The 101 on Corporate Purchase Cards

Corporate purchase cards or p-cards refer to commercial cards issued by companies for employee purchases. Using these cards, employees can buy small items and bypass the typical procurement process. P-cards have a revolving list of names including purchase cards, procurement cards, or payment cards. Forecasts expect the P-card market to continue to grow by 8% from 2018 to 2023.

This comprehensive post reviews how corporate P-cards work, their expected advantages and realities, and the secret sauce behind effective P-cards.

Corporate Purchasing Cards Explained

P-cards allow employees to pay for subscriptions, client gifts, meals, and other work-related purchases using company funds without submitting a purchase order. Employees don’t have to wait for traditional procurement approvals, which can take days or even weeks for expense approval.

In the traditional procure-to-pay process, all expenses—whether it’s for a $50 item or a $50,000 purchase—go through the same approval process.

For the typical organization, only 5% of transactions account for about 90% of the total spend. The majority of transactions are lower value items, but the processing costs end up being the same as for high-ticket items.

When all transactions go through the same labor and time-intensive process, processing costs can easily exceed the value of the item. Finance teams and managers must also deal with a mountain of unnecessary paperwork. That’s another red flag for inefficiency.

P-cards replace traditional check and automated clearing house (ACH) payments. With P-cards, finance teams can streamline the payment process and automate approvals — allowing payments to settle quickly.

Advantages of P-Cards

P-cards eliminate out-of-pocket expenses and allow immediate payment for faster services or delivery of goods. When implemented correctly, P-cards eliminate inefficient processes and steps that do not add value. Here are a few of the expected benefits of using P-cards:

Decreased Costs: P-cards are prevalent in the corporate landscape because of their convenience. Companies can achieve cost savings of as much as 80% by reducing the time required to complete the purchase from requisition to payment.

Spending Limits: Another advantage of P-cards is more control over company spend. You can set spending limits per card or per vendor and even set up a list of pre-approved vendors depending on the spend control features.

Minimizing Reimbursements: Online dashboards allow for the management of spending limits as a function of the user. Program administrators end up minimizing reimbursements because employees no longer need to use personal funds to pay for company expenses.

Centralized Information Storage: Companies gain better visibility of expenses when transactions are in one location. Having transaction and vendor details in one place helps with audits, simplifies account reconciliation, and leaves less room for accounting errors.

Security Features: Compared to checks and ACH payments, P-cards provide a more secure payment method. Due to a high usage rate in payments, purchasing card technology tends to keep up with the latest security features. Technologies like fingerprint authentication, a secure socket layer, chip-and-PIN technology, and S-HTTP, reduce the risk of fraud for P-card users.

Realities of Using a P-Card

While it’s true that P-cards allow you to make payments faster and improve supplier relations, not all purchasing cards work for companies. The technology, for example, will not fix an inefficient system. Without the right management tools, P-cards will solve many problems—while also creating others. Here are a few scenarios to look out for:

Shared Cards: Some companies do not issue P-cards to each employee to reduce fees, which forces one department or team to share. When this happens, it can be challenging to track who made the charge and who is accountable for the expense, which can cause confusion when it comes to approvals or questions.

Manual Reconciliation: Another pain point with using P-cards is when finance teams are forced to still do manual reconciliation because the card is not part of an end-to-end expense solution. Waiting on expense reports can cause delays in posting P-card transactions which, by extension, can limit spend visibility and control. Traditional P-cards with data that doesn’t integrate into the accounting system create additional work.

Fraud: Spending limits and having pre-approved vendors may not be enough to prevent fraud. Like credit cards, someone can steal a

P-card number and use it to make small charges while avoiding detection. Preventing out-of-policy spending is also not possible. With companies losing 5% of their annual revenue to fraud, having a more secure payment channel to prevent fraud is crucial to any business.

Limited Spend Visibility: While it’s true that p-cards allow for faster payments and improved supplier relations, vendors paid through P-cards are often the biggest winners. Companies make faster payments, but still don’t necessarily have complete spend visibility.

The Secret Is in the Software

Given the evolving business landscape, businesses need P-cards designed to control spending. P-cards that truly make a difference in expense reporting need to be part of an end-to-end spend management system. And a truly modern P-card built for efficient businesses should provide built-in controls that tie spending to expense policy and offer better security.

An end-to-end spend management system features:

Efficient Approval Workflows: P-cards should ideally match every expense against the company spend policy. In-policy charges are approved automatically, while questionable items get flagged for manual approval. Automated approvals reduce back-and-forth communication and leave a clear audit trail. Finance teams are more likely to catch fraudulent transactions and stop unauthorized expenses before they happen.

Automate Accounting Entries: Aside from improving security, a modern spend management system integrates with most accounting systems. Data syncs seamlessly, reducing the workload for finance teams by eliminating double entry and reducing the time required to close books at the end of the period. Timely reports allow finance leaders to have better visibility into spending and make strategic decisions more effectively.

Heightened Security: With virtual cards, every employee can be a cardholder. It’s possible to generate single cards, cards for recurring expenses, or cards with precise expiration dates. Virtual cards provide more flexibility without foregoing control over corporate spending.

Growing Companies Need Better Spend Control

P-cards were developed out of the need for a more secure and convenient means of paying for company expenses. But with the changing business landscape, businesses need to invest in a p-card system that adds value to the spend management process.

The key to the right p-card strategy is to find one that allows you to manage the entire spend ecosystem. Combining p-cards with spend management software eliminates manual processes and high transaction fees associated with p-cards.

P-cards tied to a spend management system like Navan Expense, allow your company to generate more ROI by preventing fraud, reducing processing costs, and providing insightful data that ties spending to revenue.

Navan Expense solves the biggest problem with using legacy corporate purchase cards by giving you control over your company’s entire spend ecosystem. Schedule a demo to see how our spend solutions work.