A purchasing card (also abbreviated as PCard or P-Card) is a form of company charge card that allows goods and services to be procured without utilising a traditional purchasing process.
Purchasing Cards are usually issued to employees who are required to operate within a set of company rules and guidelines which usually includes an approved spend limit.
Use of Purchasing cards has seen a dramatic rise in recent years with many government organizations now using them to remove “red tape” and reduce costs[1]. For example In 2001 the Department of Defense (DOD) had 230,000 card holders with an annual spend of $6.1 Billion.[2]. Organizations typically use purchasing cards to target low value goods and services, as it offers a mechanism to do these transactions at a significantly lower cost than traditional methods.
There are a variety of software solutions available to help manage purchasing card programs, in particular the electronic statements that are provided by card companies in place of traditional purchase invoices.
Organizations have started to use purchasing cards as a strategic form of payment in accounts payable (A/P), in addition to the traditional high-volume, low-dollar transactions. Organizations are replacing checks with purchasing cards and automating the payment to the supplier. This is one of the fastest growing uses of purchasing cards. According to the 2005 Purchasing Card Benchmark Survey Results (Palmer and Gupta, 2007)[3], traditional purchasing card transactions below $2000 grew 1.4% from 2003 to 2005. The most dynamic growth was in transactions from $2000 - $10,000 representing a 6.1% growth. A/P transactions fall within this range and can extend into the hundreds of thousands of dollars.
According to the 2005 Purchasing Card Benchmark Survey (Palmer and Gupta, 2007)
- 2003 pcard spend = $80 billion
- 2005 pcard spend = $110 billion
- 43% of eprocurement transactions are paid via check
- By 2008 over 70% of all organizations will have a pcard program, up from 60% in 2005
The study goes on to discuss moving a purchasing card program to A/P. “The basic idea is to use the card to settle P.O.-driven transactions, like you would use ACH or check. The company captures the rebates associated with p-card transactions and sidesteps the work processing check payments involve. Although these cards currently are not in widespread use, their popularity is growing,”
Susan Avery (2005)[4] states that according to the Aberdeen Group purchasing card benchmark report, best practice purchasing card programs “do not confine” purchasing to the traditional spending of low-dollar, high-transaction goods and services. These purchases include off-contract, non-traditional, non-purchase order, ad-hoc, and incidental purchasing. Best practice purchasing card programs expand the purchasing card to the AP department.
One hurdle in the A/P pcard payment conversion is supplier enablement. This is often referred to as purchasing card supplier enablement or pcard supplier enablement. Every supplier must be contacted and informed of the payment change from check to the purchasing card, even if the supplier is already a purchasing card supplier. Some banks offer help in the conversion process (purchasing card supplier enablement) and other software companies provide technology to make the conversion efficient and easy for the financial institution, client, and supplier.
References
- ^ Using Purchasing cards to streamline the Purchasing Process
- ^ Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud, Waste, and Abuse By Gregory D. Kutz,
- ^ Palmer, R., & Gupt, M. (2007). The 2005 Purchasing Card Benchmark Survey Results.
- ^ Avery, Susan. (2005).Purchasing Cards Pack More Punch., from Purchasing Magazine Web site: http://www.purchasingmagazine.com
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