How to Choose Between the Company Purchasing Card and Corporate Cards

Effectively directing business expenditures involves identifying the appropriate payment methods for various types of organizational spending. The two primary methods, a procurement card or a company purchasing card, and a corporate card (also known as a corporate travel card), are designed to facilitate transactions and enable necessary management and control to ensure viable spending patterns, while serving distinct strategic functionalities.

Achieving the maximum value for your organizational spending is entirely contingent on understanding the advantages and disadvantages of each card in relation to how it will be used, the level of control you are comfortable with, and repayment terms.

Managing the organization’s finances efficiently and with as little stress as possible requires understanding whether your case is a unique, specialized opportunity for procurement efficiency or more flexibility in the broadest sense, such as corporate expense management or travel and hospitality.  This article will help you identify which one you need the most: a corporate card or a purchasing card.

What are purchasing cards?

A procurement card, also known as a company purchasing card program, is a specialized type of charge card issued by companies to streamline the purchasing process for all company-approved goods and services. Purchasing cards are similar to corporate credit cards, specifically intended for operational and procurement purchases, allowing companies to make immediate payments to suppliers without following a standard purchase order.

This design is intended to increase efficiency, flexibility, and ease when purchasing low-dollar-value items, significantly reducing paperwork and handling.

Ideal use cases for purchasing cards

Company purchasing cards are intended for frequent use with lower-value items that do not require a more involved procurement process.

Benefits of using purchasing cards

Purchasing cards reduce costs and streamline various processes involved in procurement, ultimately lowering administrative costs significantly.

1. Cost Reduction and Efficiency: By reducing the volume of both invoices and cheques for business-related purchases, these cards can deliver procurement cost savings.
2. Strong Controls: P-Cards also include strong controls around purchasing, in the form of merchant category code (MCC) controls and a list of approved vendors. Compliance with company policies regarding permitted purchases is critical.
3. Streamlined Repayment: P-Cards typically follow a conventional repayment process, allowing organizations to operate under a structured, centralized repayment system with straightforward reconciliation.
4. Decentralized Approved Spending: P-Cards decentralize operational spending by allowing you to set spending limits, resulting in a reduction of petty cash and reimbursements.
5. Limited Use: They are best used for controlled, repeatable purchases from known vendors. They are limited to spending outside of purchasing from the defined list of vendors.

Limitations

The limitations of the purchasing cards pertain to their specialized purpose. P-Cards are generally not permitted for most travel expenditures, including, but not limited to, lodging, gas, vehicle rental, and transportation expenses. They are also not permitted for meals, entertainment, personal expenses, or cash advances. If an employee violates policy, this may result in disciplinary action, including the permanent loss of purchasing privileges.

P-Card programs require strong administration. A Card User is responsible for the card/account number. At the same time, they have the card and must collect and submit adequate supporting documentation (e.g., sales slips or itemized receipts) immediately following the purchase.

This streamlined approach is typically handled through a Custodian/Account Manager, who is also responsible for reconciliation, and saves time and money on an expense process that typically costs between $50 – $100, or more per transaction. Also, ensuring compliance with the policy will require all Card Users, Purchasing Agents, and Budget Authorities to undergo training.

What are corporate cards, and how do they differ?

Corporate cards are issued to employees for a wide range of work-related expenses, with a primary focus on travel and hospitality expenses. These cards enable employees to make purchases for transportation, hotel, or client dinners without needing to pay with personal funds and wait for reimbursement.

Ideal Use Cases for Corporate Cards

Corporate cards are most effective when employees require flexibility for every conceivable company need, particularly for travel-related expenses.

Benefits of Using Corporate Cards

Corporate cards again provide operational efficiency, particularly for employees who are traveling and always on the road, and they are helpful in the form of the benefits they offer.

1. Flexibility and Accepted Use: Corporate cards can be used for virtually all types of business spending, especially for travel and online purchases.
2. Travel Benefit: Most corporate cards offer benefits in the form of cash back, insurance, lounge access, trip points, etc.
3. Integration with Existing Systems: When integrated with expense management software and accounting systems, corporate cards can provide operational efficiencies through streamlining reconciliation and the expense management process.
4. Cash Flow Benefits: Corporate cards optimize cash flow by managing payments without tapping cash reserves immediately.

Limitations

Unlike P-Cards, which are focused on procurement-related purchases, corporate cards can be more nuanced due to their flexibility. Corporate cards will require employees to submit expense reports after the fact, which may be triggered. This is the document the employee will produce to cover all expenses incurred.

The employee is responsible for all charges on the card, and the remaining balance must be paid in full each month. All travel and entertainment expenses must be submitted, along with the post-travel/entertainment expense report, by the employee within 45 days. Anything submitted later than 60 days after the event actually occurred will be considered as taxable wages.

While having access to credit is convenient, it also presents a risk of overspending and abuse, which poses a challenge for effective oversight, spending policy management, and alerts for misuse, particularly when informed by well-established spending policies. The company can follow a company-wide guideline on expense management and policies that will be proactive against this potential risk.

A Head-to-Head Comparison of P-Card, Corporate Credit Cards, and Corporate Travel Card

Making the Strategic Choice Between Purchasing Cards and Travel Cards

Choosing between a P-card and a Corporate card requires evaluating the organization’s spending profile. If your organization is focused on transaction efficiencies for frequent small-value purchases from vendors, then a P-Card program is your best option.

If your organization’s needs are centered on employee mobility and categories of T&E expenses that require funding, a corporate card is a better option. The decision ultimately boils down to control vs. flexibility. Purchasing cards have strict pre-spend controls with vendor and category restrictions; whereas, corporate cards allow spend flexibility but require robust post-spend reconciliation.

Developing policy and oversight

Card programs, regardless of the type of card, require planned policy development. The policies should be constructive and outline eligibility based on the job function and spending authority rather than seniority alone. Any limits, at some frequency (transaction-based or monthly), should be established on user spend criteria and reviewed and adjusted annually.

For example, a purchasing role would have a limit higher than the incidental spending limit. Policy enforcement must be consistent, and the policy should provide details on remediation steps for accidental misuse, such as repaying business-invited charges. The organization should also adopt the best practices outlined above for defining clear policies and card limits upfront.

Conclusion

Modern financial technology is increasingly erasing the distinction between purchasing cards vs. corporate cards. Innovative platforms have emerged, offering a hybrid solution that combines the best features of both card types and leverages virtual cards for comprehensive oversight and control.

Virtual cards are issued instantly and allow you to define a budget, restrictions for merchants, or categories, all policy-driven at a more granular, card-level, just as you do with a P-Card. Unique card numbers are generated for each transaction, significantly enhancing your security against cloning while also providing detailed data to conduct a precise and efficient reconciliation.

These integrations provide expense capture automation and sync your data, regardless of your accounting platform, automating real-time policy enforcement oversight to maintain your financial control without any corresponding loss of operational flexibility. Companies like Wallester differentiate themselves by providing custom integrated card solutions for corporate procurement and T&E needs.

Deciding the right card will generally come down to whichever task you need to do, which means there is no longer a question of which tool to use when choosing between a P-Card or Corporate card, rather an enabled solution to the right process with the correct representation which encapsulates the obligations your business principles around a P-Card with the outmost flexibility needed for a global corporate business travel sometimes interchangeably referred to as a Corporate Card.