A procurement card, also known as a P-card or a purchasing card, is a commonly issued company card used for simplifying procurement processes. More and more companies are now leveraging new technologies to streamline their procurement methods, and procurement cards are definitely making things easier.
Procurement cards or purchasing cards allow employees to make smaller purchases without having to route each purchase through the formal accounts payable process. Purchasing cards allow employees to quickly and efficiently buy what they need, and automatically record all transactions.
Procurement cards can be connected to a credit facility, or a bank account to work similar to a debit card. In most cases, companies that issue procurement cards often partner with banks. The bank manages the procurement card, issuing payments to payees within a defined period, and invoicing the clients at the end of a month.
The entity that uses the card has to pay the issuer in full each month. Not all employees receive P-cards; only authorized individuals who have been approved are given specific procurement cards, and the limits are predefined.
They can simply charge their procurement card. Most employees often use procurement cards for making smaller, high-volume purchases. An increasing number of companies now use procurement cards instead of checks. They can also be used to automate payments to smaller vendors.
There is a major difference between procurement cards and corporate credit cards. Corporate credit cards were originally offered to streamline the expense reporting process. Company credit cards are only issued to a few key executives, and can be used for authorized business expenditure, including hotel stays, flights, associated travel expenditure, and other approved expenses.
If the company decides to take liability, the issuing organization sends the bill to the company. In some cases, the company and the employee may take on joint liability, where both pay a part of the accrued amount. Finance teams also have to comb through corporate credit cards to find authorized expenses, or ask employees to submit a report each month.
Procurement cards were designed for one specific purchase: corporate procurement. As a result, they are slightly different from standard company credit cards:
The purchase order process was devised to increase oversight and reduce bottlenecks in procurement. However, purchase orders move through the formal accounts payable process, which is often lengthy.
For quick purchases, or purchases within a defined dollar limit, seeking approval through the formal accounts payable process doesn’t make sense. The process becomes lengthier, and the company ends up spending more resources on approvals than the transaction value in some cases.
Procurement cards are different from purchase orders as they allow cardholders to make payments immediately. There’s also the added element of oversight, since purchases are usually authorized by reporting authorities, or only make pre approved purchases.
This reduces the burden on the AP department, as employees don’t approach them for every little purchase. With AP automation, managers can approve or decline payments in a single click.
For businesses that intend to use procurement cards, there are some best practices that they should follow to avoid misuse.
The business must have a clear and comprehensive expense policy that underlines the company’s expectations for using the purchasing card. Training sessions should be held with authorized employees so that they know what they can use the procurement card for.
Once employees are trained, managers must decide how much money they want to allow on each card. Companies can decide to restrict purchases depending upon a vendor code, so all purchases are made from pre-approved vendors only.
More importantly, it’s wise to turn off cards when employees are away on holiday, or when authorized purchases have been made.
It’s also important to check balances on individual cards regularly, so you know how much money is being spent on specific goods. This allows businesses to identify issues before they turn into serious problems.
The obvious rule of thumb to follow when issuing procurement cards is to name each card individually on the employee’s name. Since these cards are easier to manage and more secure, you can give one to any employee that needs one.
This is important as it allows businesses to track which employee made the purchase. This simplifies matching and allows teams to track receipts in a better manner.
SoftCo Procure-to-Pay is a fantastic platform that lets you automate your entire finance process, from invoice automation to posting payments in your internal financial system. SoftCo eProcurement ensures that all operational spend is compliant with the organizations procurement policies, and finance leaders gain greater clarity over the entire P2P process, with information presented in real-time.