In today’s world, one would not go anywhere without a credit card. Keeping physical money, dealing with changes, and writing cheques are a hustle even for one single individual buying goods or services for itself.
Imagine millions of transactions that take place in procurement departments and the effort put in by teams to process invoices and payments for those goods. It’s frantic. But now p-cards, also known as purchasing cards, are transforming the payment methods as we know them.
Approximately 70% of the companies in the US use p-cards to procure goods and services. This guide will help you answer all your concerns related to purchasing cards.
What Is a P-Card?
A purchasing card (p-card) is a company-issued credit card that workers use to make purchases on the company's behalf. These cards are also sometimes called corporate purchasing cards, procurement cards, or charge cards. P-cards are typically used for transactions that are too small to be processed through the purchase order (PO) system.
Purchasing cards provide a cost-effective way of processing low-cost and high-volume purchases. For smaller purchases, purchasing cards are more efficient because they allow employees to skip the request and approval procedure, which can also require days or even weeks. They can also be used to pay for business trip items such as flights and hotel reservations.
Therefore, p-cards are a more versatile, secure, and simple-to-use choice. They provide employees with on-demand access to goods and services but with a built-in review and approval process for management.
How Can I Use a P-Card?
First of all, your organization has to place a request for p-cards with an issuer. Issuers work directly with the organizations to enable card issuance, approve transactions, and supply data. They are also called providers.
Purchasing Cards are issued to employees responsible for making purchases or payments on behalf of the organization. Using their p-card software, the employee submits a request for purchase. This information contains the vendor, the price, and the rationale for the purchase.
Their manager receives an alert and has access to all of the information they require. The manager gives his approval, and the employee is now able to access the money.
Using the p-card, they can make the purchase via the supplier's website, which accepts the p-card payment. The merchant acquirer, also known as the supplier’s bank, processes the payment and provides it to the supplier.
The transaction, along with the receipt or invoice, is then forwarded to the finance team. These details are then entered into the company's general ledger for financial record purposes.
At least once a month, the card issuer sends a single electronic invoice to the organization, detailing all cardholders and their separate p-card transaction totals, as well as a grand total.
Instead of carrying a balance, an organization pays its card issuer in whole (at least once per month) for all cardholder purchases. The organization processes the invoice, creates accounting entries, and assists the card issuer with payment.
Why Use a Purchasing Card?
Purchasing cards are widely used in B2B payments because they are handy and improve cash flow by having complete control over purchases. Some of the major benefits of purchasing cards are discussed as follows:
Control and Visibility Over Procurement Spend
Managing procurement spend is a significant concern for all types of small, medium, and large organizations. Usually, due to a lack of visibility and control, employees tend to go rogue while spending, which leads to maverick spending.
Setting up p-card accounts for each supplier allows for more accurate spending tracking. P-card allows systematic restriction of particular types of vendors, such as retail companies and gambling sites, which prevents employees from making an unwise purchase decisions.
By setting credit limitations on each card account matched to the expected payment use of that account, issuing p-cards can help decrease fraud and dark purchasing. When an invoice is accepted, the credit limit on the p-card issued to the vendor can be adjusted to the amount of the permitted payment.
Each department in your company can be granted purchasing cards (p cards). Individual cards will segregate the expenditure that occurs inside each department. Various expenditure categories might be assigned to different departments. This makes it simple to monitor how much money is spent in each of the spending categories you're tracking.
Increased Operational Efficiency
Expense tracking and business credit cards can generate a significant amount of paperwork. The accounts payable department must reconcile payments with credit card statements, pursue receipts, and train the entire firm on how to follow the procedure of claims and reimbursements.
With p-cards, however, the procedure is embedded into the tool, so everyone automatically follows the right procedure. Employee reimbursements are reduced, which helps both the company and the employees. Employees don't have to worry about covering company expenditures with their personal money, and the accounts payable department saves time and money on expense report processing.
The purchase procedure is also streamlined using these cards. They allow cardholders to skip the long PO procedure for modest transactions, shortening the purchase cycle and invoice processing time. Employees have access to what they require when they require it.
Thus, companies save time and money by using purchasing cards. According to research, switching from a paper invoicing system to a digital p-card system resulted in a 77 percent reduction in administrative expenditures.
Improved Supplier Relationship
Managing a healthy supplier relationship is critical to the success of every supply chain. If your suppliers are not happy with you, there is a high chance that they may switch to another organization which can lead you to lose your competitive advantage. To sustain them, you need to process their payments correctly and timely.
With manual processing, there is a high chance of late payments and duplicate invoices. If your suppliers accept p-cards, it can make everyone’s lives easier. For suppliers, having one p-card account number on file for an organization simplifies and speeds up the payment process, as opposed to maintaining many credit accounts from different departments or individuals within the same purchasing firm.
Accepting p-cards assures that suppliers will get paid timely once the payment is processed. Vendors can execute payments as soon as they are authorized. There's no need to wait for a check to arrive in the mail. Fast payments mean better cash flow which creates a win-win strategy for both parties.
Best practices for P cards
If your firm wants to start utilizing p-cards, it's critical that you know how to utilize them properly. Here are some best practices for using purchasing cards in your organization.
- Implement a clear expenditure policy that spells out your expectations for purchases made with the p-cards.
- Hold training sessions for your staff on how to use them. Educate them on how purchasing works using p-cards.
- Before giving the cards to your staff, you may determine how much money you wish to put into each one. The cards allow you to limit purchases based on merchant code, limiting where they may be used.
- You may also choose to disable the cards when your staff are not on the clock or after particular purchases have been completed.
- Make it a practice to monitor your credit card balances. How your money is spent is an excellent way to catch problems early before they become serious concerns.
From reducing the workload on its account payable department to minimizing the risk of business fraud, properly implemented p-cards can reap numerous benefits for an organization. If your organization is rapidly growing, you should start considering adopting purchasing cards. P-cards will not only provide you visibility and control over your spend but also help you improve your cash flow.