P-Card

Definition

P-Card—the abbreviated name of purchasing cards or procurement cards—is a form of company charge card that allows goods and services to be procured without using traditional purchasing processes. Simply put, a purchasing card is a charge card similar to a consumer credit card that can be used for relevant business expenses.

P-cards make use of the existing credit card infrastructure to make electronic payments to suppliers for a variety of business expenses, such as procurement of goods and services or travel expenses. P-cards are not limited to physical cards; the term “card” is used whether or not a physical card is issued. An example of this would be a ghost card (or ghost account), which is a card account issued to a specific supplier to process all of the organization’s purchase to the account.

Typically, p-cards are usually issued to employees who are expected to follow their organization’s policies and procedures regarding procurement and spending. A company can set limits on the use of p-cards, such as single-purchase dollar amounts, a monthly spending limit, or merchant category restrictions. In addition, procedures such as reviewing and approving transactions on a monthly basis and having the p-card holder’s activity audited by an independent party are commonly employed as well.

When a p-card or non-physical p-card account is issued to an employee responsible for making purchases or payments on behalf of their company. Suppliers accept the purchasing card for payment and process payment by  using the existing credit card infrastructure. Transaction data is captured at the supplier’s point of sale (POS) system and transmitted through the card network. At least once a month, the p-card issuer typically provides a single invoice to the business that reflects all the company’s cardholders transactions and a grand total for all accounts. Unlike consumer credit cards, an organization does not carry a balance and the card issuer is paid in full on a monthly basis (at a minimum).

Best Practices

Purchasing cards, or p-cards, can streamline an organization’s procurement to pay process. Not only can p-cards reduce the time and cost involved in processing payments to suppliers, it can also empower procurement teams to focus on other activities that add value rather than rote tasks. P-cards also benefit suppliers, ensuring they receive timely and accurate payments that are processed upon the point of sale.

In the traditional procure to pay cycle, the cost of processing a transaction is costly. A need for goods or services must involve multiple steps and departments: a requisition, purchase order, invoice, and check payment. Because of this multi-step process, the time and cost involved to process a payment of $50 or $5000 is the exact same—and is unfortunately inefficient.

P-cards can streamline the payment process, especially for smaller transactions. Instead of going through the entire procurement process for low-amount payments to a large amount of suppliers, p-cards allow payments to be transacted upon the point of sale. It skips the “paperwork” or “red tape” for everyday transactions, simplifying the process for accounts payable and speeding up payment for suppliers.

According to the NAPCP, when accounts payable teams switch from traditional processing to p-cards, there can be an efficiency savings between 55% and 80% and typical dollar savings up to $63 per transaction.

Data Points

Source: Using Purchase Cards to Streamline the Purchasing Process (BizBodz)

Source: Accelerating Your Card Program’s Financial Value (GFOA)

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