Last post we shared an insight on travel and entertainment and employee expenses. http://faoblog.com/processes-ap-tne-ee/
P Card administration
Let us understand P-Card as a function today. Over the years, this has become a critical process for a large number of companies. This function was a result of someone in the credit card industry, trying to increase the usage of their cards.
P-Card stands for Purchase Card primarily. It is a credit card, given normally to an employee for his day-to-day purchases. I will explain shortly why I say “normally”.
Without a P-Card, in usual operations, an employee would either take an advance or would do a spend using his / her own funds for official purposes. There would be a procedure for his claiming the expense, which could take anywhere between a month to two. Most of the time, employees are not really happy with this.
To circumvent this problem, companies tied up with credit card companies / banks, defined some limits based on expected usage, and issued this special category of cards to the employees. Employees could use this for various official purposes and submit their bills based on the procedures of the company. They will use the credit limits on the cards and will not be expected to spend the related cash.
Also the employer or the company will not need to make multiple payments and will make a consolidated payment to the card company / bank, based on a periodic statement sent to the company (usually monthly).
When this payment would be made, this would be booked as an advance in the name of the employee and on submission of bills, it would be adjusted and booked to the relevant expense head.
This reduces the actual number of payments and streamlines the cash flow. It helps in cash planning for the organization as well.
There is a pitfall in this as well, the employee can use this for his personal purchasing as well. To circumvent this, companies started charging interest / utility charges on personal expenses from employees to prevent such occurrences.
When I mentioned normally earlier, I have seen some companies extend this kind of a facility to their vendors as well (though this may not be called a P-Card for this transaction).
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