What are PCards?
PCards are a form of company credit card that is issued to employees who can then buy goods and services without having to process the purchase through a traditional purchasing procedure, such as using requisitions and purchase orders. The organisation issues PCards to employees, tells them to go ahead and buy what they need and charge it to the card. They can also restrict usage of the card to any supplier or category that has a preferred status. By taking advantage of credit card infrastructure to make electronic payments, PCards offer a simple payment system.
The attraction of establishing a PCard program is the automation and efficiency it brings. PCards reduce the processing costs and time required for purchase order creation, authorisation, invoice 3-way matching, payments, queries etc. This is particularly useful for the purchase of small items where the overhead costs can be hard to justify. PCards enable control of where purchases are made and provides an opportunity to lower prices for what is bought. In addition, by streamlining the process, PCards make payments quicker and allow organisations to capitalise on early payment discounts. Some issuers even offer attractive rebates on how much you spend.
There are benefits for suppliers as well, in terms of lower processing – offering less administration, faster payments and improved cash flow.
Types of PCards
There is a range of PCards available e.g.:
- Company/Travel PCards – typically used by organisations for employee travel and entertainment related expenses
- Supplier PCards – dedicated to purchasing off a supplier contract to ensure compliance (e.g. IT or equipment leases)
- Ghost PCards – a card account issued to a specific supplier or supplier type to process all the organisation’s transactions
- Fleet PCards – a card product used by organisations to pay for fuel and related expenses on company vehicles
- eCommerce PCards – cards dedicated to high-volume transactions in order to eliminate the cost of invoice processing
- Pre-paid and single use PCards – cards preloaded with a spend limit and/or used for one-off high value purchases or some specific project spend
Most organisations already use PCards in one form or fashion as a means to reduce the purchasing costs associated with buying low-value, high-volume goods and services. However, quite often this is just the beginning. It is important to consider other techniques to provide the ability to seize control of all types of non-payroll spend, including:
- Simple or “catalogue” items
- Capital expenditure
- Utilities, telecoms or other contracted spend
- Services purchasing
- Internal cross-charging or service provision
- Employee expense claims etc.
Challenges to PCards
While there are numerous benefits to PCard programs, not all organisations have taken them up. Some of the reasons and issues include:
- Transaction control – many executives just don't like the idea of issuing cards to employees and/or buyers are security conscious and limit the use of cards (restrictions like transaction and spend limits and which suppliers will be blocked need to be managed to mitigate fraud and misuse).
- ERP integration – PCard programs that are managed manually and not integrated into the ERP system incur more administration, cost and error. In addition, how the card charges are applied in the general ledger becomes problematic for accounting and budget control.
- Cardholder administration – PCard programs generally require a person to oversee the issuing of new cards, terminate cards, monitor activity and communicate with the issuer.
- Supplier enrolment and card acceptance – suppliers incur a cost to becoming a credit card acceptor and as a result not all suppliers participate in PCard programs
Integrating PCards with eProcurement
PCards and eProcurement should not be treated as two separate purchasing initiatives. There are some major advantages from integrating the two strategies. eProcurement solutions should offer an opportunity to harness the PCard, offering the ability to capture all non-payroll spend in the same system to enable true Spend Control and comprehensive procurement analysis. Key requirements include:
- The ability to capture information about PCard transactions as they happen, allowing the financial commitment to be recorded
- The ability to subject PCard transactions to the relevant pre-purchase approval and budget checking, where required
- A means to automate the reconciliation of PCard statements and streamline the process of approving them prior to payment
- An ability to report on PCard transactions alongside other purchase transactions