Purchasing Cards: What Are the Advantages of P-Cards?

P-cards—also known as purchasing cards or procurement cards—are a type of commercial card that can simplify how companies and their employees pay for business expenses.

P-cards are designed to streamline procurement, increase oversight and reduce the need for manual processing. Here’s how to decide if a purchasing card program is right for your business.

How do p-cards work?

Purchasing cards are a type of payment card that may be issued to departments, teams or individual employees. By eliminating the need for individual purchase requests and approvals, they offer employees the ability to make business purchases quickly and easily.

On the back end, business leaders gain enhanced visibility into employee purchases. More transparency means greater control over spending, making it easier for organizations to mitigate internal fraud and misuse.

To provide guardrails around their use, business leaders can set spending limits at the departmental or individual level, create a list of approved vendors and restrict the types of employee purchases.

What can p-cards be used for?

Purchasing cards may be used for a wide range of business needs. Common expenditures include:

• Office supplies
• Business equipment
• Marketing and advertising
• Business travel
• Meetings and events
• Professional services
• Commercial invoices
• Service contracts

How do p-cards differ from business credit cards?

Both purchasing cards and business credit cards can be valuable tools for businesses. However, compared to business cards, p-cards offer a few features designed to control spending while streamlining processes. These include:

• More detailed reporting
• Preset spending limits
• No need for prior approval
• Vendor or category restrictions
• Increased visibility into spending
• Enhanced fraud controls

"The ability to restrict how employees can use a card helps ensure they're using it for business purposes," explains Nicole Chauffe, managing senior product manager at First Citizens.

Plus, unlike business credit cards, purchasing cards are paid in full each month. This allows companies to benefit from extended payment terms without increasing their revolving debt.

As a result, purchasing cards may also be used to pay invoices from suppliers and vendors. Payable teams can use p-cards to quickly and easily pay invoices without having to cut a check or arrange an electronic payment.

Purchasing card benefits

For organizations with strict procurement guidelines, p-cards can help streamline purchasing and greatly improve productivity. While these are often the most significant selling points for businesses, purchasing cards offer many other benefits.

1Reduced processing costs

According to the Institute of Commercial Payments, the costs associated with the traditional procurement process frequently exceed the value of the item being acquired—particularly for transactions below $200. By offering a more efficient process, purchasing cards can help many organizations reduce these administrative costs.

2Fewer out-of-pocket expenses

P-cards eliminate the need for employees to use personal credit cards for expenses like business travel or client entertainment. This reduces the administrative burden associated with having multiple stakeholders review and process expense reports. Plus, this prevents employees from having to cover business expenses out of pocket and then waiting to be reimbursed.

3Improved cash flow

Purchasing cards have an additional benefit that may be less apparent—improved cash flow. "One of the key benefits of a purchasing card is the ability to extend days payable outstanding, or DPO," says Chauffe. "Once the standard monthly billing cycle ends, you have another 25 days to pay that bill." This allows companies to pay their vendors immediately while holding the funds for up to 55 days, depending on when the transaction occurs in their billing cycle.

4Increased visibility

P-cards provide companies with detailed insight into spending by employee and department. "Rather than listing a single charge and vendor name, our card management dashboard is set up to display level 3 line-item detail," Chauffe explains. Depending on the level of detail reported by the vendor, this may include line-item details of everything an employee purchased, including the item description, number of units and price per unit. This level of detail can help deter frivolous spending and reduces the risk of employee misuse of a card.

5Reduced fraud

Purchasing cards have built-in defenses designed to help mitigate fraud, such as virtual card numbers. These single-use account numbers are linked to an underlying p-card account but are untraceable to it. Employees can use these virtual p-cards to make a single purchase online or by phone.

"You're generating a one-time-use account number each time, and typically they're only good for 30 days," says Chauffe. "They also have what we call an exact-match rule in place, so vendors can only process a charge for the exact amount of the invoice that was authorized—not a penny more, not a penny less."

Some card issuers also consistently monitor card use for suspicious transactions. "[First Citizens] has technology to track purchases on the back end. Any unusual spending patterns are flagged," Chauffe notes.

Are p-cards right for your business?

For many organizations, implementing a purchasing card program can help improve operational efficiency while saving both time and money. However, some organizations may benefit more than others.

P-cards are typically a good fit for businesses that:

• Process a high volume of small expenses
• Are geographically dispersed with decentralized purchasing functions
• Have a complex budgeting process that requires detailed insight into spending patterns
• Face a high risk of internal and external fraud
• Seek enhanced control and visibility for reporting and management purposes
• Want a faster way to pay trusted vendors for essential goods and services
• Need additional insight to help streamline account reconciliation

Taking the time to evaluate your organization's goals and weighing the potential benefits can be an important first step in determining if purchasing cards are right for your business.

The bottom line

Businesses today have more payment options to choose from than ever before. P-cards can be an integral part of a business payment strategy, adding both flexibility and control.

However, selecting the right card program is essential. At a minimum, a p-card should offer a robust spending limit, vendor controls, detailed expense tracking and advanced fraud-detection tools.

When choosing an issuer, organizations should look for one with a responsive support team. "We have an experienced team dedicated to program administrators. This allows us to offer personalized support to our clients," says Chauffe. "Our team really gets to know how our clients operate. This helps businesses get the most out of their purchasing card program."