Purchasing cards (“p-cards”) have been around long enough to become a ubiquitous facet of a majority of enterprises. Generally strong when it comes to high-volume, low-dollar-value transactions and also utilized in larger more complex transactions, p-cards have the potential to simplify the indirect spend of many enterprises while making it easier for employees to make ad-hoc purchases when needed. That said, there are four important advantages of purchasing cards that you may be ignoring. Read on to find out what these benefits are.
Advantage 1: The Float
With electronic payment methods like ACH and wire transfer, the buying organization’s accounts are debited directly at the end of the settlement process—which can take a few days. Because of the nature of many ePayment methods, many enterprises delay paying invoices as long as possible in order to maximize days payable outstanding. When it comes to indirect spend, which can include many low-dollar-value transactions, this could possibly become unsustainable quickly.
Purchasing cards—and commercial cards in general—allow for enterprises to pay suppliers for goods and services right away while delaying actually paying the bill. Much like a consumer credit card, purchasing cards allow enterprises to buy now and pay (slightly) later. The key difference from a consumer card being that purchasing cards must be paid in full every month.
Advantage 2: Increased Control Over Spend
With a purchasing card program in place, many card issuers and other providers offer the opportunity for spending controls to be enacted on the card program. Spending controls can include such limitations as specific merchant types, per-transaction limits, and number of transactions in a set timeframe. US Bank, for example, allows for billing-cycle and single-transaction spending caps on its purchasing card product. American Express allows for spending limitations by supplier, industry, commodity, transaction, and employee, and Mastercard offers many of the same limitation possibilities, such as dollars per month and per transaction, or transactions per day and per month—right down to the employee level.
Spending control at the employee, transaction, and department level is a fairly common offering among card issuers; this doesn’t mean that controlling indirect spend through card limits is any less appealing, however.
Advantage 3: Improved Compliance Monitoring
One of the biggest challenges for accounts payable teams is ensuring that payment operations remain in regulatory and tax compliance at all times. Because purchasing cards consolidate transactions into a central location, accounts payable teams need only look in whatever p-card management portal is used to find necessary data to ensure compliance with the card program.
On the procurement policy/governance side of the fence, having the ability to monitor spend quickly and easily can allow accounts payable to notice right away when unapproved spend appears on the p-card. This can allow procurement AP to triage the policy problem in an efficient manner.
Advantage 4: Eliminate Paperwork for Low-Dollar-Value Purchases
The average accounts payable process today is, overall, a very manual and labor-intensive process. The same traditional process is also very expensive from a workforce-time perspective. When AP teams are processing multiple small transactions day-in and day-out, they’re not working on the strategic promise of AP, which includes managing working capital. Adding a p-card into the mix eliminates the work of generating a purchase order and approving an invoice for suppliers that accept cards.
Advantage 5: Rebates
Use the p-card for enough purchases in the same billing period, and the enterprise may even receive a portion of that spend back in the form of a rebate. The percentage rebate varies based on issuer, as not every card provider offers the same percentage rebate on dollars spent, but enterprises with significant p-card spend could get a significant rebate to add to the bottom line.
Final Thoughts
Purchasing cards are a worthwhile financial instrument for P2P teams to include in their financial toolkit. Whether it’s buying coffee for the office, MRO on the plan floor, or something larger, purchasing cards have the potential to simplify indirect spend in a number of ways and in a number of cases. Add to this the ability to “float” payment for 30 days, improvements in spending control, better compliance monitoring, and the possibility of eliminating paper for transactions, and earning a rebate to boot… and it’s easy to see why p-cards are attractive.
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