Why Use P-Cards?
The traditional procure-to-pay process is costly
The transactional, or process cost, of using a traditional procure-to-pay process—often involving a requisition, purchase order, invoice and check payment—is the same regardless of the dollar amount of the purchase. In other words, the process cost of a $25 purchase is the same as a $10,000 purchase. Often, the process cost exceeds the value of the item being acquired (e.g., the cost to acquire a $25 wrench may exceed $100). Estimates of the process cost of the traditional process range from $50 to $200.
A P-Card program simplifies the process
Most organizations recognize that a large number of check payments are made for low-value items to a large number of suppliers—a costly, inefficient process. When the payment method is switched from the traditional process to a Purchasing Card process, efficiency savings range from 55% to 80% of the traditional process cost. Per an NAPCP evaluation, typical savings resulting from P-Card usage are $63 per transaction. (Members and complimentary subscribers, view the complete P-Card value proposition. Not either one? Join today.)
Overall, P-Cards provide a means for streamlining the procure-to-pay process, allowing organizations to procure goods and services in a timely manner, reduce transaction costs, track expenses, take advantage of supplier discounts, reduce or redirect staff in the purchasing and/or accounts payable departments, reduce or eliminate petty cash, and more. Originally, P-Cards were targeted for these low-value transactions, but their use has expanded as the industry has grown.
P-Cards also benefit suppliers
Suppliers that accept P-Cards for payment can reap considerable benefits to outweigh the costs related to card acceptance. Benefits include:
- cost reductions, such as eliminating invoice creation, handling and mailing; depositing payments and collection activities
- electronically deposited funds
- faster receipt of payments and improved cash flow
- increased sales, as many organizations solicit only suppliers that accept P-Cards as payment
- customer satisfaction
- potential staff reductions within accounts receivable and the ability to redirect staff to more value-added activities