Strengths and Weaknesses of P-Cards vs. Credit Cards

P-Cards offer certain conveniences organizations find appealing. However, the ease of use goes hand in hand with the ease of abuse. End-user organizations should weigh the balance of the potential benefits and pitfalls of P-Card use in order to detect, mitigate and prevent their abuse.

The Good

1. Cost Savings

The traditional procure-to-pay process is costly, often involving a requisition, purchase order, invoice and check payment regardless of the dollar amount of the purchase. The process cost of a $25.00 purchase is the same as a $10,000.00 purchase and can exceed the value of the item being acquired. Traditional process cost estimates range from $50.00 to $200.00.

Typically, a significant number of check payments are made for low-value items to a large number of suppliers. Switching from the traditional process to a P-Card process yields efficiency savings ranging from 55% to 80%. On average, P-Card end-users save $63.00 per transaction, per an NAPCP evaluation.

2. Simplified Process

P-Cards streamline the procure-to-pay process. The benefits for companies are varied and widespread. P-Cards offer companies the ability to procure goods and services on a timely basis, decrease transaction costs, take advantage of supplier discounts, reduce or redirect staff in the purchasing and/or accounts payable departments, reduce or eliminate petty cash and track expenses.

3. Benefits to suppliers

The benefits for suppliers that accept P-Cards for payments can outweigh the costs related to card acceptance. Advantages include:

  • Cost reductions. P-Cards eliminate the need for the creation and mailing of invoices, the depositing of payments and the handling of collections.
  • Funds are electronically deposited.
  • Payments are received faster and cash flow is improved.
  • Increased sales. Many organizations only solicit suppliers that accept P-Cards as payment.
  • Staffing efficiency. P-Cards allows for potential staff reductions within accounts receivable, providing the opportunity to redirect staff to more value-added activities.

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The Bad

The ease and speed of the P-Card process offers the potential for lack of timely assessment and approval. Improper or unauthorized expenditures can go undetected for months and years. The P-Card process differs from the traditional credit card approval process whereby the employee submits documentation for review to obtain a check to pay the credit card. If the approval process does not occur, the credit card goes unpaid and a number of issues are brought to management’s attention. In the case of a P-Card, the payment of the card is usually swept or entered – whether or not the approval process occurred.

The Ugly

In one recent case involving a major municipality, inaction and lack of oversight allowed the P-Card to be paid. Upon investigation, SDC found millions of dollars of equipment was purchased and sold on eBay. The supervisor knew the P-Card was paid, whether or not the expenditures were approved. Thus, the busy supervisor did not thoroughly review expenditures. The employee purchasing the equipment was able to indicate to which department to code the expenditures, as the managers did not have to approve the P-Card payment.

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About the Author

DM Studler

DM Studler, M.Acc., CPA, CFF is the founder of SDC CPAs, LLC. and has worked employee dishonesty claims in excess of $82,000,000, both domestic and internationally. She speaks across the country on a regular basis and is highly esteemed among her colleagues.