Government Purchase Cards – How are you accounting for Processing and Administration Fees in your accounting system?  What about when Forecasting or Establishing Prices?

 

Avoid the mistake that many overlook when pricing as it relates to Purchase Card Fees!

 

The Cost Side - Allowability

This is typically an allowable cost usually charged to G&A under bank and other service fees.  These are the fees you pay for processing and administration of the government and other credit cards.  Simple enough.  Identify those bank and credit card processing and administration fees and assign them to your G&A account.  These are not to be confused with the interest that is charged when “Your Firm” purchases anything from trade vendors. Those costs are considered interest and are unallowable according to FAR 31.205-20.

 

The Pricing Side

Now that this is settled, let’s look at the “Pricing” side that is often overlooked.

Situation: You price a product/job/contract based on best available information.  You submit your proposal.  Eureka, You Win!  You submit an invoice and your customer informs you that they will be paying by credit card.  You say great, we will get paid early.  And you know that any processing fees can be claimed as an allowable cost. 

However, did you consider this cost when you prepared your proposal?  Did you take into consideration that if the government decided to pay by credit card it would cost you between 1.5% and 4.0% in processing fees?  Did you read the section of your contract on “contract administration” that details your obligation and the governments’ rights when using purchase cards?  Did you review the minimums and maximums they can use purchase cards for?  Yes, it is a viable option for early payment, but if you are working under “slim” profit margins, such as certain types of products and services, then this small item can cost you dearly.  It could eat up all of your profit and maybe more.

This same issue must be thought of when negotiating prices from a Large Vendor that typically does business with the government directly.  For instance, you get a price from the Large Vendor and add a Margin on top of their price.  But wait!  If that Large Vendor would have sold directly to the government they may have had to pay the Purchase Card Processing Fee.  Now you may have to pay that processing fee.  Just Be Aware as this becomes another Very Important Negotiating Item on Price with Large Vendor.

Okay, you still have the option to talk with your Government Representative (CO/COTR/Purchasing Agent/etc.) and request payment through another method such as EFT, Invoice Check Payment, WAWF where applicable.  These may take longer, but will not cost you, as a small business, up to 4.0% in processing fees.  The problem comes if your customer decides they only want to use the purchase card and you did not factor that cost in when you negotiated the price.  Don’t get caught off guard.  If it does happen let it be because you were aware of it and decided to move ahead anyway.

And Purchase Cards are being used for amounts far beyond $3,000.  For small amounts, it may not be an issue from time to time.  However, when you start looking at higher dollar amounts on a purchase card it could easily become a concern.

 

The Challenge

Unfortunately, many government agencies and prime contractors do not understand this unique situation that many small businesses are put in.  As a result, they may not sympathize with the small business.  It is just one more area that causes issues and potentially more cost and effort with a small business.  As small businesses grow, and since this cost is typically a G&A expense, there is little analysis or focus on the impact of this cost, or lack of consideration in pricing.

So now you are aware or reminded of this important cost.  Remember it when you are pricing.  When you are forecasting or projecting G&A costs include a reasonable estimate for Processing/Administrative Fees.  Okay?

For anyone who has addressed this issue, been affected by it, or has an opinion or comments, your feedback is welcome.

 

Paul Sr