A virtual card is a 16-digit unique card number that’s created for one vendor transaction between payer and payee. It’s a digital payment solution to modernize traditional processes, reduce errors, and save valuable time.
What is a Virtual Card Payment?
A virtual card payment is a digital card transaction made between AP departments. As a payer, you predetermine the amount. Since the payment is virtual, it’s highly secure and protects the business issuing it. The payment method is designed as a smart alternative to ACH and check payments.
A virtual card is not a physical card. Rather, it is used for “card-less” credit card payments. Virtual cards can be accepted by any entity that takes traditional credit card payments, which should include the vast majority of your vendor community.
This form of electronic payments is on the rise, too. A 2018 survey by Mastercard asked hundreds of executive leaders in top accounting roles how they felt about the utilization of virtual cards. They agreed that it is one of the most secure, cost-effective, and easy-to-use methods of processing payments today.
The Benefits of Virtual Card Payments
A virtual card program allows a business to add virtual payments to an AP workflow. This is a much more efficient way to pay invoices. The most obvious benefit is that the card is virtual, which means it is widely accepted by vendors who also process credit card payments. This includes top card issuers like:
- American Express
Beyond quicker supplier payments, the additional benefits of a card service are significant.
Unlike ACH payments and checks, virtual payment cards do not require a supplier to share or expose their bank account number. This presents a strong benefit to using virtual credit cards.
Information is never tied back to your bank account. The virtual credit card number is specifically created for a one-time transaction. A certain amount is assigned to the virtual card information.
Virtual payment cards are always locked down to a time limit, specific amount, and maximum credit limit. That means, if a thief were to steal a virtual card number outside of the time window, or without the exact payment amount, the numbers would be deemed useless.
There is no physical trail to a card that exists. These factors make theft much less of a risk than processing paper checks. This type of real-time protection offers one of the best levels of payment security you can find.
Reduced Transaction Processing
Virtual cards come with a lot of cost savings. They can only be used once and are tied to a specific dollar amount. This type of payment processing also has a short expiration date, which reduces the time it takes to make a transaction.
Using this method means your account will never process payment for anything higher or lower than the pre-set amount. This type of financial control eliminates the possibility of short paying or overpaying your vendors. It helps add to positive cash flow and reduces costly exception processing.
Although ACH and wire transfers are popular repayment alternatives to virtual cards, both methods lack the space afforded for remittance data. ACH only provides 80 characters of space for transaction details, while wire transfers are limited to 140 characters. This is not a lot of space to go into much detail.
Virtual payment cards have no space limits for remittance information. This eliminates processing costs as transaction details can be customized to your system. Including this payment data potentially eliminates manual processing and effectively aligns with AP automation software.
How Virtual Cards are Changing Accounts Payable
Single-use virtual credit cards are shifting the financial landscape of accounts payable departments. Here are some ways in which it can optimize operations and position a business for growth:
Increase Working Capital
Virtual cards enable a more strategic approach than B2B payments made with paper checks. The traditional method requires several days to print, pack, stamp, and mail the payment to vendors. Virtual card payments can be executed immediately.
When your business has the ability to pay faster, it allows AP teams to hang on to larger payment sums for more time. This enables you to collect additional returns on these as working capital.
Faster payment means making more on-time as well. The quicker vendor invoices are paid, the better your relationship will be. Some may even offer early-payment discounts that can reduce processing fees and save money.
Virtual cards can earn you cash-back rebates on invoice payments. It’s easy math. For example, say your virtual card earns .5% for every transaction. That’s $5,000 back to your business for every million spent.
Although this may seem like a small number, consider the fact that it requires almost no effort on your end to earn these savings. As the business continues to grow, the rebate total will increase to a formidable amount of spending money. This all adds up to a tidy sum that can be reinvested into the brand.
Less Manual Labor
One thing both accounts payable and accounts receivable teams agree upon is that processing paper checks is antiquated and boring. It’s a tedious task to have to go through these steps:
- Open envelope
- Data entry
Paying with virtual cards creates greater efficiency and gives an accounting team more time to focus on organizational growth. It liberates people to take on more engaging and business-forward work that interests them, rather than simply maintaining the status quo.
This method also helps to eliminate human error. By removing all of these manual steps, there are fewer hands in the cookie jar.
Modern business calls for future-ready solutions. This is particularly relevant in the financial space. Virtual card payments are an intelligent form of payment processing that provides a business with a multitude of benefits. From security to cost savings and employee engagement, any sized organization should look into how virtual card payments can modernize B2B transactions.