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P-cards vs Credit cards

P-cards vs Credit cards

Empowering employees to make purchases helps ensure they have what they need to get their work done. If you want to keep your business agile and moving fast, you’ll want to help make this happen.

In most cases, businesses will use either P-cards or corporate credit cards to enable employee spending.

While similar in their functionality, there are key differences that make them better fits depending on the unique makeup of your operations.

Read on to learn the essential facts about P-cards and credit cards to decide which one is right for you.

Key takeaways

Empowering employees with purchasing cards (P-cards) or corporate credit cards ensures they have necessary resources quickly

P-cards allow preset spending limits and specific vendor usage, streamlining the procurement process

Choosing the right card depends on your business needs

What is a P-card?

P-cards are given to employees to make purchases on the business’s behalf. They accrue a balance that must be paid in full every month.

The purpose of a P-card (also known as a procurement card or purchase card) is to speed up the procurement process. Instead of submitting a request that goes through the approval process, the employee can use their P-card to make the purchase.

The business has the ability to control what’s purchased by putting restrictions on the P-card. P-cards can have limits on transaction amounts, monthly spending, and what vendors the card can be used at.

Controls can be set for each card. For example, a lawn care company could give their field workers P-cards that are approved at gas stations while an operations manager approved at homeware stores for equipment purchases.

What is a credit card?

Credit cards are used to make purchases on credit, meaning you buy it now, but pay for it later. The balance owed increases and businesses make payments to reduce the balance.

If the balance carries over from one monthly statement to the next, interest is accrued on the outstanding amount. While it’s recommended to pay balances in full, this gives businesses leeway if they don’t have the cash flow to cover the whole amount.

There’s a maximum balance that can be accrued which is called a credit limit. If the balance is over the credit limit, transactions are rejected and in some cases might result in additional charges.

Many credit cards have features like points, rewards, or cash back which incentivize use. These perks are one of many things to consider when choosing a business credit card.

If well managed, a credit card can be used to maximize cash flow. But given the interest and fees that can accumulate with unpaid balances, there’s a risk of the debt ballooning if not maintained regularly.

P-cards vs credit cards: how they’re different

Both P-cards and corporate credit cards give purchasing power to employees. But how they differ will determine what’s the best card for your needs.

Use cases

P-cards are used to speed up the procurement process.

A P-card can be assigned to an employee with limits on spending amounts and purchase types. This effectively acts like a pre-approval process—instead of reviewing every transaction and approving on a case-by-case basis, it sets criteria that, if a purchase falls within it, it’s allowed.

Some examples of when a P-card would be used are:

  • Providing a per diem for an employee during travel
  • Giving employees the ability to make select purchases in the field
  • Pre-approving the payment of recurring bills
  • Offering training and development options at pre-approved providers

Corporate credit cards are less specific in their use cases. They are flexible in how they are used, but that freedom comes with some risk.

Since credit cards don’t have protections in place, they should only be provided to trusted employees and receipt collection is a must. 

The transaction history should be reviewed more frequently and thoroughly given the freedom of what it can be used on and the potential for misuse.

Some examples of when a corporate credit card would be used are:

  • Enabling purchases by management to back new initiatives
  • Providing spend for an employee during travel without any restrictions
  • Funding marketing campaigns like paid advertising
  • To cover all project costs and segment those expenses for project tracking

Takeaway: P-cards are best for giving purchase power to many employees with restrictions, while credit cards don’t give you as much control over how they’re used and should only be given to trusted individuals.

Cost analysis

Some P-cards come with annual or monthly fees that aren’t tied to activity, rather they’re to keep the account open and active. Others (like BILL Spend & Expense) have no hidden fees or extra costs to have an account.

While P-cards don’t charge interest on outstanding balances, it’s typically required that the balance is paid in full regularly. Payments may be required monthly, or even more frequently.

If a balance isn’t paid in full, you can expect late payment fees and the account may be suspended until a payment is made.

Credit cards also sometimes have annual, monthly, or transaction-based fees.

Although balances don’t need to be paid in full, interest is charged on the outstanding amount (an average of 28.96% on business cards). If you’re not paying down the balance in full, these amounts can quickly add up.

Both credit cards and P-cards have reward programs with options like points, cashback, and discounts at specific vendors. Be sure to compare reward programs across cards to maximize the return on your spending.

Takeaway: Credit cards have rewards systems and flexibility on payments if you can’t pay down a balance in full, but they come with additional costs in the form of interest rates that may make them more costly than P-cards.

Integration with financial systems

Many P-card options (like ours) integrate with the most common accounting software like Quickbooks, Xero, and Oracle NetSuite. This automates importing transactions, providing you with real-time insight into spending and limits.

Typically, P-cards come with their own online platforms that track spending and give you a detailed view of every purchase that’s been made without digging through receipts and expense reports.

Since you control what P cards can be used for, categorizing expenses is a breeze. While spenders should provide receipts, you can still get an idea of how much has been spent on what before you collect documents.

Credit cards will also typically integrate with top accounting platforms to import transactions. However, they don’t offer the same analytics tools or detailed transaction breakdowns that help you understand usage and modify controls.

Takeaway: Both cards can integrate with accounting platforms, but P-cards offer additional tools and controls for ease of reconciliation and saving you from chasing receipts or expense reports.

Compliance and policy considerations

P-cards are unique in that they have procurement policy baked into how they function. If a vendor or amount isn’t approved, the transaction doesn’t go through.

While this seems like a foolproof system at first glance, it still has its risks that you should be mindful of. 

A lenient policy can be taken advantage of or be vulnerable to fraud attempts like:

  • An employee making personal purchases at approved vendors
  • Vendors double billing
  • Being billed for a higher amount than what was agreed on

If you believe your P-card policies are ironclad, you might not review transactions as regularly and miss this activity as it’s happening.

Don’t treat setting the policy and controls as a one-time practice. You should regularly review whether the controls are successful in improving efficiency while not being too loose to be misused.

Given the freedom of credit cards, a thorough policy is tantamount to proper usage. 

A corporate credit card policy should include the following:

  • Eligibility: Which employees are eligible to have access to a corporate credit card
  • Approval process: What are the steps that must be taken for an employee to be approved for a corporate credit card
  • Approved uses: What the card can be used for
  • Reporting responsibilities: What documents must be provided for purchases made on the corporate credit card (e.g. receipts, invoices)
  • Spending limits: Maximum allowable transaction amounts or spending limits over a period time
  • Violations and consequences: What usage is considered a violation and what the disciplinary actions are
  • Dispute process: Who is responsible for reporting unauthorized charges made on the card
  • Point of contact: Who can be contacted if the cardholder has any questions about the policy or usage of the card

Enforcing the policy is largely a manual task. 

For example, unless a spending limit is enforced with a credit limit, you’ll only know if it’s been exceeded by tracking the daily activity.

Takeaway: A P-card policy can be enforced by its controls but should still be reviewed to make sure it’s having its intended effect. Comparatively, a corporate credit card should have a stricter policy to ensure proper usage, though enforcing the policy is a manual process.

Benefits and limitations

For businesses looking to speed up the procurement process, P-cards are the solution that empowers employees to spend on allowable expenses when necessary. 

Their controls and limits give you peace of mind that the card will only be used for expenses that would be approved.

This also means reconciling transactions is straightforward. Since only specific, approved expense types are allowed, transactions are easily categorized.

However, the controls you set can have drawbacks in some situations. 

For example, if a P-card has been provided to someone while traveling and they need to book emergency accommodations that aren’t included in controls or are above the spending limit, they’re left in the lurch until you change the controls on the card.

There’s also a lack of flexibility in payments. Balances must be paid in full and the account may be suspended if payments are missed.

Credit cards offer more flexibility with higher spending limits and balances that don’t need to be paid in full, though interest will accrue.

With the wide array of credit cards available, so too are the options for perks like cashback, points, or discounts at specific vendors. You might find an option that saves you money on some of your biggest expenses.

This freedom does open up some risk of misusage. It’s recommended you draft a corporate credit card policy that outlines what entails misusage and what the consequences are.

Here's a quick recap of the pros and cons of both payment methods.

P-Card Pros:

  • Speeds up the procurememt process
  • Spending controls ensure only approved transactions go through
  • Empowers employee spending
  • Simplified reconciliation

P-Card Cons:

  • Must be paid in full monthly or on a shorter time frame
  • Certain fraud attempts may be harder to catch
  • Not as many options available

Credit Card Pros:

  • Comes with perks like cashback, frequent flier miles, or points
  • Balances can roll over
  • High spending limits
  • Transaction protection in case of fraudulent charges

Credit Card Cons:

  • Interest accrues on outstanding balances
  • Freedom of expense types opens up opportunities for misuse
  • Manual reconciliation process
  • Requires drafting a corporate credit card policy

Takeaway: Both cards have their benefits and limitations and the option you pick for your business should reflect what you’re trying to achieve.

Get the card that does more than make purchases

Whether it’s a P-card or credit card, look for the option that does more than just make purchases. 

With BILL’s virtual cards and Spend & Expense platform, you get complete control over spending without having to review every transaction, request, or expense report. And we offer competitive rewards like cashback, travel rewards, and points that can be redeemed for gift cards.

Try BILL for free and see how we can save you time on procurement and other finance tasks.

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