most beneficial to all entities involved in a P-Card program. Global trends, including pressure to lower or regulate U.S. interchange rates, could affect revenue share in time. The fundamental message in the Best Practices Task Force Report: Optimizing Revenue Sharing is that revenue sharing represents a small percentage of the overall savings from a well-managed P-Card program — implementation of a P-Card program without revenue sharing is still more advantageous than no implementation at all.
The complete version of this report is available free to NAPCP members at "NAPCP" napcp@napcp.org