For hardware-centric, procurement-heavy companies, finding ways to streamline the purchasing process is critical. That's where business purchasing cards come in. These virtual cards pre-loaded with funds can help eliminate many of the internal steps involved in creating purchase orders, making the procurement process more efficient. But what exactly are these cards, and how do they work?
In this blog post, we'll delve into the benefits of using a purchasing card instead of a credit card or other method, and explore some of the features that the best procurement cards offer, such as centralized control, virtual cards, simplified accounting, and real-time management.
With the right P card policy in place and the right card issuer, companies can manage expenses more effectively, improve investor relations, and keep projects on track financially.
How It Typically Works
Before diving into what business purchasing cards are, consider the traditional process involved in a simple purchase. Most often, for a company to purchase materials or other services, they must first create a purchase order. This includes having multiple people approve the purchase, process it, place the order, and then manage the invoice from the customer. The receipt is then logged into the company’s accounting software, often by hand. This procurement process is long and involves a lot of time-consuming steps. Business purchasing cards work to eliminate a lot of the internal steps to create more efficiency.
How Does a Purchasing Card Work?
Whether called a procurement card, purchasing card, or a P card, they work in all of the same overall methods. Each employee who has the ability to make a purchase on behalf of the company is given a corporate card. However, unlike a credit card, this is a card that has funds pre-loaded on it, creating an instant spending limit.
Often, these are virtual cards, but they have the same features that a traditional credit card has, such as a 16-digital code and CCV number. The employee’s name is on it, too. The virtual cards are beneficial because they all employees to make purchases quickly and easily no matter who they have to purchase from.
Unlike the long process of getting approval for the purchase order, those with a purchasing card simply use the card to make the purchase when it is necessary. That means there is no long process of having to get multiple people to check off the purchase or having to make payment immediately at the time of purchase, which is a hindrance to cash flow.
The purchasing card provides the company with some time to pay off the balance, keeping the procurement card readily available for their next purchase. The key to remember is that this is not revolving credit. Unlike a corporate credit card, the balance is due in full at the end of the billing period. That is typically a month, though some are longer.
What Are the Benefits of Using a Purchase Card Instead of a Credit Card or Other Method?
There are a lot of benefits to using these virtual cards. The first step for many companies is to create a purchasing card policy. That outlines what the company will provide in funds for various employees. The purchasing card policy should also outline things like what types of purchases can be made with it, such as business expenses for procurement of materials or services related to a specific project.
Once the policy is established and the purchasing card allotments are made to qualified employees, they can begin to use it. Here are some ways it can work for you.
Unlike a corporate credit card, there’s no credit
This is one of the most important components of a P card. The Pcard transactions are not going on a line of credit. They have to be paid in full within the billing period to keep the company’s card active. That can be a benefit for companies. It extends the amount of time the company has to pay for those materials, often by a month or longer. However, they have to pay off the balance at that time. That means there is no risk to the company of carrying this debt month-to-month.
For startups concerned about building too much debt or in need of establishing their credit history and credit score, this is a critical, valuable tool. It helps eliminate the risk of building too much debt for the company to manage in the future.
It is easy to use globally
A procurement card is also very easy to use, much like any other type of visa purchasing card. That means that if the company needs to source materials from a company out of the country, they can easily make payments using the card. The process is very similar to making any other type of purchase. This creates a customer-like experience.
There is still ample oversight and control
With the P card policy in place, companies have ample oversight into how employees spend funds. There is no need, for example, for employees to turn in a receipt for each purchase and to document all of the expenses they have. When employee spending is a core component of the business’s operation, having an easy way to facilitate it is worthwhile.
However, for investor relations and good overall management of cash flow, companies have to be able to easily track those Pcard transactions. That is far easier to do using a corporate business card like this than a credit card.
For example, some corporate card programs connect directly to the company's ERP software. That makes it very easy to track employee spending, account for project expenses, and create positive investor relations. When an investor wants to see the financials for a project they are funding, they can see the oversight in place easily. It is clear what was spent, where, by whom, and how it aligns with the company’s goals.
What Does the Best Procurement Card Offer?
There is a range of options out there for companies looking for a corporate card to choose from, but some key features are critical to helping these solutions stand out. Here are some of those features to consider.
Centralized Control
The corporate card should be easy for the company to manage using a centralized control tool or program. This ensures proper control over the procurement process and helps with card transactions and oversight for them.
Virtual Cards
With more purchasing process action happening overseas or through non-local suppliers, having virtual cards is a very important tool for those using these systems. It enables fast and easy use of these funds as needed.
Simplified Accounting
From employee spending to managing other expenses related to a project, the best corporate card enables companies to comprehensively manage their cash flow and overall spending directly within their software programs. This makes tracking and assigning card transactions as they fit the process faster and more effortless. Many of the best companies automate these features.
Real-time management
Another key to some of the best of these tools is that they can help with creating real-time spending reports. Unlike a visa purchasing card from a credit card company, a purchase card is logged in real time, allowing companies to better manage the process with more accuracy and speed.
Learnings
For hardware-centric startups that heavily rely on procurement, streamlining the purchasing process is crucial. Business purchasing cards, also known as procurement cards or P cards, are a useful tool to make this happen. These virtual cards allow companies to ensure faster and more efficient purchase orders while maintaining the same level of transaction management and oversight.
The traditional procurement process for a company involves creating a purchase order, getting multiple people to approve the purchase, processing it, placing the order, managing the invoice from the customer, and then logging the receipt into the company’s accounting software. This process is long and requires many time-consuming steps. Business purchasing cards work to eliminate many of these internal steps, making the process more efficient.
Business purchasing cards function in the same way as a traditional credit card, with the difference that they have funds pre-loaded on them. Employees who can make purchases on behalf of the company are given a corporate card, with the employee’s name on it. Unlike the lengthy process of approval for a purchase order, those with a purchasing card can simply use it to make the purchase when it is necessary. This eliminates the need to have multiple people check off the purchase or make an immediate payment at the time of purchase, which could hinder cash flow.
Using a procurement card instead of a credit card or other method offers several benefits to companies. For example, there is no line of credit, and the balance is due in full at the end of the billing period. This eliminates the risk of carrying debt from month-to-month and helps establish the company's credit history and credit score.
A procurement card is also easy to use globally, much like any other type of visa purchasing card, enabling the company to source materials from a company out of the country and make payments using the card. There is still ample oversight and control over employee spending, with the ability to track employee spending, account for project expenses, and create positive investor relations. The best corporate card offers centralized control, virtual cards, simplified accounting, and real-time management.
Overall, the investment in this streamlined purchasing process makes sense for many organizations. It eliminates human mistakes by adding more automation, helps ensure that investor relations remain positive, and keeps projects on track financially with effective expense management. The key is to have a thorough P card policy in place and to work with a business purchasing card issuer that offers rewards, cost-effective solutions, and the very best features.
