A Complete Guide To Purchasing Cards

Do you find your business stuck in the age-old struggle of using personal credit cards for business expenses?

If you feel this way, it might be the perfect time to finally consider a transformative solution for your organization through purchasing cards.

Purchasing cards are financial instruments that have been a tremendous help for the business purchasing process.

Aside from that, purchasing cards can help your business streamline expenses and ensure budget limits compared to traditional credit cards.

This blog will dive into purchasing cards and understand how they can benefit your bottom line.

Let’s dive in!

What Is A Purchasing Card?

A purchasing card (a P-card or procurement card) is a company credit card that your company’s employees can use to purchase goods and services your business needs.

Purchasing cards are typically used for low-value, high-volume transactions that do not need to go through the traditional purchase order (PO) process.

Aside from that, it can also be used for:

• Emergency purchases
• Purchases needed to be made quickly

Purchasing cards are a great, valuable tool for your business, regardless of size. Using this, your business can save money, improve efficiency, and reduce fraud risks.

How Does A Procurement Card Work?

No doubt that a procurement card provides a convenient way for your company’s employees to make authorized transactions without going through the traditional purchasing and payment channels.

Let’s discuss how purchasing with a procurement card usually works:

Step 1: Issuance Of Cards

The issuance of procurement cards begins with the finance team or designated personnel providing these cards to authorized employees or designated departments. Each employee who will be using a card will typically have their card.

Each card is allocated a specific budget or spending limit, and cardholders must strictly follow these limits. This ensures that your company spending remains within the financial limits set by your organization.

Step 2: Training

Your company employees typically undergo training to familiarize themselves with your organization’s procurement policies and guidelines.

It’s important for your organization to clearly define the allowable types of purchases using the credit card and establish spending limits for each cardholder.

This training and authorization process ensures that your employees are informed about the proper use of the procurement card within the organization’s guidelines.

The finance team can assign spending limits to each card upon receiving the card. This ensures proper controls and prevents excessive spending.

Step 3: Approval Process

Your company can implement an approval process wherein your supervisors or designated individuals review and approve a procurement transaction before your employees can make the purchase.

This serves as an additional layer of oversight to ensure all purchases align with organizational policies and budgetary constraints.

Step 4: Making Purchases

Employees can use their purchasing cards to make payments for business-related expenses.

These cards can be used for both online and offline purchases. The card details can be entered manually or stored in a digital wallet for convenience.

The flexibility of these cards allows for various types of transactions, encompassing acquisitions such as office supplies, equipment, or services.

This convenience streamlines the procurement process for smaller to medium-sized purchases for your business.

Step 5: Documentation

Following the purchase, cardholders within your company should provide comprehensive documentation for each transaction, including receipts, invoices, and other important information.

This documentation process is important for your organization to track and verify all transactions made with procurement cards to ensure transparency and accountability.

Step 6: Reconciliation

Regular reconciliation of procurement card transactions is a standard practice.

Cardholders within your company should match receipts and other supporting documentation with the corresponding purchases to ensure accurate financial record-keeping.

This makes it easier to report unauthorized transactions and proceed with investigation and resolution if necessary.

Step 7: Payment

The designated team within your company should consolidate all approved transactions made with your company procurement cards and settle the total amount spent with the credit card issuer.

Payments are typically made monthly, making it easier to maintain accurate budget records.

Step 8: Monitoring And Reporting

To maintain control and oversight, employees within your organization should use software or systems to make it easier to create reports for the procurement activity done through the procurement card.

These reports make it easier to track spending limits and ensure compliance with your company’s organizational policies. Aside from that, this also makes it easier to spot any fraud.

How Does A Procurement Card Monitor Security: Procurement cards often incorporate security features, such as PINs, restrictions, or purchases, to prevent misuse. In case of a lost or stolen card, your organization should establish important procedures to address the situation immediately.

How Does ProcureDesk Help In This Process?

The system assigns purchase approvals automatically, sparing your employees from figuring out who needs to give the green light for a purchase.

You can set up purchase approvals based on the amount, department, location, budget owners, and more. Creating custom approval workflows is a breeze.

When a requisition comes in, the system runs it through the purchase approval workflow, pinpointing the approvers required.

Let’s illustrate with an example: If John is the requester, the system identifies Mark as the approver who will review and give the thumbs up for the approval request.

The only task for the employee is to send in the approval request.

After the request is sent, the system alerts the approver about a pending request. The approver can give their approval directly from the email without needing to log into the system or use the ProcureDesk mobile app for approvals.

Tracking Vendor Acknowledgment

Given the ongoing supply chain challenges, monitoring vendor acknowledgments closely is crucial. Without a vendor’s acknowledgment of the order, uncertainties arise regarding when and if the product will be shipped.

Various methods can be employed to obtain order acknowledgment information.

For instance, including instructions on the purchase order for sending the acknowledgment is one approach.

Another option is establishing an email, such as purchasing@yourcompany.com, where vendors can conveniently send the acknowledgment. These proactive measures become increasingly important in navigating the complexities of the current supply chain landscape.

The other alternative for the vendors is to use the ProcureDesk vendor portal to provide order acknowledgment.

Here is an example:

Cost Control Dashboard

Are you looking to enhance your understanding of cash flow?

The cost control dashboard is designed to offer precisely that. The Spend Management dashboard consolidates all your spending information in one place.

This includes details such as what you’re purchasing, from whom, and who within your company is making these purchases. It’s a comprehensive tool to provide clarity and visibility into your expenditure.

Monitor monthly spending patterns to stay informed about purchasing trends within your company.

Additionally, you can track payment terms with vendors, enabling you to identify opportunities for negotiating improved payment terms.

Types Of Purchasing Cards

Did you know that there are three types of purchasing cards? Let’s briefly discuss what they are, their benefits, and the types of payments used for each.

Single-Use Cards

Single-use purchasing cards, or one-time-use cards, are only used for a single purchase. After the purchase, the card immediately becomes invalid.

They typically have a pre-loaded amount and are often used for small, unplanned purchases or to pay vendors who do not accept traditional credit cards.

Benefits Of Single-Use Cards

• Enhanced security: Since they are only valid for a single transaction, the risk of unauthorized use or fraud is significantly reduced.

• Reduced spending: By limiting the card to a specific purchase, companies can control expenditures and prevent employees from overspending.

• Convenience: Single-use cards offer a convenient way to make quick, unplanned purchases without needing approvals or additional paperwork.

When To Use Single-Use Cards

• Making payments to vendors who do not accept traditional credit cards

• Purchasing small, unplanned items, such as supplies or refreshments

• Handling emergency expenses that require immediate payment

Virtual Cards

Virtual purchasing cards, also known as ghost cards, are digital cards that do not have a physical card associated with them.

They are generated for specific purchases or vendors and can be used for online transactions or electronic payments.

Benefits Of Virtual Cards

• Enhanced security: Virtual cards eliminate the risk of physical card theft or loss, reducing the potential for fraudulent transactions.

• Streamlined payments: Online or electronic payments can be made quickly and easily using virtual cards, eliminating the need for manual data entry or physical card swipes.

• Flexibility: Virtual cards can be generated for specific transactions or vendors, allowing for better spending control and tracking.

When To Use Virtual Cards

• Making online purchases from authorized vendors

• Processing electronic payments to suppliers or service providers

• Handling sensitive transactions that require an extra layer of security

Physical Cards

Physical purchasing cards are standard plastic cards that can be used for both in-person and online purchases.

They are issued to authorized employees for ongoing purchasing needs and offer a convenient payment method.

Benefits Of Physical Cards

• Widespread acceptance: Physical cards are widely accepted at most retailers and service providers, offering flexibility in purchasing options.

• Convenience: Physical cards are easy to carry and use, making them a convenient payment method for in-person and online transactions.

• Clear spending limits: Physical cards typically have pre-set spending limits, allowing companies to control employee expenditures and prevent overspending.

When To Use Physical Cards

• Making in-person purchases from authorized vendors

• Purchasing supplies, equipment, or other business-related items

• Handling everyday expenses that require a physical card for payment

Purchasing Card Controls

Purchasing card controls are important for your business to safeguard financial resources, prevent unauthorized transactions, and maintain compliance with company policies and regulations.

These controls encompass measures designed to minimize fraud, misuse, and errors related to purchasing cards within your company.

Here are some key purchasing card controls your company should be conscious about:

Establish a Clear Policy

Develop a comprehensive purchasing card policy that outlines the guidelines, procedures, and restrictions for using the cards.

This policy should address authorization levels, spending limits, vendor restrictions, transaction approval processes, and recordkeeping requirements.

Card Issuance And Authorization

Carefully select authorized cardholders based on their job responsibilities and ensure they undergo proper training on the card’s usage and company policies.

Implement a card assignment process that tracks the cardholder’s identity, department, and designated use.

Set Spending Limits

Establish spending limits for each cardholder or department based on their purchasing needs.

These limits should be aligned with the cardholder’s responsibilities and the overall company budget. Regularly review and adjust spending limits as needed.

Vendor Restriction And Approvals

Restrict purchases to approved vendors and establish a mechanism for verifying vendor legitimacy. Implement an approval process for transactions exceeding certain amounts or falling into sensitive categories.

Transaction Monitoring And Reconciliation

Regularly monitor card transactions for unusual patterns, unauthorized charges, or purchase orders or invoice discrepancies.

Implement a reconciliation process to match card statements with receipts and supporting documentation.

Fraud Prevention And Detection

Educate cardholders on fraud prevention measures, such as safeguarding card information, promptly reporting lost or stolen cards, and verifying purchase amounts before authorizing transactions.

Implement fraud detection tools and procedures to identify suspicious activity.

Recordkeeping And Reporting

Maintain accurate records of all card transactions, including receipts, invoices, and supporting documentation.

Establish a reporting mechanism for card-related issues, fraud incidents, and policy violations.

Regular Audits And Reviews

Conduct periodic audits of purchasing card transactions to identify potential fraud, misuse, or policy violations.

Review the purchasing card policy regularly to ensure it remains relevant and effective.

Training And Awareness

Provide ongoing training to cardholders on the latest purchasing card policies, procedures, and security measures.

Raise awareness of fraud prevention techniques and encourage reporting of suspicious activity.

Disciplinary Action

Establish clear disciplinary guidelines for misuse of purchasing cards, including violations of policy, unauthorized transactions, and fraudulent activity.

Enforce consistent disciplinary action to deter misuse and maintain a culture of compliance.

Purchasing Card vs. Credit Card

It’s unsurprising how people usually misinterpret purchasing cards as credit cards. But did you know that both cards have key differences from each other?

Purchasing Card 

Purchasing cards are used for business-related purchases, ensuring expenses align with company budgets and policies.

What Are The Budget Limits Of A Purchasing Card?

Purchasing cards typically have pre-set spending limits controlled by the company, ensuring that expenditures stay within budget guidelines.

What Are The Reporting Capabilities Of A Purchasing Card?

Purchasing cards provide detailed transaction data, expense tracking capabilities, and reconciliation tools to help businesses maintain accurate financial records and identify potential irregularities.

Purchasing Card Integrations

Purchasing cards integrate with accounting and procurement systems, allowing for seamless expense management and integration with the overall business purchasing process.

Credit Card

Credit cards are used for personal expenses, offering flexibility in spending and the ability to carry over balances from month to month.

What Are The Budget Limits Of A Credit Card?

The issuer sets the budget limits of a corporate credit card, often with the option to increase or decrease the limit upon request. Balances may carry over to the next month, potentially leading to debt if not managed carefully.

What Are The Reporting Capabilities Of A Credit Card?

Corporate Credit cards offer transaction history and statement summaries but may not provide the same level of detailed reporting as P-cards.

Credit Card Integrations

Corporate Credit cards integrate with personal finance apps, enabling users to track spending, set spending goals, and manage their finances.

Benefits Of A Purchasing Card

Do you know that purchasing cards offers many benefits to businesses like you who want to enhance control, streamline workflows, and reduce costs?

Let’s discuss some of the important benefits of a purchasing card:

High Level Of Control

Purchasing cards provide a level of control that traditional purchasing processes and individual cards often lack.

With purchasing cards, finance teams can set spending limits for individual employees, ensuring that purchases stay within approved budgets.

By setting spending limits and having robust controls, your business gains complete control over your expense and even prevent unauthorized spending.

Enhanced Visibility

The use of purchasing cards also provides enhanced visibility into transactions.

Your business can easily track and monitor expenses made using these cards, allowing you to gain insights into spending patterns and identify opportunities for cost savings.

This visibility enables quicker and more informed decision-making, as managers can access real-time transaction data.

Streamline Approval Process

Using purchasing cards simplifies the purchasing and payables process, reducing the administrative burden on employees and improving efficiency.

In addition to control and visibility, purchasing cards streamline approval processes.

Instead of going through the cumbersome process of creating and approving purchase orders, your employees can make purchases directly with the card, eliminating the need for manual paperwork and reducing administrative burdens.

Reduced Transaction Costs And Operational Efficiencies

Another advantage of purchasing cards is the potential for reduced transaction costs and operational efficiencies.

By consolidating multiple purchase transactions into a single payment to the card provider, your business saves time and resources previously spent processing individual invoices and payments.

Aside from that, using purchasing cards eliminates the need for writing checks or making wire transfers, reducing transaction costs.

This streamlined approach not only reduces costs but also improves cash flow.

Potential Rebate Programs

Many card providers offer rebate programs, allowing your business to receive back a percentage of their spending.

This additional financial benefit further incentivizes your business to adopt purchasing cards as part of their payables process.

Better Cash Flow 

Purchasing cards allows your business to defer payments to suppliers, improving cash flow management.

Flexibility

Purchasing cards can be used for various expenses, including vendor payments, utility bills, office supplies, travel expenses, etc.

With a purchasing card program in place, your company can empower your employees to make electronic payments on behalf of the company, ensuring a seamless and efficient payment process.

Disadvantages Of Purchasing Cards

Although with a variety of advantages, purchasing cards also has certain cons that your company should be aware of:

• Increased Transaction Costs: While purchasing cards simplifies payment, they may carry higher transaction fees than traditional credit cards. These costs can add up, impacting the company’s overall expenses.
• Potential Misuse Or Unauthorized Purchases: Purchasing cards can grant individual employees the power to make purchasing decisions, which can benefit swift operations. However, this decentralization of spending control can also lead to misuse or unauthorized purchases, making it crucial for businesses to implement proper controls and approval processes to minimize risk.
• Challenging Tracking And Monitoring: The limited oversight of purchasing cards poses challenges in tracking and monitoring expenditure. Unlike traditional business credit cards, purchasing cards may not provide comprehensive reporting or integration with accounting systems, making reconciling transactions and ensuring accurate accounting entries difficult.

By carefully evaluating these drawbacks and implementing proper controls, your business can ensure a successful and efficient procurement process while minimizing potential risks.

FAQs

How To Choose A Purchasing Card Provider For Your Business?

Choosing the right purchasing card provider for your business is important to help you save money, improve efficiency, and reduce fraud risk. Here are a few factors to consider when making your choice:

• Cost: Compare the fees charged by different providers, including annual fees, transaction fees, and foreign exchange fees. Consider the volume of transactions you make and choose a provider offering a fee structure aligned with your business needs.
• Features: Consider the important features of your business, such as spending limits, transaction controls, reporting capabilities, and integration with your accounting software. Choose a provider with the features you need to manage your spending effectively.
• Security: Make sure the provider you choose has a strong reputation for security and offers features to protect your business from fraud, such as cardholder verification and monitoring.
• Customer service: Choose a provider that has a good reputation for customer service and can provide you with the support you need to manage your purchasing card program.
• Reputation: Research the provider’s reputation in the industry and read reviews from other businesses to get an idea of their customer satisfaction levels.

Once you have chosen a purchasing card provider, take the time to train your employees on how to use the cards and the company’s purchasing card policy. This will help to ensure that the cards are used properly and that your business is getting the most out of its purchasing card program.

The Bottomline

Without a doubt, purchasing cards helps your company make purchasing goods and services easier.

With set budgets and clear reports, they give your business a way to control your spending and keep everything transparent.

If your company is ready to make smart and efficient financial moves, it’s about time you start leveraging the power of purchasing cards!