Credit · July 20, 2020

Purchasing cards can help streamline payment processes

Purchasing cards, also known as P-cards, are an increasingly popular way for businesses to exchange payments. These cards can streamline complex purchasing operations. Understanding how they work and their potential benefits can open up pathways to efficiencies across your operations.


The basics

P-cards typically allow approved employees to quickly purchase specific items from approved vendors. Depending on your business needs, this could include basic office equipment or software and other technology to improve your operations. It might also extend to business services or online marketing efforts, like paid promotions on social media. This can reduce or even eliminate the need for purchase orders, purchase requisitions, check cutting and many other labor-consuming processes. 

With P-cards, you also get unique internal controls. Business leaders can decide which employees will receive a card. Typically, the card issuer allows the business to designate approved merchants through category codes. You can even set individual spending limits on the employee's card. The cardholder's supervisor might be responsible for reviewing the purchasing card's monthly transactions before passing the data on to higher management or accounts receivable. 

P-card issuers can also offer added insight through detailed reporting, tracking information and reconciliation software. This means you can track the nature and amounts of spending for each employee and department at each approved vendor.

Why businesses use P-cards

Companies of all sizes need to keep a watchful eye on purchasing operations. But as revenue grows and operations expand, increased operational complexity can make it difficult to manage key treasury management concerns. These might include:

  • Reducing costs of labor and related expenses for reporting and managing payments
  • Identifying purchasing errors, personal use and intentional fraud
  • Circumvention of other company best practices and rules
  • Pinpointing opportunities to seize value across available vendors

Businesses with at least $1 million in purchasing transactions may find using P-cards simpler and less costly than checks and traditional business credit cards. Your business banker can help you evaluate your cash flow coverage to assess whether your company can repay its debt obligations with operating cash flow and whether P-cards can help address any issues in this area.

Bringing new efficiency to business payments

P-cards can allow for automation of payments and streamline treasury management processes, helping companies:

  • Reduce labor costs with one payment to a card provider every month, instead of tracking and managing multiple payments
  • Gain more control over company spending
  • Collect insightful data needed to improve risk management, efficiency and vendor partnerships

P-cards can also help give companies more time to pay their bills, improving the financial ratio known as days payable outstanding, or DPO. A higher DPO typically indicates better working capital and cash flow management.

When a company's overall annual spending is large but the average transaction amount is small—say $1,000 or less— internal administrative costs for managing payments can often exceed the dollar spend per transaction. Using P-cards for business transactions helps to avoid this cost inefficiency. Companies may also better access early pay discounts when employees can pay vendor invoices quickly with a card.

You can establish employee spending limits as precisely as needed for your business. For instance, employee cardholders may be granted an individualized limit based on their position and annual spending. Departments can have a collective limit. A card can be project-based, with a budget that expires after the project ends. You can adjust limits and expand approved supplier lists based on the company's needs.

P-cards can also help strengthen supply chain management. Using the cards can shield capital from being directed to unauthorized vendors and over budget purchases. Cards eliminate the need for many processes on the vendor side, such as invoicing, collection and automated clearing house setup. Vendors can redirect their staff and resources to more value-added activities.

P-cards versus other types of cards

Like with traditional credit cards, companies can take advantage of incentives with P-cards, too. Many of these incentives are comparable or even more attractive than other types of business financing cards. Your issuer may offer a set percentage of the revenue they earn from credit card exchange fees as a rebate. However, there are some important differences between P-cards to understand.

Purchases on business credit cards may draw upon the business' line of credit and incur interest rates and other related fees. Corporate cards typically involve expense reports, requiring employees to spend time documenting their expenses. Because the features of P-cards give companies more restrictive power on employee purchasing, they can reduce the time and effort you might be currently spending on manual documentation.

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 flexibility and control.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.