Purchasing cards: Everything you need to know
You might have heard the term ‘purchasing card’ thrown around. The right card should give your business the perfect balance of flexibility and control when it comes to employee spending. Here, we’ll uncover what purchasing cards are used for, what the difference is between a procurement card and a credit card, and how you can implement a purchasing card process in your organisation.
- What is a purchasing card?
- How do purchasing cards work?
- Types of purchasing cards
- The beauty of purchasing card controls
- Procurement card vs. credit card
- What are the benefits of using purchasing cards to manage business expenses?
- Best practices to follow when using p-cards
- How to implement a purchasing card system
- How to choose a p-card provider
- How Pleo purchasing cards can work for your business
What is a purchasing card?
A purchasing card, often referred to as a ‘procurement card’ or ‘p-card’, is the physical payment method used to transfer money from your business to suppliers and providers. Without a p-card, employees would have to use their personal cards to buy things at work (like new software), submit an expense and wait to be reimbursed. But with a purchasing card, managers can approve or reject transactions based on the company expense policy, plus there are no cardholder fees.
How do purchasing cards work?
Purchasing cards work just like any credit or debit card, in that they have a card number, expiry date and CVC code. The difference is that p-cards make the whole spending process much simpler by allowing managers to set controls and automatically approve spend.
Here’s how it works:
- Spending limits: The finance team or manager sets the p-card policy controls for individual employees depending on company budgets. For example, you might want to cap your team members at spending £200 a month.
- Automatic approvals: If an employee makes a purchase and the amount is less than the spending limit, the payment is automatically approved. Some tools, such as Pleo, give you the option to set a card limit or limit per purchase.
- Easy requests for information: If the payment exceeds the spending limit, the employee can make a request explaining their purchase and associated costs. Their manager will receive a notification, and they can then choose to approve, change, or reject the request.
- Paying is simple: Once the request is approved, the amount is automatically transferred to that employee to pay for their purchase. The employee can’t use this money for anything else, helping to prevent rogue spending.
- Receipt upload time: All the employee needs to do is upload their receipt to Pleo. This gives the finance team the necessary information to begin the expense reconciling process. Plus, employees can add more detail using tags, categories and notes if they choose to.
Types of purchasing cards
Purchasing cards are designed to offer your company total flexibility, so there are a range of cards to choose from to enable you to do just that.
Single-use cards are for one-off purchases – they’re best suited to payments where security may be compromised. Let’s say you’re buying something online. Unfortunately, sharing your bank details over email can be a major security risk. Single-use cards enable you to pay for something using your card without having to worry about handing out your card details, because they’re scrapped after just one use. This means single-use p-card transactions are always secure.
Virtual cards are often used for dedicated online subscription payments, for example, for new software. You can set your purchase to automatically recur and be kept separate from other transactions in the payment process. Usually, a virtual card will be used solely for one transaction or supplier.
Physical cards are mainly used for in-store purchases. They work in the same way as any other charge card that you’d find in corporate purchasing. Typically, you’ll find these cards are loaded with a monthly budget and charged at a card reader POS, which enables three-factor authentication. Physical cards like these are powered by either Visa or Mastercard and can be used in pretty much every store worldwide.
The beauty of purchasing card controls
Finance teams tend to love using p-cards thanks to the high level of control they offer. Want to manage budgets more efficiently, prevent overspending and get accurate spending information when it comes to forecasting? Then purchasing cards are for you.
These are some of the controls that come with a p-card:
- Approved vendor list: creating a list of authorized suppliers ensures that the card cannot be used elsewhere.
- ATM use: allow (or deny) each employee to withdraw cash from an ATM, alongside their card spending.
- Spending limit: set thresholds around spending caps over a day, week, or month.
- Manager approval: great for new employees who are still getting accustomed to the spending policy, purchases require instant managerial approval through the mobile app.
- Limited dates and times: unlock the card during certain times of the day or specified dates, such as when attending a conference.
- Online or in-store only: block internet purchases or in-person usage.
Procurement card vs. credit card
The top line difference is that a purchasing card for business is designed specifically for company spending to give teams more control over their procurement process. Credit cards, on the other hand, are more suitable for individual transactions. Here are some of the other key differences:
A purchase card operates on a closed-loop system, and can only be used by authorised employees to buy specific things from pre-approved vendors.
A credit card operates on an open-loop system, which allows employees to make purchases anywhere that major credit cards are accepted.
Billing cycles and interest rates
Purchasing cards tend to have shorter billing cycles than regular credit cards. This is because businesses need to be constantly on top of who’s spending what and when.
Although some corporate credit cards offer extended payment terms with no interest charges (if you pay off the balance in full every month, for example), most will charge high interest rates.
With a purchase card, card details never need to be shared as everybody is assigned their own individual card. With Pleo, for instance, you can choose which employees get a physical or virtual card. This significantly reduces the risk of card sharing and fraud.
When credit cards are shared between employees and around the office, security can be compromised.
What are the benefits of using purchasing cards to manage business expenses?
There are a range of benefits of purchasing cards, from empowered employees leading to smarter spending and more efficient expense management for finance teams.
Improved cash flow management
The main advantage of a business purchase card is streamlining business expenses and improving cash flow management for the finance team. Purchase cards work by simplifying the payment process, which reduces the administrative burden (and associated costs) for finance. Every time an employee swipes the company’s purchase card, it updates the books with all relevant details, including receipts and invoices, making it easier to see who’s spent what and where.
It’s likely that your employees will occasionally need to spend company money on travel or business expenses, from office stationery to new software. If you’re used to written purchase requests and manual expense report tracking and reimbursements, you’ll know how time-consuming this can be. P-cards simplify this process by allowing you to set up vendor restrictions for your employees, eliminating the need for manual reimbursements.
Efficient expense management
Procurement cards also help to increase efficiency when it comes to expense management and controlling business spending. They do this by maximising vendor relationships and improving procurement processes, cutting out unnecessary steps and reducing manual admin.
Best practices to follow when using p-cards
To maximise efficiency when using p-cards, it’s crucial to adhere to the following best practices, each of which will help you stay compliant.
Train and educate
When setting up a purchase card system, it’s important to train and educate your employees on proper card usage. For example, you’ll want to make it clear exactly what procurement cards can be used for (essential work purchases only, no drugs or alcohol, etc). Set up an in-person training session for all employees entrusted with purchase cards and send out any materials shared after so people have something to refer back to if they’re not sure what they can spend on.
Before you start using your purchase cards, it’s a good idea to integrate these with your accounting system. Pleo, for instance, easily syncs with the accounting tools your finance team uses every day, including NetSuite, Xero and Quickbooks. This way, every time an employee makes a purchase, it automatically updates your company's books with all the relevant information, including receipts and invoices.
Lastly, you’ll want to analyse your corporate purchasing card data for valuable insights and cost savings. For example, you might be making duplicate purchases across teams, or have subscriptions you’re no longer using, which you could cancel to save your business money. Plus, it’s always helpful to see what your employees are spending the most on to see if you can negotiate pricing and terms with your most popular vendors.
How to implement a purchasing card system
When implementing a purchasing card system at your business, be sure to follow these steps to help you make the most of this spending process.
Assess your organisation's needs and goals
Start by carrying out an internal needs analysis to work out your company’s priorities for outsourcing. This will help you establish which departments and functions need external support in order to improve their performance or efficiency. Remember to take into account the volumes and types of goods and services needed, as well as the time needed to procure.
Don’t forget that different suppliers will accept different cards, but banks and card companies might be able to help identify which suppliers accept payment using their card schemes. This is key before choosing a provider. Plus, you might want to work out what level of detailed data a supplier can provide you with when they are processing a card transaction.
Select the right purchasing card provider
Different providers offer different benefits, so it’s up to you to decide what’s essential for your business. Some will offer not much more than the average bank, so it’s important to do your research. The best procurement card providers will always offer individual logins for every team member, to prevent card sharing and limit misuse.
Similarly, you might want to look for a tool that offers different levels of access. For example, your CFO should be able to track every single payment and receipt, whereas employees should only be able to view their own purchases. And let’s not forget the benefit of real-time spending reports – the best purchasing cards will give you up-to-date spend information without having to investigate.
Establish policies and guidelines
Each cardholder should receive a copy of the cardholder guide, as well as a copy of the p-card programme policy and procedures. There are some things to consider when writing your purchase cardholder guide in order to make things as transparent and digestible as possible for employees. These include:
- How and when cardholders should use the card (including online purchases)
- The importance of buying on contract
- A list of the suppliers the organisation works with
- Disciplinary measures for misuse or overspending
- Details of the spend limits on cards and what to do with when a cardholder has forgotten their PIN or lost their card
- How staff should redeem loyalty points (such as air miles)
How to choose a p-card provider
Not sure where to start your search? The good news is that there are several corporate purchasing card providers out there. They all have their own unique features, benefits, and fee structures for you to choose from. When doing your comparisons, be sure to look for p-card providers that allow you to:
1. Give cards to all your employees
The more staff you have using a p-card, the better. This is because you can more tightly control who’s spending what and where, without any purchases falling under the radar. While some providers only allow you to use a few cards throughout your organisation, others will encourage you to make use of as many cards as possible.
2. Set spending limits
The downfall for many traditional company credit cards is that people are free to spend as much as they want, whenever they want. The best purchasing cards, on the other hand, allow managers and finance teams to set clear spending limits – either per purchase, per card or per period of time.
3. Reject and approve transactions
Don’t want employees spending money with certain vendors? With a purchasing card, you can set a list of approved vendors and set your system to automatically reject any spending that’s not within the defined list of brands.
How Pleo purchasing cards can work for your business
Pleo is the all-in-one spend management solution to help businesses with streamlining their procurement processes using purchasing cards. Employees can make purchases directly, eliminating the need for reimbursements and lengthy expense reports. This helps to streamline the payment process, reducing dull admin tasks and saving precious time for both employees and finance teams. Plus, you can assign Pleo cards to specific employees or departments, reducing the risk of unauthorised spending and enhancing budget management.
You’ll also get full control and enhanced financial visibility. With customisable spending policies, budgets and multi-step approvals, managers can easily track and monitor expenses to prevent overspending. And real-time data synchronisation with your accounting system gives finance teams up-to-date information when managing business expenses, enabling better planning, forecasting and decision-making.
Not to mention, Pleo can save you hard-earned money. Our detailed analytics enable businesses to evaluate the return on investment of their purchasing card programs. By tracking and monitoring expenses and and analysing spending data, you can easily identify cost savings, measure the efficiency of your expense management processes and make smarter, data-driven decisions to optimise your ROI.
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