Purchase Cards, the new way to facilitate large B2B transactions
Purchase cards, also known as procurement cards or P-cards, are commercial credit cards issued by banks to enterprises to facilitate large B2B payments for goods and services procured, or for any high-volume purchases. In other words, it is a card-based unsecured credit line extended to businesses.
While a purchase card is used interchangeably with corporate credit card, there is an innate difference between the two. A corporate credit card (travel & entertainment) is issued to an organisation to take care of its business-related expenses such as utility, travel booking, meals, and rental cars. A purchase card is best suited and used for recurring large purchases core to the business.
ICICI, HDFC, Kotak, RBL, Yes and Axis Banks are some of prominent card issuers in the Indian market.
Over the years, purchase cards have started to replace the traditional means of payment to the vendors owing to the benefits they bring to the table.
A typical purchase card program can help provide a credit period of 45-55 days based on the card offering, and many times, is also customised as per the need of the enterprise. This reduces pressure on the cash flow available for other business requirements, at least for the stipulated credit period.
Smartly using the credit period, and settling the payment on time can help businesses improve their working capital situation and also in optimising cash flow management.
Being an unsecured credit tool extended to the business, P-cards complement the existing credit lines provided to the business, acting as a short-term loan to the business.
Purchase card programs help businesses to transact with a list of beneficiaries already registered and approved in the system. This fastens the overall transaction cycle as the basic eKYC, bank validation, and penny checking are already done.
With fraud transactions and card misuse being a major concern for any business, purchase cards help in preventing this by giving the power to the finance department to set up daily/weekly/monthly limits for each department or card holder. They can control the amount range, supplier category, and number of transactions allowed on a particular card issued. Such monitoring helps in keeping a check for compliance issues or fraud detection, curtailing any misuse of the card.
P-cards help in maintaining complete control and visibility of the spends, as the transactions are recorded at one central location. This helps during any internal or third-party audits, with all minute details of all transactions, vendor details and other cost components paid (taxes) all available.
The online reporting dashboard, offered by fintech companies (serving as a platform for purchase card acceptance) acts as a great centre of data for the businesses. These user-friendly tools help generate customised analysis around vendors, spend category, and location-based payments, which helps in achieving an overall seamless reconciliation scenario.
The dashboard data can easily be exported and analysed to provide actionable intelligence for future financial decision-making. These transactions can be directly linked with the company’s ERP system which helps in eliminating the need for any human intervention and manual reconciliation. This makes it possible for the businesses to mitigate any chances of errors that accompany any manual process, and therefore creating a better and a more accurate financial management system for the organisation.
An important variant of the purchase card in recent times has been the virtual card, which offers enhanced security and customised transaction-based controls like customised validity for single/multiple uses to the finance team.
Other notable benefits of any purchase card program includes early payment discounts, credit period extension, and cash rebates.
All in all, purchase card programs help build greater efficiency for business, by streamlining the process to procure goods and services in a timely manner, reducing transaction time and costs, monitoring spends, providing enhanced security, and more.
With more variants, customised features and benefits offered by competing financial institutions, P-cards are a great credit tool for any growing organisation.
(Edited by Javed Gaihlot)
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)