State to pay many bills by credit card Suppliers, vendors currently must wait for check to arrive

Goldstein outlining change

Authorized users know that purchases will be screened

Government

May 04, 1998|By Mark Guidera | Mark Guidera,SUN STAFF

The state plans this summer to scrap its system of paying many of its supplier and vendor bills by check and move to that mainstay of private industry, the credit card.

That would bring Maryland in line with a national trend in which government agencies are rapidly replacing antiquated purchasing systems based on bills and receipts with electronic purchasing programs, according to the National Association of State Purchasing Officials, a Lexington, Ky.-based group. Such programs can save time and taxpayer money, advocates say.

Meanwhile, thousands of vendors, which sell Maryland state agencies everything from basic stationery to hospital and computer supplies, will be affected by the new system, said Marvin Bond, a spokesman for the state comptroller's office.

The main effect: expedited payments on bills.

All state agencies will be required to make their purchases of $2,500 or less by credit card beginning July 1, Bond said. Larger state purchases will continue to be handled through a bid and billing system.

Under the credit card purchasing system, vendors can expect to be paid within days instead of the traditional 30-day lag, 'N Comptroller Louis L. Goldstein said.

He plans to outline the state's credit card purchasing program today in his annual speech to the Maryland Bankers Association, convening this year in Palm Beach, Fla.

"The vendors will be happy because they can get their money on time and it will eliminate an amazing amount of paperwork on our end," Goldstein said.

Goldstein said the credit card program was part of a strategic plan to use electronic commerce as a way to improve efficiency in state business practices and services. For example, he noted, the state already has in place a system in which tax refunds can be paid electronically directly to taxpayer bank accounts.

While a number of other states such as California and Wisconsin have already shifted to credit card procurement programs, Maryland had to wait for its computerized accounting system to be centralized and upgraded before doing so, Bond explained.

Maryland's new program is being hailed by business groups as a welcome innovation.

"Cash flow is the life blood of all small businesses. Anything that speeds up payments to accounts payable is great. It's mother's milk," said James Weidman, a spokesman for the National Federation of Independent Business, based in Washington.

He said the group has lobbied nationwide for prompt-pay laws that require states and cities to pay vendors interest or penalties on late payments.

Under Maryland's system, credit cards will be issued to employees who have purchasing duties in all of Maryland's 12 principal agencies.

Agency officials are working now to decide which employees will get the cards and set spending limits for each card.

While limits will vary depending on department needs, the maximum amount any one card will carry will be $2,500.

The state has also placed restrictions on the cards that prohibit them from being used for food, lodging, liquor or entertainment. As a further safeguard, agency auditors will review credit statements to screen for improper use of the cards, Bond said.

The credit card purchasing system is expected to affect 80 percent of the state's purchase transactions, he said. Credit cards account for just 2 percent of the money the state spends on new purchases now.

NationsBank was chosen to be the Visa credit card issuer and will handle billing records and payments. Under its agreement with the state, NationsBank will not charge the state fees or interest. By charging small state purchases on credit cards, the state expects to save money on administrative costs, although how much is unclear.

"This will probably save the state several millions of dollars a year," Goldstein said.

One big cost saving: elimination of the 150,000 checks the state cuts annually to pay bills from suppliers for purchases of $2,500 or less.

Instead, the state will cut one check each month to NationsBank to pay off its agency credit card bills.

Bond said the state expects to have a more specific estimate of cost savings after the new system is in place.

"We expect it will be in the millions, but we'll have to wait and see how many cards are issued by our agencies and track how much paperwork is reduced before we have a handle on cost savings," Bond said.

The state Board of Public Works -- comprising the state comptroller, the governor and state treasurer -- approved shifting all agencies to the new system after a pilot program launched in March at several state agencies worked well, Goldstein said.

Maryland joins a trend in states shifting to credit card procurement systems that has taken off in the past two years as DTC a result of corporate lobbying and strong cost savings reported by those states that moved early to credit card systems, a spokeswoman for the purchasing officials organization said.

Meanwhile, the federal government is shifting to an even more sophisticated electronic commerce system at a select number of agencies.

Under that system, procurement officers can order supplies from approved vendors through the Internet. Supplies are ordered using government-issued credit cards.

The Yankee Group, a Boston-based research and consulting outfit, says electronic procurement has proved more efficient than traditional ordering and billing systems. Yankee said it can significantly cut government processing costs, which under traditional systems sometimes exceed the cost of the purchased items.

Pub Date: 5/04/98

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