Is it the end of the road for the purchasing card?

Is it the end of the road for the purchasing card?

Posted by Pete Loughlin in e-invoicing, e-Procurement, Electronic Invoicing, Financial Supply Chain Management, Purchase to Pay, Purchase to Pay Process, Purchasing Card, Supply Chain 05 Jun 2011

The purchasing card is a great business tool. It empowers people to make purchases without the need for a complex and often expensive purchasing process. When a low value item costs less than the cost of the purchasing process itself, it makes sense to cut through the purchase to pay red tape.

But the purchasing card is beginning to show it age.  It hasn’t really kept up with technological change surrounding it. The merchant fees are excessive, in a low interest rate economy the business case makes no sense and as far as reporting goes, purchasing cards have been trumped by electronic invoicing. Is it the end of the road for the purchasing card?

Purchasing Insight logoWhen it was new, the purchasing card was a great innovation. It predates much of the technology enabled purchasing process that are taken for granted today like electronic catalogs and it was a good way to address low value spend and circumvent the hassle of approval, whether before the event or retrospectively. But in 2011, the technology has moved on. Where e-procurement is in place, many low value goods are can be ordered easily. (It’s easy to forget that when purchasing cards were first developed, the internet was not common in the workplace.) And if AP automation tools like electronic invoicing are in place, even the payment end of the purchase to pay cycle is straightforward. The p-card doesn’t add any value.

And persuading suppliers to accept purchasing cards if getting harder. There was always the business case that said that the cost to the supplier, typically in the region of 2%, would be offset by the cash flow benefit of being paid early, but with interest rates so low, 2% is an excessive charge for the benefit of early payment. Certainty of payment and prompt payment is absolutely an advantage but again, the technology has moved on. Supply chain finance methods can do everything a purchasing card can at a fraction of the cost.

Indeed,  the purchasing card merchant fee should be a cause of great concern. Not only is it excessive, it is becoming increasingly difficult for the card issuers to justify it as a fair and reasonable charge. The now standard practice of offering card users a rebate is, in the eyes of many, a clear indication that these fees are unnecessarily high and suppliers and can justifiable claim a share of the fee back in the form of revised pricing.

The card issuers and the card schemes have been slow to show imagination on supply chain finance and over the last decade seem to have preferred cards. Perhaps the supply chain fiance proposition is too complex. Perhaps the market hasn’t been ready for supply chain finance. But it is now and I wouldn’t bet the farm on a cards business.


  • Tim Minahan June 6, 2011 at 8:58 pm /

    Agreed that few companies have capitalized on the financial supply chain opportunity. And, while the business models for P-cards haven’t advanced much in the past decade, Purchasing Cards are one lever in a portfolio of tactics every procurement organization should leverage to optimize working capital. Any good working capital strategy begins with vendor segmentation, aligning different settlement approaches with each segment.

    For example, some mission-critical suppliers can be supported by a supply chain financing program, allowing the buyer to extend payment terms without impacting supplier cash flow. Other segments can be supported by better discount management, securing volume discounts or rebates for early payment opportunities. And other, small dollar, high-volume suppliers can be supported by P-card settlement.

    There is no one-size fits all settlement approach that’s appropriate for the entire supply base. Yet, P-cards certainly are one approach that addresses a specific segment.

  • Olivier June 7, 2011 at 3:09 pm /


    Thank you for this article. But, do you know alternative ways to optimize purchases of Class C products and services (small amount & not recurent) ?

    This impact a lot the human resources within our companies ?



  • John Vasili June 10, 2011 at 4:20 pm /

    Is einvoicing really the answer? So why was the 1st B2B einvoice created & sent in the mid 1960s and we are still trying to get it right in 2011?
    In any event an invoice needs to be paid and investment in einvoice only really works if there is something in it for the vendor and if the einvoicing providers are interoperable.
    Pcards provide level3 data ,the vendors get paid within 3 days, ok so there is a % fee but cash flow is king and with no invoice to produced ,post toegter with full visibility and reduced AR costs cards are a great tool for both vendors and buyers. Buyers using cards generate cash via rebates and also extend DPO & reduced vendors DPO.

    einvoice does not guarantee that vendors will get paid any quicker or at all.. and einvoices still requires funding , cards, working capital wallets & supply chain financing are all fantastic tools.

    Combining eprocurment ERP and using cards as a funding mechanisms provides the most efficient method of invoice/payments for both the buyer and the seller, with today’s systems vendors don’t even need to be a card merchant to accept card payments.

    Take a fresh approach the freedom to buy the power to control

    Thanks for your time John

  • Peregrine June 10, 2011 at 4:28 pm /

    John, thanks for the comment but I have to respond to part of it.

    Cash flow is king? Not at any price it’s not and 2% fee for payment in three days when interest rates are almost zero .. the numbers don’t add up.

    Of course PCards have their place but that place is becoming harder and harder to find


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