Using P-cards and Other E-cash on the Internet

Author(s):

Lee Krotseng, C.P.M.
Lee Krotseng, C.P.M., Manager of Seminars and Training, International Purchasing Service, www.ipserv.com, Detroit, MI 48239, 313-459-0030, 76353.2035@compuserve.com

84th Annual International Conference Proceedings - 1999 

Abstract. This presentation will explore the P-card and other Electronic Cash (E-cash) tools to purchase goods and services on the Internet. The attendee will be able to evaluate the opportunities and risks associated with Internet P-card purchasing by reviewing the current "state of the 'net."

The Opportunity. Using P-cards and other E-cash on the Internet can offer significant transaction cost and time savings if used wisely. This can permit purchasing personnel to focus their efforts on more strategic issues.

Objectives. The objectives are to: 1) compare and contrast using Purchase Orders, Purchasing Cards and Purchasing Cards on the Internet; 2) review the Open Buying on the Internet (OBI) standard - what it is and what it means to purchasers; 3) examine issues of concern such as: internal controls and accountability, legal issues when dealing with "virtual corporations," transaction security, acceptability, tax issues - who pays what and where, receiving issues, and foreign exchange and other payment issues.

Purchase Orders vs. P-cards vs. P-cards on the Internet. The following tables compare and contrast Purchase Orders vs. P-cards vs. P-cards on the Internet:

Table 1

  Define Need Auth. To But ID Source Bid Proc.
Purch.
Order
Req. Record.
Tag Ord. Form
Signature Pre-
Auth. Limits
Pre-Approved
Open Vendor
Yes or N/A
P-Card Req. Record.
Tag Ord. Form
Pre-Auth.Limits
Per Order/Time
Pre-Approved
Open Vendor
Not Often
P-Card on 'Net Req. Record.Tag Ord. Form Pre-Auth. Limits Per Order/Time Pre-Approved Open Vendor No

Table 2

  Negotiations Place Order Confirm Order Receive
*Special
Receiver?
Purch.Order Previously Done
or Yes
Phone/Fax
In Person
EDI
Hard Copy/
Fax/E-Mail
Pack. List
Compared to
PO by
Receiving
P-Card Previously Done
or Maybe
Phone/Fax
In Person
Enter P-Card Log
Hard Copy/
Fax/E-Mail
Pack. List
Compared to
Log by Card
Holder*
P-Card
on 'Net
Previously Done
or No* cyberauctions
Internet
E-Mail
& Enter
P-Card Log
E-Mail/
Screen
Print Order
Screen
Pack. List
Compared to
Log by Card
Holder*

Table 3

Invoice from Vendor Pay Monthly Invoices Close Out Order Cost
Purch.
Order
Paid According
to PO
Multiple Checks
to Suppliers
Purchasing and
Accounting
$50 > $150
Per Order
P-Card Paid 1-3 Days
by Card Vendor
One Check to
Card Vendor
Card Holder
and Purchasing/
Accounting
< $20
Per Order*
P-Card on 'Net Paid 1-3 Days
by Card Vendor
One Check to
Card Vendor
Card Holder and
Purchasing/
Accounting
< $20
Per Order*
  • assumes $20/hr. labor cost of requester

It comes as no surprise that significant transaction cost savings are available using the P-card on or off the Internet. There are two differences for P-card orders placed over the 'net. Placing the order is done on-line over the 'net and confirmation is done by e-mail or the requester/buyer can print the order screen to his/her local printer. The requester/buyer must be careful to check order confirmation to avoid an incorrect order. This is especially true since there currently are no standard order entry forms for business over the 'net. Each web site could (and usually does) have a different order layout.

Open Buying on the Internet. The Open Buying on the Internet (OBI) standard was created by the OBI Consortium (www.commercenet.com). The initial group consisted of technology vendors, financial organizations and companies interested in buying and selling over the Internet. It is geared to buying MRO and other low-cost, high volume, frequently bought goods. It is designed to standardize catalogs and ordering formats using existing technologies (1997) and the ANSI x12 EDI 850 standard. It probably won't immediately supplant existing EDI applications due to the sunk cost of the installed EDI base.

Sellers will be responsible for creating and updating master catalogs and pricing. Ordering responsibility will be shared with buyers and information access (specialized catalogs and pricing) can be the responsibility of either the buyer or the seller. Buyers will be responsible for creating the user profile (information about their organization), payment, approval and authorization and internal controls.

Issues of Concern. There are several issues that need to be addressed when using P-cards on the Internet.

The First issue is Internal Control and Accountability. Two models will be reviewed - the Tight Control Model and the Loose Control Model. Both models are a bit extreme and the reader will probably want to develop a system somewhere between the two. Only the differences between these models will be noted here.

In the Tight Control Model, requesters/cardholders can use only approved suppliers. The only issues to be negotiated or agreed upon are availability and perhaps how the item will be shipped. A P-card log with all details (what, with whom, when, taxes paid, etc.) must be kept and sent with the monthly statement to Accounts Payable. Either a department manager or Accounting will audit the account at least quarterly.

The Loose Control Model permits the user to use new or approved suppliers. Price and other details may be included in the negotiations. A P-card log with all details must be kept by the user for one year. Department management or Accounting will audit as required.

The second concern deals with legal issues when dealing with "virtual corporations." E-Commerce has outdistanced many parts of contract law at all judicial levels (local, state, national, and international). As a result, courts are playing catch up and laws are constantly evolving. In the short term, laws used in the "paper world" and EDI are being used as a starting point. The Internet P-card user needs to pay careful attention to documentation and record keeping, authentication and authorization, contract law, terms and conditions and battles of the forms, and timing issues.

Transaction Security is another concern. Confidentiality, access control, verifying identities of buyer and seller, non-repudiation of transactions, information integrity, and availability of resources and services that are user friendly must be taken into account.

The fourth issue is Acceptability. P-cards are being accepted by more vendors. However, most Internet sites will capture basic credit card information only. International transactions increase the likelihood of losing the additional details P-cards are designed to capture such as part numbers and sales taxes. While this should change in the next several years (especially if OBI or another standard is applied universally), the author is unaware of any current system that can be used in all three NAFTA counties let alone the rest of the world.

Taxes - who pays what and where - is another issue of concern. This situation changes faster than the seasons. Current laws appear to allow the seller and the buyer to avoid some taxes particularly when buyer and seller are in different states, providence's or countries. The buyer should keep very good records of any transactions and work closely with the Accounting Department on this issue.

Receiving the goods or services may be different for Internet P-card transactions vs. "normal" receipt. Internet P-card buys are similar to non-Internet P-card transactions in many cases. Receiving forwards the receiver to the user to be reconciled monthly and the vendor may already have been paid by the time the goods arrive. Receipt of P-card Internet ordered services or virtual goods can be an interesting exercise. The supplier must provide proof of delivery/performance (perhaps a non-payable invoice) and the card holder approves during the monthly reconciliation. Again the supplier may be paid before the services or virtual goods arrive and are approved.

Finally, foreign exchange and other payment issues may be different for Internet P-card users. International E-payments between countries can theoretically take place in less than 5 days and even faster inside a given country. However, details of the transaction may be missing due to incompatible systems (computers, tax, exchange, trust, etc.).

Conclusion. P-cards can be used on the Internet if there is another way to capture the additional details of the transaction. Currently, this seems to require confirmation by e-mail, screen capture or some other system that the buyer and seller agree to use. Smart cards and the emergence of OBI or some other standard may supplant the P-card as we now know it.

The actual presentation will be a current as possible. However, by the time the reader has read this article - at least five months from when it was written - significant changes may have taken place. Therefore the presentation will probably differ to some degree from this proceeding.


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