Stop Using PCards

The poisoned chalice of procurement

Hi readers,

📰 In this week’s edition

  • Why you should consider greatly reducing your company’s PCard usage

    • And the alternatives…

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🌙 Sunday Night Note

Are you oversuing PCards? Tonight I’ll help you find out.

The shame is that if you are, “putting the toothpaste back in the tube” is a heck of task… I’d rather save you that if at all possible…

What Are PCards?

Purchasing Cards (PCards) are essentially a credit cards that can be issued to employees and used to purchase goods and services for your company. These are different from general purpose corporate credit cards or travel and expense cards in that they offer the possibility of restricting vendors and commodities that can be used for purchases. They are designed specifically as a corporate purchasing channel.

When used, it should be as a coherent part of an overall procurement policy and purchasing channels strategy (more on this later).

Benefits of PCards

Purchasing cards come with a number of theoretical benefits:

  • Efficient purchasing. Just like with a credit card, the employee can simply purchase whatever they need (within the allowed categories/vendors), pay for it and be off to the races. This greatly reduces the cost and cycle time for your “Req to PO” when compared to a traditional purchase order process.

  • Cost savings. Typically, PCards providers will offer a 1.5% rebate on purchases done with the card.

  • Quick payment to suppliers. No need to wait for your accounts payable to create a vendor and pay an invoice. The vendors get their funds almost immediately (although they also pay a transaction fee for the privilege). You also keep small, low volume vendor master records out of your ERP/Payment system.

  • Transaction details. Just like on your bank statement!

Because of the above, PCards have often been a privileged tool to manage/combat the “Tail Spend problem”… It goes something like:

“Let’s put all the transactions below $5K on PCard so that the business can get what they need immediately, it doesn’t clog up the Procurement process/team/system, we get a 1.5% rebate and focus on the more strategic stuff. Easy.”

Well-Meaning Procurement/Finance Team

However, as you implement, run and gain experience with a PCard program, here’s what you’ll find out:

Downsides of PCards

1/ PCards simply move the “efficiency logjam” elsewhere

Everything purchased on a PCard needs to be reconciled “after-the-fact” by the purchaser (or a delegate). They need to assign the purchase to a cost center and/or general ledger account. If you think it’s hard getting people to correctly code their purchases in a requisition before their purchase, try getting them to code purchases after they already have what they need 😅

Furthermore, if outrageous or uncompliant purchases are made with a PCard, too bad... It’s too late to approve at the reconciliation stage. Yes, you can police this “after-the-fact” but it’s never as effective as pre-purchase approvals.

Certain PCard providers/softwares will let you enable pre-purchase approvals to unlock cards but then you lose the benefit gained from moving away from traditional requisitions and approvals.

On the compliance front, here’s an illustrative example. MRO parts cost less than your PCard threshold. You probably want those costs tied to the various work orders created for the respective jobs where parts are purchased to correctly track, analyze and optimize your maintenance efforts… PCards will throw a wrench in this plan when maintenance techs can run next door to buy a bearing and charge it to a cost center.

Another thing to consider is the effort required to manage all the cards, users, block/unblock cards, talk to the bank for issues, replace cancelled cards (fraud), configure allowed/blocked commodity/vendor codes. Administering a PCard program can be quite expensive if you’ve got lots of PCards…

In short, PCard make the purchase easy but creates loads of complexity elsewhere in your business…

2/ The cost savings melt in the sun when compared to other channels

A 1.5% rebate seems interesting on its own but is subpar when compared to compliance with a mature category strategy…

When buying a commodity/service out on the open market without applying Procurement best practices (e.g. a simply 3-bid and a buy for example), your employees will typically pay between 6-25% more than the exact same purchase done under a corporate contract negotiated by your procurement department.


At scale, this is some serious dough.

3/ There are better ways to pay suppliers quickly

There are a host of solutions you can use to get the same benefits PCards provide on this front. A few ideas:

  • Use a "P2P Tail Spend Management” provider/solution. You create them as a vendor in your ERP and they act as the intermediary between you and tail spend vendors. You can read this guide or email me for more details / vendor examples.

  • Ask your suppliers what their PCard merchant fee is. Then, explore the possibility of simply offering them a Net 0 payment term with a discount matching the merchant fee. You might be surprised at what you find… It could well be worth sacrificing the cashflow for the savings.

  • Supply Chain Financing solutions. Plenty of financing solutions exist out there to front cash to vendors while keeping your cashflow where it needs to be. Don’t give up on all the hard work you’ve done establishing payment terms with vendors if employees can just circumvent them with a PCard, undermining the PO transactions and encouraging vendors to ask employees to buy directly with PCard…

4/ The “transactional details” are just plain crappy

Theoretically, you’ll have access to all the transaction line items from PCards in your company. However, just like on your personal credit card statement, you’ll have the totals of a transaction for a given vendor and often be left scratching your head wondering what the heck was bought and what the cryptic descriptions mean…

Lots of data is worthless if you can’t decipher the underlying commodities/services bought in relation to company-wide purchases. This also means it’s a purchasing channel ripe for fraud (especially if used a lot!).

Furthermore, it's impossible to know what PCard spend is diverse, done with high risk suppliers or otherwise without having to manipulate the transaction data "after-the-fact" and make assumptions.

Data is the new gold… And PCard transactional data just doesn’t make the cut.

In short, PCards in general fail to fully deliver on all their promises except the fact that it’s very easy for an employee to purchase something when they need it… Otherwise, they do a pretty horrible job of controlling your spend and keeping purchases compliant with your category strategies.

So what’s the alternative?

Well, for one, make other purchasing channels as easy and user friendly as possible…

I’ve shared this formula before and I’ll share it again:

A great user experience + Well defined purchasing channels / category strategies = Maximal Value.

Newer technologies such as P2P Tail Spend Solutions/Providers or Process Orchestration tools (see my 3-part series below) are great places to explore the bleeding edge on this topic:

However, simply setting up clear category strategies, purchasing channels and enabling tech like material masters and punch out catalogs in your requisitioning tool can go a long way to reducing dependency on PCards.

PCards are a payment method… Not a purchasing method… They should be treated as such.

That being said, there will always be a small, valid use case for PCards in any Procurement function’s strategy: True emergencies.

Sometimes, no matter how well oiled your purchasing channels, employees will need a part or service right here, right now. The last standing benefit of PCards is just that. However, it comes with all the risks and downsides listed in tonight’s note… And since emergencies should be few and far between, this requirement could potentially simply be solved with a traditional corporate credit card with a dreadful “after-the-fact emergency purchase justification form” to discourage use unless absolutely required…

There it is… My pretty harsh take on PCards… 😅

I hope I’ve convinced you to reconsider PCards at your company in favor of other, better purchasing channels… Or at the very least, to treat it cautiously as a potentially harmful tube of toothpaste that could poison your objectives (wow dramatic)…

I really don’t want you to have to put the toothpaste back in the tube if you squeeze it out too fast… It’s messy and gets people riled up… It’s just unpleasant.

P.S. VCards (Virtual PCards) solve some of the PCard pain points but without an additional experience (e.g. software + business processes) supporting VCards, they are still just a payment method and don’t strike at the core of the issues…

What has been your experience with PCards? Did I miss anything? Reply to this email to let me know what you think.

💭 Quote of the Week

Sometimes, there is danger hidden in beauty


🌯 That’s a Wrap

When you’re ready, here are 3 ways I can help:

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Till next time,

P.S. I’d love your feedback. Rate today’s newsletter or reply to this email. Reading your responses is the highlight of my week.

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