Virtual card payments have been emerging as a great relief to finance and accounting teams across the globe as a really convenient way to make B2B payments. This has become ever more evident since the rise of remote work due to the pandemic in 2020 when people were forced to find ways of executing their daily operations digitally.
The benefits of virtual cards are just so many that it is hard for a business to overlook this payment method for their daily needs. It has also found its way into accounts payable management as an alternative to the other methods generally used by companies to process AP payments.
Understanding virtual card payments for businesses
A virtual card is basically a digitally generated intangible card that can be used exactly like other debit or credit cards to make online payments. Businesses most commonly use them when they want to make one-time payments or make payments for a set period of time in a safe and secure way as compared to using a physical card or another form of payment.
Using a virtual card for accounts payable is a fairly recent development in the business world. Traditionally, businesses pay other businesses through paper checks or transfer money online via ACH or some other method. But once companies realized how useful and efficient a virtual card is, they also started using it for processing AP payments.
Where can a virtual card be used?
You will be able to use a virtual card almost everywhere that you can use a credit or debit card as it functions through similar protocols. The exception to this is of course physical POS transactions. A virtual card cannot be used for in-person payments in a physical shop. Although there are examples of ATMs that allow you to use your virtual cards to withdraw cash.
But in general, most companies use virtual cards for paying online SaaS subscriptions or making one-time payments or recurring payments during a particular period of time.
How do vendor payments suffer without virtual cards?
The traditional vendor payment process flows in the following manner:
- Once a vendor delivers your business with the necessary goods and services, they will send an invoice to you. This can come with the goods themselves or on a later date based on agreed terms and conditions.
- If the supplier is using paper invoices, it might take time for them to reach you. Once you receive the paper invoice through delivery or via email, an AP member then has to verify its legitimacy by first getting it approved by the respective manager and then matching it with relevant documents such as the purchase order and the goods delivered receipt.
- Without an AP system, this is a manual process that might take a few days. If your company happens to use accounts payable software, this process can be executed quicker if the platform provides custom approval routing and 2-way or 3-way invoice matching functions.
- Once the invoice is approved and verified, it can be processed for payment using the payment provider the company has set in place.
Listed below are some of the payment challenges businesses usually struggle with when paying vendors and suppliers:
- Payment time – Traditional ways of transferring money online tend to be pretty slow. It can take anywhere from 3-5 business days for a payment to reach your supplier’s bank after it has been processed. This can often cause delays in payments even if the payment was processed within the due date given by the supplier.
- Security – Depending on the type of online payment method you use, there can be security issues such as data breaches that cause a threat to your finances. While most systems take strict measures to restrict this, your bank details and other information can be at risk if you input them into different online portals.
- Duplicate payments – When there is no proper system to track and manage invoice payments, duplicate payments can slip through due to manual errors costing your company a lot of money. This also takes a lot of time to recover and can negatively impact your cash flow.
- Manual paper processes – Many companies still stick to manual paper-based invoice processing methods. This makes the payment cycles extremely slow and inefficient. Manual processes are also more prone to errors that can cause further problems in your AP workflow.
- Processing costs – Depending on the payment provider you use to process all your accounts payable payments, you will notice that you have to pay a fee for processing each payment. These fees might seem small but they can add up to a lot when there is a large volume of invoices to be paid.
- Expense management – The lack of a proper centralized system to help you view, track, control, and manage all invoices in one place leads to poor expense management. This is also a common cause of duplicate payments. Poor visibility and control over the AP process lead to inefficient workflows.
How virtual cards are reinventing how businesses pay their vendors
- Unique 16-digit number – Every virtual card has a unique 16-digit number when it is generated from a process called tokenization. These numbers are linked to your actual card but are not traceable back to it making it a safer option to use on online payment portals.
- One-time cards – A great benefit of virtual card payments is that they can be generated for one-time use. So once a payment is made through it, it will expire after a certain time period that is decided by you.
- Custom expiry date – If you want to use a virtual card more than once but still want it to expire on a particular date, then you can do so by selecting a custom expiry date for it. This is helpful for managing SaaS subscriptions that you know you would be using only for a set period of time.
- Unlimited virtual cards – The best part about virtual cards is probably that you can create an unlimited number of virtual cards at no extra cost at all. This makes it super easy to pay online without the worries of having to expose your card details and pay any extra fees.
Advantages of leveraging virtual cards for accounts payable processes
- Eliminate manual-process inefficiencies – Virtual cards are usually accessible through AP management systems. The implementation of such a system means that the number of manual processes in your workflow will be reduced and you will benefit from automated systems to process invoice payments using virtual cards.
- Virtual cards simplify and improve the AP workflow – Being able to create unlimited virtual cards, set their spending limits, and custom expiry date gives you a lot of customization over how payments are made to a vendor and overall simplifies the AP workflow giving you more control over budgets.
- Curb fraudulent payments – One of the biggest benefits of virtual cards for accounts payable payments is the security that comes with them. Since the card number is not directly traceable back to the actual physical card, using it online for payments is much safer. Plus, you can set one-time cards with a set budget so that even if the card details are accidentally exposed, there’s no theft that can be performed on it.
- Gives your team better control over AP processes – Unlimited virtual cards allow you to create an AP system where you can allot one virtual card to each vendor and only use that card to pay them. This gives more security of funds, better visibility, and tracking of payments to each supplier.
- Faster payments help improve working capital – While paper invoices and checks take days and weeks to process, using a virtual card helps you process payments instantly. This improves the optimization of your working capital by allowing you to hold money for longer and gain interest.
- Streamlined payment experience for vendors – When you use a virtual card for accounts payable to a vendor, the accounts receivables team on the supplier’s end will also appreciate the fast payment. This improves the payment experience for the vendors and fosters a healthy business relationship between both parties.
- Optimize the processing costs – When sending money to a vendor or supplier via wire transfers or another form of online transfer, there is usually a processing fee charged. But the benefit of using a virtual card for processing AP payments is that there are no processing fees. This saves a lot of money in the long run.
- Enhanced security and improved accountability – Using a virtual card for making payments ensures security on two levels. Firstly, it has a custom spending limit, meaning money cannot be spent more than the assigned limit. Secondly, the custom expiry date, one-time use feature, and tokenization keep your financial data safe from theft. It also improves accountability as these cards are issued to individual users or employees in your business.
Optimize your accounts payable processes with Volopay virtual cards!Â
Volopay is an all-in-one expense management platform that allows its users to create unlimited virtual cards. This helps businesses track and control all kinds of online payments with ease.
The benefit of virtual cards issued through Volopay is that you can create one-time or monthly recurring cards whose spending limits are refreshed each month. This is especially helpful to make payments to vendors and suppliers that you are on a contractual agreement with. You can also set a custom expiry date so that you don’t have to ever worry about overspending on subscriptions when you have stopped using them.
