How Virtual Credit Cards Give You Visibility and Control Over Tail Spend

Tail Spend Management and Curbing the “Tyranny of the Tail”

By Andrew Clayton, Manager, Tradeshift Go Sales

In these times of economic uncertainty, the idea that you’d have no idea where 20% of your household budget was spent would be as absurd as it would be terrifying.  Yet that’s exactly what’s happening in businesses today, where the imperative to control costs is every bit as hard as it is at home.

It’s astonishing how many businesses have little or no visibility into their “tail” spending. The average company focuses 80% of its spending oversight on just 20% of suppliers. That still leaves a huge amount of spending – and a significant slice of budget – where business buying is more informal, often circumventing centralized corporate purchasing systems and thus effectively “invisible.”

This lack of transparency into day-to-day spending – including “maverick spending”, where employees bypass policy to make business purchases – would be a serious concern at the best of times; in an era where every dollar matters and the recession is real, it’s unacceptable. To address this challenge, we first need to understand why so many employees continue to contribute to “the Tyranny of the Tail”.

Tail Spend Management Is Impossible When Employees Go Rogue

Businesses will often try to keep a lid on tail spend by mandating every request goes through a centralized procurement system as a form of tail spend management. Many more will place strict limits over which employees are given access to a company credit card. This archaic top-down approach is not only frustrating for employees, it’s also notoriously hard to enforce and therefore doomed to failure.

Workers will always need the ability to make timely purchases to meet their business objectives. When a blizzard of red tape confronts employees, is it any surprise that many will find a faster workaround? In some cases, that might mean borrowing a company credit card from a colleague. In other cases, they may simply use their own card and put the cost through on expenses. Not only does it make these purchases next to impossible to track, but it also provides no budget control for the business.

Most employees won’t give this a second thought, viewing their actions as the fastest route to the optimum outcome. What they fail to recognize is the chaos they unleash after taking matters into their own hands.

The finance team is forced to play detective as they attempt to reconcile a mountain of receipts. Managers are blindsided by unexpected costs and purchases that exceed agreed thresholds. And if that weren’t enough, routine sharing of corporate credit card information between co-workers significantly increases the business’s exposure to fraud risks and liability.

So how do you tame your tail spend? The answer is to give employees and budget holders the freedom and flexibility they are looking for without sacrificing oversight.

Tackling the Tyranny of Tail With Corporate Virtual Credit Cards

Sometimes the most effective solution to a business problem is also the simplest and most elegant. Tackling the “Tyranny of Tail Spend” is no different. All a business needs is to harness the capability of virtual corporate credit cards.

What’s a corporate “virtual credit card”?

Virtual credit cards provide unique credit card numbers that enable employees to buy items online or over the phone. (Tradeshift’s Go–our own virtual credit card solution–will also include the ability to make “in-person” purchases with your card as early as next year).

If that sounds no different from an ordinary credit card, that’s part of the point: they are meant to be as quick and convenient as plastic but offer an extensive amount of reconciliation help and budget control.

Because virtual credit cards are digital proxies for real payment cards, virtual cards enable managers to control and have visibility over every single payment.

What’s more, with some virtual credit cards, purchase requests can be pre-coded with a business justification and accounting code where needed, information that stays with the purchase all the way through the accounting process. That means employees no longer have to fill out POs or retain receipts, and the accounting department doesn’t have to reconcile anything when the bill comes in.

Not only are virtual credit cards far less hassle to manage than physical credit cards (budget holders can issue and cancel cards in seconds with a tap of a keyboard), they are also far more secure. Encrypted by default and only capable of being used for pre-approved budgets, they enable organizations to eliminate risk while gaining control over spend and streamlining expenses.

Research has shown that using virtual cards can save as much as $69.85 per transaction in administrative costs compared to the traditional PO-driven acquisition process. Meanwhile, they reduce purchase cycle time by seven days (or 71% over the traditional process) while opening new opportunities for increasing discounts with sellers through the virtual card issuer’s rebate or rewards program and improving working capital and cash flow through interest-free financing.

Transform Purchasing With Tradeshift Go

Tradeshift Go virtual cards manage and control tail spend through one simple, standard process accessible by everyone enabling companies to increase visibility and manage spend across the entire organization.

Our simple request-and-approval model puts budget owners and employees on the same team, giving the former the ability to monitor and approve (or pre-approve) spending while making purchasing simple and intuitive for employees.

Tradeshift Go features one simple, standard process accessible by everyone,  enabling companies to increase visibility and manage spend across the entire organization, eliminating unnecessary paper receipts and invoices, and providing a fully transparent and fast approval process through one centralized platform.

Benefits of Tradeshift Go at a glance: 

• • Secure, limited-use cards
  • Quick approval processes
  • One consolidated database
  • Built with teams in mind
  • Makes reconciliation a breeze (well, MORE of a breeze)
  • Reduced risk of fraud

Controlling and managing tail spend has long been the conundrum keeping budget owners up at night, but there is a simple and proven solution. Virtual corporate credit cards are already transforming life for finance teams in some of the world’s largest enterprises, keeping tail spending under control and practically eliminating “maverick” spending – all by making workplace purchasing as simple as the consumer experience.

Get a demo of Tradeshift Go and see the difference today.