Categories: Blog


Andy Cagle


For more than 200 years, the printed check was central to the operation of a business; they were used to pay employees, rent and mortgages, suppliers, and myriad other financial obligations.

However, as technology has advanced and companies look to become more efficient, electronic payments have overtaken the paper check as the preferred method of payment for companies of all sizes. In the vast umbrella of electronic payments, the corporate credit card has found a niche in the payment marketplace. The corporate credit card takes on a number of iterations, including fleet, travel and entertainment, prepaid, declining balance, and, most important for this discussion, purchasing (or procurement) cards (P-Card).

A P-Card is a type of commercial card that allows organizations to take advantage of the existing credit card infrastructure to make electronic payments for a variety of business expenses, including supply chain seller payments. In the simplest terms, a P-Card is a charge card, similar to a consumer credit card. However, the card-using organization must pay the card issuer in full each month, at a minimum.

While perfect for some operating and employee-related expenses, like software subscriptions, telecommunications services, utilities, and travel, the P-Card has significant drawbacks as a payment method for supply chain procurement.

Negative Working Capital Lift

As mentioned above, the P-Card has to be paid in full each month. That presents a limited working capital lift, as the entire balance has to be paid every 30 days. Depending on the time between statement and due date, it could be significantly less than 30 days. When buyers are looking to standardize terms, this can present a situation where true spend (when the bills are actually paid) is unpredictable and payments are made before the norms of many industries.


While it may sound counterintuitive, P-Card programs can become an administrative burden. P-Cards promise control and the ability to glean deeper data into a buying company’s spend. However, the benefits of the card are not fully realized without a person (or people) monitoring and reviewing the information. With thousands of transactions a month to thousands of suppliers, this becomes a cumbersome, time-consuming process that can stress the human capital of even the largest companies.

Additionally, employees using the cards have to be trained on specifics: what purchases are allowed and not allowed, how to reconcile the transactions, and other nuances of the program. Again, this is a time and resources drain.

Fraud Risk

Even with guardrails, P-Card programs are susceptible to employee misuse – either intentional or unintentional. According to Deloitte, common P-Card fraud includes:

  • Personal expenditures that are not reimbursed to the company
  • Using the P-Card for a purchase and then requesting reimbursement from the company (double dipping)
  • Excessive and inappropriate expenditure
  • Circumvention of company policies (i.e. purchasing an iPad outside of company IT protocol)

Limited Scope

For banks issuing P-Cards, the balances on the accounts are viewed as debt against a set credit line. This can significantly limit the scope of how the card can be used across the entire supply chain. With limited capital available with the credit card, buyers are not able to support long tail suppliers with an early-payment program. Usually, accounts payable (AP) departments can only use the P-Card with a small handful of suppliers.

Accounting Treatment

As mentioned above, credit card balances are debt. As such, they are represented on balance sheets and financial statements as a liability. Carrying these balances – even if for a limited time – must be reported and can impact the ability to borrow or in it the company’s credit rating. Alternatively, outstanding AP can be classified as trade payables under other early-payment arrangements, like supply chain finance, that have different impacts on the accounting treatment and debt impact.

Seller Fees

While P-Card payments allow sellers to get their money faster, it comes at a cost that can be prohibitive. In 2020, Spend Matters found published interchange rates between 2.5 and 4 percent for companies to accept credit card payments. In industries where suppliers are operating on razor-thin margins, this can wipe out any profit for a transaction and they opt to use traditional methods with payments in excess of 30 days. This ultimately damages supplier relationships and the health of a company’s supply chain.

Better Options

When it comes to working capital and early-payment solutions, the P-Card is but one option. For most companies, however, supply chain finance and dynamic discounting are better choices to optimize working capital.

Dynamic discounting allows buyers to draw from their own balance sheet to pay the seller. It is a good choice for buyers who have liquidity on hand and prioritize cost savings while still receiving a working capital benefit. While credit card programs offer cash back, they normally are smaller percentages that buyers can receive through early-pay discounts to suppliers, but less than the fees suppliers have to pay for accepting P-Card payments.

Supply Chain Finance

Supply chain finance represents the biggest win for boosting the working capital needs of both buyers and suppliers. By utilizing third-party financing sources, buyers are able to standardize payment terms beyond what is offered by P-Card programs, allowing them to hang on to their capital much longer. Sellers get their working capital lift by having access to payments on demand or the freedom to let invoices go to terms. Early-payment fees for supply chain finance programs are usually less than the transaction charges associated with accepting credit card payments.

Unlike credit card programs, supply chain finance solutions like LSQ FastTrack® are open to the entire supplier pool, not just the top 5-10 percent of the supply chain. With more sellers utilizing the program, there is a greater working capital lift for the buyer and a more healthy, resilient supply chain. LSQ FastTrack also affords sellers access to accounts receivable financing that can further strengthen their financial position, making them more capable of meeting supply chain demands.

Working capital is the lifeblood of a business. Being able to meet financial obligations – from paying employees to keeping the lights on to paying suppliers – is critical to not just success, but survival. In the course of chasing capital, many companies have turned to the P-Card as part of their strategy. While a good choice in some situations, the limits of credit cards cause more problems than they solve. In examining the entire landscape of working capital and early-payment solutions, there are better options to boost working capital in a secure, efficient way.

Learn more about LSQ’s working capital solutions for the entire supply chain, visit our website.

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