Everything You Need To Know About Purchasing Cards

Purchasing cards, commonly called p-cards for short, are a special type of bankcard that uses existing credit card systems and processes to enable companies to make electronic business-to-business payments for goods and services procured.  Purchasing cards are strongly preferred by up-and-coming yet but rapidly growing companies seeking to slash their payment fees and the costs of sending payments.

Common Purchasing Card Program Benefits

Different banks and major credit card companies offer a variety of appealing benefits in the hope of winning new customers for their card program. For example, American Express offers free travel insurance, including access to worldwide emergency and medical services for travelers who procured their airline tickets through p-card transactions.  The Ink Business Unlimited card from Chase Bank offers a cashback bonus for companies who spend over $3,000 on purchases in the first three months of opening the card.  MasterCard has a rewards program with low-end and high-end prizes exchanged for points earned from different levels of spending.

The perks and fringe benefits of p-card activity are nice; how purchasing cards are actually used by various companies, however, depends on their own Spend Culture. Companies may configure their p-cards in the following ways:

The purchasing card can allow cardholders to make purchases from pre-approved merchants.

It could let managers place spending caps on specific departments or individual employees.

Third, there could be an option for setting a monthly limit and even a daily spending limit on p-cards.

There’s no telling what the extra perks will be, since they change from time to time and from one financial institution to another.  Nonetheless, with these three simple provisions in place in the procurement system, employees can’t overspend or make unauthorized or maverick purchases.

Cutting the Cost of Payments

In addition to the three principles for a reliable corporate commercial cards, the most desirable benefit is the vast sum of savings companies can accumulate.  With the different options for spending caps, companies that use purchasing cards rarely go over budget. This has a secondary benefit in even more savings, since cutting down on overspending also cuts down on company credit card fees, as well as bank overdraft fees from spending too much, too fast.

Traditional procurement processes are also known to be costly. It involves paying accountants and payroll employees to sort through piles of incoming and outgoing invoices. It requires processing requisition forms, purchase orders, invoices, and outgoing checks.  This means that, whether a company is paying someone only a hundred dollars or an impressive hundred thousand dollars, the cost of processing that payment is still the same. It may cost $30 to process each payment, which doesn’t seem like a big deal with $10,000 payments, but it becomes a very punitive cost with small payments of three digits or less.

Apart from the amount of the actual payment, companies also bear the expense of printing and mailing checks to be able to pay employees, independent contractors, and vendors. Again, the processing cost for small sum checks and large sum checks will often be the same. Good accountants often express serious concern to management over these kinds of mounting expenses, but it does little good when they’re reviewing purchase order expenses after the fact, and the money is already gone.

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Another punitive set of expenses that rack up surprisingly fast is credit card processing fees or other processing fees for online payments. A 100% fee on a $5 payment is a paltry expense, but spending $25 just to be able to spend $500 more is an expense that few small and medium-sized businesses can afford to make. The National Association of Purchasing Card Professionals estimates that savings from p-card activity average at $63 per transaction, representing a reduction of 55-80% of the overhead costs associated with handling and sending check payments or fee-ridden online payments.

Overspending and Commercial Card Liability

There are certain risks that simply come with the territory when making purchases with commercial cards.  Most major financial institutions like US Bank and Chase Bank, and even small institutions like community banks and credit unions, will require some kind of a personal guarantee from small business owners. If a business or professional organization is unable to make its company card payments, then the business owner will be directly liable for that outstanding debt.  For that reason, small business owners tend to feel much more comfortable proceeding with their p-card activity once they’ve set daily, weekly, or monthly spending limits on one or even all company purchasing cards.  Setting spending caps on company cards is one of the best practices of expense management that companies can follow.

Automated Spend Control and Payment Processing

With the use of cutting edge software, small and large businesses alike are empowered to use their company purchase cards to their maximum effectiveness. There are many procurement software programs that offer different spend control and expense management mechanisms.

Utilizing spend control software for procurement and other cost-saving accounting purposes empowers companies to slash their costs, digitize invoice creation and B2B payment processing, improve and speed up cash flow, and dramatically cut down on manpower expenses just from accounting and payroll overhead costs.

In Summary:

Purchasing cards are commercial credit cards or bank cards that allow companies to make business-to-business payments.  They have a great benefit in allowing companies to quickly procure any needed goods and services without the traditional overhead costs of processing, handling, and sending payments by check or other less-than-efficient means.  P-cards offer some risk in that faster procurement means employees can overspend faster.

Purchasing cards can allow employees to make purchases from preapproved merchants, let managers place spending caps on specific departments or individual employees, and set monthly or daily limits on use. The risk of maverick spending is minimized or eliminated with optional spending caps on the cards themselves, and with additional spend controls in the automated procurement software that growing companies increasingly use in the age of the internet. Electronic payments are the way of the future, but poorly managed spending will make any company run into serious problems.

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