Are you part of a hardware-centric, procurement-heavy company looking to streamline your financial management processes? If so, it's worth considering the benefits and drawbacks of using purchasing cards, also known as P cards.
These cards can enable your employees to make purchases quickly and easily, without the need for purchase orders. They also offer easy control and monitoring of spending, efficient cash flow management, and easy reporting methods. Additionally, they can be used globally and can save your company money on exchange rates.
However, it's important to note the potential risks of misuse, changes in vendor policies, and the need for proper employee training and reviews. Understanding both the pros and cons of purchasing cards can help you make an informed decision on whether they are the right investment for your company's financial management.
Purchasing card Pros
#1: They Are Highly Efficient
Working much like a credit card or debit card for purchases, a P card enables employees to complete a purchase transaction quickly. This helps to reduce the amount of time it takes to make a purchase. Most often, the purchase cycle time and the payments are received within moments.
#2: Control and Monitoring Is Easy to Manage
A corporate card like this enables employees and managers to easily oversee the use of funds for the company. It makes it possible to easily view transactions, pinpoint areas of overspending, and make adjustments as needed. The company can maintain these cards easily, providing access and eliminating it when needed. Overall, a corporate card like this could help companies to reduce fraud risks by providing such an easy and efficient way of ensuring all purchases are properly used.
#3: Employees and Others Find It Easy to Use
Employees can appreciate the use of a charge card like this. They do not have to use their own money to make purchases and then wait for reimbursement. For managers and bookkeeping teams, it is far easier to account for transactions and manage the charge card use than it is to have to worry about tracking and reconciling numerous transactions and receipts with each individual employee. With P cards, employees have a dedicated card for their use. This makes it faster and easier for them to make a purchase without having to worry about delays.
#4: Improved Cash Flow Management
In many situations, a P card can be an easy way to manage cash flow within the company. More so, by using the purchasing card, the company’s working capital remains free, increasing available cash reserves for the company. P card bills are typically processed within 56 days after the statement is received, providing more time for payment and minimizing the need to use cash for purchases. In a business workspace, where cash reserves may be limited, this can provide an excellent tool for oversight.
#5: Use on a Global Scale
P cards enable spending not just locally but globally. They are recognized and heavily used by organizations around the world. In some situations, they can be the ideal choice for covering travel costs for employees. Unlike credit card and debit card transactions that can sometimes be limited in oversea travel, they are more efficiently managed using P cards. At the same time, many will see better exchange rates using a corporate purchasing card overseas than they may have when using a credit card, which helps save the company valuable funds.
#6: Easy Reporting Methods
When employees use P cards for their spending, it is easy for the business to track the amount of money being spent on every area of the project. Many times, a corporate purchasing card is going to give the company access to valuable data through an e-invoice that can be integrated right into the company’s existing ERP system. That allows for the ease of tracking project data and transaction information. Often, the procurement card will also allow for the generation of reports that clearly outline spending and track expenses related to a project. It also journals that information quickly to ensure that the company’s books are kept as up to date as possible.
#7: Reducing Administrative Costs
Much like a corporate credit card, a purchasing card is very easy to manage in terms of accurate account management. That enables companies to reduce the amount of money they are spending on administration. It makes it easier for companies to manage payments, establish budgets with a credit limit employees can use, and then track and pay those costs quickly. This may reduce the amount of time spent on managing funds, saving the company labor costs.
Purchasing card Cons
#1: There Is the Risk of Misuse
Though these prepaid cards or credit card style tools will help to provide more oversight opportunities, there is still the risk of fraud or misuse present. Some employees may use these cards for their personal expenses and not just business expenses. In some situations, this can be problematic, especially when the budget is very limited or tightly monitored. To eliminate this problem with using a corporate credit card like this is to provide effective education and training to employees. Be sure they know when and how to use their card.
#2: Vendors May Change Use Often
There are numerous vendors that offer a purchasing card like this. Sometimes, these vendors will change the policy on how or when P cards can be used. They may develop policies for the car system that change often. Often, these have good intentions, such as reducing or eliminating fraud. Yet, it is important for organizations to stay on top of those changes to minimize the risks of mistakes using these prepaid cards.
#3: Some Are Virtual Which Increases Risk of Use
Virtual cards may be easier to misuse than other types of cards. While these cards typically have a credit limit (though they are not based on credit but rather a prepaid value), there is still the risk with virtual cards that someone else may gain access and use them. That could create a financial concern for companies, especially if there is a limited budget to be concerned with for the use of the purchasing card.
#4: There Is the Need to Train Employees
Do you want employees to use these for everyday purchases? Should they only use procurement cards for specific types of expenses? Companies must create policies and procedures for using and overseeing these cards to minimize risk to the business. Providing an effective training program for employees on the usage of the P card system is necessary. This could add more cost to the company if they have to offer retraining often due to mistakes or miscommunications.
#5: There Is the Need to Invest in Reviews
When employees are using the purchasing card on a frequent basis, such as for everyday purchases for the company's projects, there is a need to have a review process in place. This review process could take some resources from the company to oversee the proper use of funds. If there is no one monitoring and reviewing P card information or providing any control over its use, that could lead to a lack of oversight and financial loss. When this is done over thousands of transactions, it can be time intensive for some companies.
Learnings
Purchasing cards, or P cards, have become a popular tool for financial management in many hardware-centric, procurement-heavy companies. These cards work much like credit or debit cards, allowing employees to quickly make purchases without the need for purchase orders. This can greatly reduce the time it takes to make a purchase and streamline the overall purchasing process.
One of the biggest advantages of P cards is that they are highly efficient, providing a quick and easy way to complete purchase transactions. They also offer easy control and monitoring of spending, making it easy for managers to view transactions, pinpoint areas of overspending, and make adjustments as needed. In addition, P cards can help improve cash flow management, as the bills are typically processed within 56 days after the statement is received, providing more time for payment and minimizing the need to use cash for purchases.
Another benefit of P cards is that they can be used globally, making them an ideal choice for covering travel costs for employees. They are recognized and heavily used by organizations around the world, and often provide better exchange rates than credit or debit cards. Additionally, P cards offer easy reporting methods, allowing companies to track the amount of money being spent on every area of a project, and generating reports that clearly outline spending and track expenses related to a project.
However, it's important to note the potential risks of misuse, changes in vendor policies, and the need for proper employee training and reviews. While P cards can greatly improve financial management processes, they can also be misused, and vendor policies can change frequently, requiring companies to stay on top of those changes to minimize risks. Additionally, there is a need to create policies and procedures for using and overseeing P cards, and to provide effective training programs for employees to minimize the risk of mistakes or miscommunications.
Overall, understanding the pros and cons of purchasing cards can help hardware-centric, procurement-heavy companies determine if this type of investment could benefit their financial management processes. While they offer many advantages, it's important to carefully consider the potential risks and develop effective policies and procedures to ensure their proper use. With proper oversight and management, P cards can create an efficient way for companies to manage their finances, allowing them to focus on the growth and success of their business.
