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A purchasing card program, also known as a procurement card or p-card program, is a procedure meant to provide an efficient and cost-effective method for conducting low-value purchases and payments in a company.
In this program, employees are given a company credit card that allows them to purchase goods and services without going through traditional procurement procedures, such as purchase orders and requisitions.
Several types of purchasing programs exist; while some cards can be used with any vendor, others can only be used for company-approved vendors. Most cards, however, have an imposed spending limit to control company spending.
What Are the Advantages of Using a Purchasing Card?
Benefits to Company/Cardholder
While credit cards can sometimes be associated with negative connotations, purchasing card programs offer numerous benefits to the holding company.
Conventional procure-to-pay processes for low-value items from multiple suppliers is costly and inefficient. In some cases, the process cost may exceed the value of the item being purchased. Furthermore, the procurement process (requisition order, purchase order, invoicing, etc.) can be time-consuming and resource-intensive.
Purchasing cards allow companies and employees to take advantage of existing credit card infrastructure to process vendor payments. The entire procure-to-pay process is streamlined, allowing companies to obtain high-volume, low-value goods in a timely and cost-effective manner.
Other benefits of using existing electronic payment networks include the ability to track payments, a reduction in staff used in payment processing, and a reduction in the use of petty cash. According to the National Association of Purchasing Card Professionals, purchasing cards can reduce processing costs by up to 80%.
For example, the U.S. government discovered that while purchases under $2,500 comprised 2% of overall spending, it accounted for 85% of all purchases. As a result, they implemented purchasing cards in several government departments. One agency, the U.S. Department of Commerce, reported savings of over $22 million in administrative costs due to the implementation of a purchasing card program.
Benefits to Suppliers
Vendors and suppliers that accept purchasing cards can also benefit from the program. These benefits include:
- Faster payments and improved cash flow
- Reduced resources for invoicing, mail handling, and other activities associated with traditional payments
- Reduced risk of non-payment
- Increased sales from organizations that use purchasing cards
The Downsides of Purchasing Cards
While limits are recommended, just as with consumer credit cards, purchasing cards are susceptible to employee abuse. It is essential that companies are made aware of the risks related to purchasing cards and put additional measures in place to address those risks.
Additionally, companies must also ensure that all payments to the vendor are adequately recorded within their accounting system. Duplicate payments to the vendor can result if accounts are not up to date.
Purchasing cards offer numerous benefits when conducting business to business (B2B) transactions. While some limitations and disadvantages do exist, they are outweighed by the benefits these cards offer. Companies must, however, ensure that proper control measures are implemented to prevent spending abuse.
Image Credit: Seksan 99 / Shutterstock
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