A P Card, also known as a purchasing card, is a company charge card used to buy goods and services. It’s an alternative to a check or automated clearing house (ACH) transaction. Purchasing cards charge no interest, but you’ll have to pay the full balance monthly. Businesses may benefit from early payment discounts on accounts receivable.
If you’re looking for a P Card alternative and still want to control company spending, consider a prepaid card from a provider like Bento for Business. Bento provides inexpensive business prepaid cards, which can help manage business and employee purchases through one easy-to-use account portal.
What Is a P Card?
A purchasing card is a type of business credit card, similar to a corporate card, that companies can use to facilitate business-to-business (B2B) purchases. As with other commercial cards, a P Card is a charge card, and you’ll need to pay the balance in full every month. This means there is no annual percentage rate (APR), and you won’t pay interest on your purchases.
How a P Card Works
Purchasing cards or ghost cards are typically given to employees, who are then able to use their card to purchase goods and services. Employees can make a purchase on-demand or by an invoice from the supplier or service provider. That supplier or service provider reports the transactions to the purchasing card provider, the same way with any credit card transaction.
You will receive your bill typically every 15 or 30 days, based on your agreement with the card provider. You’ll either pay automatically by allowing the provider to withdraw funds from a connected checking account or pay the balance in full manually.
Your business can either input the transactions into your accounting system manually or have them entered automatically, depending on the services your P Card provider offers. Some providers have systems that connect to your accounting system to automate this process. Then, the process starts over.
Who a P Card Is Right For
A purchasing card is best for business owners looking to issue employee cards to purchase goods and services instead of using other payment methods, such as checks or ACH transactions. Get a company card like this if you have a small or growing business that’s looking to simplify its purchasing process and streamline expense reporting.
Purchasing cards are right for:
- Businesses that want to streamline their payment process: Organizations looking to simplify and manage their B2B purchases can benefit from a P Card. These types of purchases include office equipment, supplies, and any technology hardware or software.
- Growing businesses: A purchasing card is recommended for companies with traditional purchasing processes, at least $4 million in annual revenue, and additional growing business needs. It is specifically ideal for growing businesses that want to cut costs and have efficient B2B transactions
- Companies that want to earn early pay discounts: If your suppliers or service providers accept credit cards, you may be able to pay your accounts receivables early using your purchasing card and get the benefit of any early pay discounts they might offer.
Much like a prepaid business card, purchasing cards allow you to take control of your company spending. If a purchasing card doesn’t seem like a good fit for your business, consider a business prepaid card that also allows you to control employee spending. Be sure to choose a business card that meets your business’s needs.
P Card Costs
Purchasing cards don’t carry interest rates or have an APR because you’re expected to pay the balance in full at the end of every month. Any unpaid balances will be hit with a monthly late fee of up to $40. Although card providers may require automatic payments or could terminate your purchasing card if late payments happen too often. Most card issuers don’t charge for purchasing cards, so businesses can expect no annual fees.
The fees that you can expect with a P Card are:
- APR: None
- Annual fee: None
- Late fee: $0 to $40
A purchasing card program should be seen as a privilege, which can be taken away from irresponsible use. If your business usually pays late and collects several late fees, your purchasing card has the potential to be canceled.
P Card Repayment Terms
Similar to a company charge card, purchasing cards don’t have any APRs or allow you to carry balances over to the next billing cycle. The business owner or account holder is expected to pay the account’s balance in full every month. Any unpaid balances will be charged a late fee. If you’re habitually late, then your provider might require you to set up automatic payments or could terminate the card agreement.
For this reason, a purchasing card is not ideal if you know you won’t be able to pay your statement balance in full. If you know you’ll need to leave a balance on your card, it’s worth considering a small business credit card that offers a 0% APR introductory period.
P Card Qualifications
Purchasing card qualifications you can expect to encounter include spend requirements, level of liquidity, business and personal credit score, and your level of cash flow coverage.
The qualifications for purchasing cards are:
- Spending requirements: Some card providers require a minimum amount of monthly or annual spending before they allow you to get a purchasing card. If your business has a very low spend amount, then a business credit card is a better alternative
- Business credit score: It’s always a good rule of thumb to maintain a good business credit score with each credit reporting bureau. The four business credit bureaus and what’s considered a good score are Dun & Bradstreet (80 or higher), Experian (76 or higher), Equifax (90 or higher), and FICO SBSS (140 or higher).
- Personal credit score: Some card providers will check the business owners’ personal credit score and require a score of 670 or higher.
- Level of cash flow coverage: Card providers will generally evaluate your level of cash flow coverage to determine if you can repay your debt obligations with your operating cash flow. This should be at least 1.25 times your debt service coverage ratio (DSCR).
In addition to these qualifications, purchase card providers will likely evaluate the financial condition of your business. They want to see that it was profitable both currently and in the past couple of years.
P Card Providers
The best P Cards may offer expense management software, benefits like revenue sharing, and typically charge no annual fees. These cards are generally a good choice for any business looking to streamline their payment process.
Some common purchasing cards are:
- One Card From Capital One: Best for companies that want to earn rewards, simplify their B2B purchasing process, and benefit from flexible billing options.
- JPMorgan Chase Purchasing Card: Best for businesses that want to streamline and manage their B2B purchases, including office equipment, supplies, and computer hardware or software.
- American Express Corporate Purchasing Card: Best for business with at least $4 million in annual revenue.
Business owners generally can’t apply for a purchasing card online. Instead, card issuers usually ask that owners or potential account holders fill out an online contact form or call to speak with a banking representative.
Note: The information related to the JPMorgan Chase Purchasing Card has been collected by FitSmallBusiness and has not been reviewed or provided by the issuer of this card.
P Card Benefits
There are a handful of benefits businesses and organizations can receive from the use of purchasing cards. The three most common benefits are discounts and rebates, potential revenue sharing, and software to help with expense reimbursement. These benefits can help businesses simplify their purchasing process and make it more efficient.
The major benefits of a purchasing card are:
- Early pay discounts are possible: You can sometimes earn discounts by using cards for accounts receivable and making early payments. For example, you might be able to negotiate an early payment discount, such as 2/10, net 30, which means your supplier will discount your invoice by 2% if you make the payment in 10 days instead of 30.
- Revenue sharing may offset costs: P Card programs often offer revenue sharing to businesses and organizations, which means that the P Card provider will give you a set percentage of the revenue they earn from credit card exchange fees as a rebate. This can more than offset any cost associated with the card and grow your company’s earnings
- Expense reimbursement software is often included: Some providers include software for expense reimbursement. These software programs help simplify expense reporting, saving you lots of time. They are typically linked to your account software, eliminating the need for your accounts payable team to make manual entries.
- Additional spending controls: Purchasing cards provide business owners with additional spending controls, such as managing employee and business purchases through a portal and setting limits on spending amounts and spending categories. You also can issue employee cards and lock or unlock their individual cards.
The benefits of purchasing cards can help companies become more efficient with their financial transactions and control their expenses. This allows business owners to save time with the simplified expense reporting. It also helps businesses save money on costs.
Pros & Cons of a P Card
Purchasing cards provide businesses and organizations with the opportunity to procure goods and services without using normal payment methods, including checks or ACH transactions. They’re especially good for controlling company spending, earning purchase discounts, and making the process efficient. However, without solid policies in place, a purchasing card can be misused sometimes.
Pros of a P Card
- Control company spending: Account holders can set restrictions for every cardholder including single-transaction limits or monthly limits; they can also have set vendors where the cardholder can use their card
- Earn purchase discounts: You can offset costs or add to your earnings by taking advantage of early payment discounts and possibly earning rebates; if one of your service providers and suppliers doesn’t, you can reach out to them and ask to negotiate an early pay discount
- Convenience for employees: Employees don’t need to get reimbursed for spending personal funds; with the use of software that some card issuers provide, receipts can also be uploaded immediately to help track spending
Cons of a P Card
- Balances are required to be paid in full: Similar to a charge card, a purchasing cards outstanding balance is expected to be paid in full every month; this means you can’t carry any balance to the next billing period; if you do, you will be hit with a late fee; if you need to carry a balance, a 0% small business credit card would be a better choice
- Possible card fraud and misuse: Purchasing cards are just about as easy to use for business purposes as they are for personal expenses; this could cause misuse by cardholders if they don’t understand how their cards are supposed to be used
- Requires successful policy development: An even better policy structure must outline a good purchasing card program. The downside to this is that they take time to develop and will come with roadblocks that need to be fixed
P Cards vs Other Commercial Cards
Purchasing cards are ideal for business owners who need a convenient way to pay for business-related purchases while being able to control their company spending. They are considered a good alternative to other commercial cards. Understand how P Cards differ from other commercial cards, such as small business credit cards, corporate cards, and prepaid cards, before choosing a business card for your company.
P Card vs Small Business Credit Card
There are a handful of differences when comparing a purchasing vs small business credit card. Purchasing cards don’t charge interest, and the balance must be paid in full monthly. On the other hand, small business credit cards have variable APRs between 14% to 25%. Account holders are only required to pay the minimum balance each month, while unpaid balances accrue interest charges.
With purchasing cards, discounts for early payment may be available, and the account holder can set spending restrictions. While small business credit cards don’t offer discounts on your bill, some offer up to 5% cash back and can be used at any location that accepts card payment.
P Card vs Corporate Card
A corporate credit card is often used for travel and other business-related expenses. However, similar to P Cards, a corporate card’s balance is due in full monthly. Purchasing cards allow companies to set spending restrictions and track expenses more efficiently. Meanwhile, employees who are using corporate credit cards need to submit detailed expense reports each month.
P Card vs Business Prepaid Card
The main difference between prepaid cards vs purchasing cards is that a business prepaid card works like a debit card while purchases made through a P card are charged every month. With a prepaid card, funds are preloaded to preset the spending limits, and the amounts of card transactions are deducted directly from the funded account.
Frequently Asked Questions About a P Card
We covered a lot of information on purchasing cards and how they work. Some questions are asked more often than others, and we address those here. If you have any other questions, feel free to comment below, and we will provide an answer.
What Is the difference between a purchasing card & corporate card?
Purchasing cards are meant to make B2Bs purchases while corporate cards are meant to make any other type of business purchases, such as travel, meals, and entertainment. Both fall under the umbrella of a commercial card and are types of charge cards. If you do obtain a corporate card, it’s important to set a corporate credit card policy.
How do P Cards work?
P Cards let businesses issue employees cards for business-to-business purchases on behalf of the company. Purchasing cards allow goods and services to be paid for with a card instead of using traditional methods like checks or ACH transactions. The business is liable for paying off the full balance every month.
Does Square accept P Cards?
P Cards carry a major credit card label like Visa, Mastercard, and American Express. Square specifically accepts these credit card brands. Although purchasing cards are generally used for B2B purchases, they still function the same as a regular credit card. They can be used at any service providers and suppliers that accept cards.
If you’re looking to save money on the traditional purchase process for goods and services, a purchasing card would be an excellent option for your business. Giving you expense management tools and the ability to set purchase restrictions, you can save time and money on your purchase orders.
If you’re looking to control employee spending instead of setting up a purchasing card program, consider a prepaid card like Bento for Business. Bento is an affordable option for small business owners that offers your two first cards for free.