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From large multinationals down to the smallest vendor, the city of Pasadena, Calif., deals with a variety of suppliers. At any given time, the city may have 3,000 or so vendors on its books that are currently or recently active. In addition, new suppliers — both regular and "one-off" — are being added to the vendor list almost daily.

The growth and turnover of vendors made check payments a relatively expensive and inefficient means for the city to settle suppliers' invoices. Pasadena's commitment to green standards has also contributed to its preference for electronic payment methods. The city began using the Bank of America Merrill Lynch Purchasing Card in 1997 and by 2000 had also added ghost cards to its electronic payment portfolio. In October 2006, the city went live with Bank of America Merrill Lynch's ePayables solution, which has seen significant adoption by the city's regular vendors. The benefits of robust security features and efficiency prompted Pasadena to explore options also to convert its one-off or infrequently paid vendors to electronic payments.

One possible solution that was considered internally was a "super card," with a number that would not be specific to any one vendor. However, there were security concerns about giving out a single card number and the large dollar value that would need to be available. The development of the Card Shuffler feature on Bank of America Merrill Lynch's Works platform provided the solution to this conundrum. The city implemented the Card Shuffler in 2008 — the first public entity to do so.

From checks to ghost cards

The city's use of corporate purchasing cards has steadily eroded the use of check payments. Of the $129 million spent on goods and services in the last financial year, purchasing cards accounted for approximately $12 million. As part of this amount, several of the largest contract vendors were successfully moved from check payments to ghost cards, which have proven particularly useful for major purchases relating to the city's utilities businesses (including power and water).

Ghost cards have been an effective solution when dealing with well-established suppliers, allowing efficient electronic reconciliation between card transactions and vendor invoices. The declining balance functionality tracks spending on a card in relation to the allocated budget/permitted spend and alerts the user/department if the funds are close to being exhausted.

The next phase in the city's electronic payables drive was to adopt the ePayables card payment solution that enables clients to convert accounts payable check payments to electronic card payments with no change to their existing AP processes. Integrated directly into the city's PeopleSoft ERP system, ePayables enabled Pasadena to send a file directly to Bank of America Merrill Lynch, thereby facilitating a more seamless process. The electronic card payment concept is well suited to vendors that are paid on a regular basis: for example, the contractor that handles the writing of parking tickets.

While ePayables enables vendors to receive their payments faster, the city has made it even more attractive to suppliers by offering net zero terms, rather than the net 30-day basis used for check payments.

Key stakeholder buy-in drives the success. The finance department ensures that invoices are sent to the originating department for approval and follow-up if they are not authorized and returned in a timely manner. Invoices are paid as soon as they are approved, thereby helping the city deliver on the commitment of net zero terms and providing a win/win scenario for the city and its suppliers.

Adoption of electronic card payments by the city's regular suppliers has been encouraging. Most vendors accustomed to dealing with public entities have come to assume that the typical net 30-day settlement terms for check payments usually morphs into net 45 days, accounting for postal deliveries, clearing periods and other delays. As a result, electronic payment is a welcome change for vendors that receive their payments within one to two days of processing the transaction.

Many companies think that vendors are reluctant to accept a card due to associated merchant fees. In reality, vendors' accounting and treasury personnel are keenly aware of the cash flow and working capital benefits of card payments and are happy to accept cards to enjoy the many benefits of expedited receipts. From their perspective, the charges involved are no more (and often less) than the early settlement discount they would otherwise have to offer in order to be paid on a net zero basis. Also, tracking and flagging queries/disputes are far easier to accomplish when operating on a net zero as opposed to a net 30-day basis.