Virtual Credit Cards: Why B2B Companies Should Be Using Them

Dec 9, 2021 by Brandon Jones

There’s no doubt about it: we live in a virtual world. Although virtual technologies have been developing for years, the recent global pandemic accelerated its widespread acceptance in just about every aspect of our daily life. It’s no wonder that business-to-business payment options are now making the shift to virtual credit cards as well.

What is a Virtual Credit Card?

A virtual credit card is often known as a single-use account because it uniquely generates an account number that the accounts payable department of one company can use with a supplier to pay a business-to-business bill. Originally, virtual credit cards were only used by travel-related companies including those that operated fleet vehicles when they originated at the turn of the millennium.

Today, virtual credit cards are becoming more popular. Since they are digitally tokenized, virtual credit cards add a level of security to a more convenient, hands-free, efficient payment option. This virtual account number is then connected to a company’s bank account for that single payment.

Virtual credit cards do not exist physically like regular plastic credit cards; they are simply randomly generated numbers created to pay for a specific product or service. Although virtual credit cards are tied to existing accounts, the tokenization process ensures that those connections are not readily accessible for security purposes.

If companies do a great deal of regular business with selected, trusted suppliers, they can use a virtual credit card called a lodge card, which carries a credit limit for invoice payments and can be used multiple times. Businesses are still able to specify the number of transactions, MCC codes, and credit limits as needed.

Benefits of Virtual Credit Cards

According to Juniper Research, the “annual value of virtual cards used by businesses will grow 90 percent over the next four years, exceeding $1 trillion by 2022.” Although it still makes up a small proportion of B2B money transfer activity, virtual credit cards usage will continue to increase.

Here are several benefits of switching to virtual credit cards.

Tighter Controls

Every single-use virtual credit card number can carry specific amounts, date ranges, company names, and MCC codes to limit their usage. For instance, a uniquely generated virtual credit card number may be created to only pay a particular supplier between specific dates for a set amount of money.

These tight controls provide an added level of security and help organizations more easily reconcile accounts and avoid errors. This, in turn, leads to less fraudulent uses of this payment option.

Detailed Payment Notes and Data Collection

Virtual credit cards allow you to record extensive notes about the transaction, which can include things like project codes, cost center data, or other customized information that you may want to capture. Other payment options often have very limited data capture capabilities; ACH only allows 80 characters and paper checks provide a short memo line.

Streamlined Reconciliation

Not only do virtual credit cards simplify the reconciliation process but also provide a complete audit trail and information to perform real-time data analytics that can help your organization make better, faster, and smarter business decisions.

Faster Payments

Since virtual credit cards streamline the payment process, this means faster payment for your suppliers. They will appreciate a reduced days sales outstanding metric and the added flexibility of having more cash and capital available.

Greater Transparency and Efficiency

While much of the financial world has automated transactions, business-to-business organizations are often still stuck on antiquated, legacy systems that demand a great deal of manual work. Not only can this be a frustrating work environment for accounting professionals, but manual processes have a tendency to introduce many errors into an already complicated system, resulting in higher risks and costs. Virtual credit cards offer greater transparency while essentially eliminating human errors.

Win-Win for Both Parties

At the end of the day, virtual credit cards carry advantages for both the buyer and the seller of business-to-business goods and services.

For those companies doing the purchasing, they will reap direct cost savings, capture discounts, guarantee secure transactions, experience greater flexibility in payment options, and gain financial transparency. Those selling goods and services, on the other hand, will be able to offer flexible payment options, electronic settlements, security transaction acceptance, timely payment options, and accurate remittance information.

Virtual Credit Card Cautions

As with any new system, there may be downsides or cautions to take before making the final decision. Some things to think about when it comes to virtual credit cards include:

  • High Transaction Fees. Credit card companies are known for their high, transaction-based processing fees. Unfortunately, most companies offering virtual credit cards charge the same transaction fees as conventional ones. In some cases, companies may choose to add these fees as a convenience charge to the purchasing business. In other cases, the seller may absorb the fees as overhead costs. To avoid fees, you may want to consider no-fee options such as Paystand’s bank-to-bank network as a preferred payment option.
  • Difficult Refunds. Since most single-use virtual credit cards use a uniquely generated number, that number disappears after the purchase is completed. As a result, refunds and return processes can become more difficult. Since the refund cannot be placed on the card number that was used for the purchase, this often means issuing a check or managing a credit account to track the return.
  • Single Purchase Capability. Unless you are using a lodge card, virtual credit cards are single-use only, which means that cannot be used for recurring payments or subscription products. Generating a unique number for repeat purchases may not be worth the hassle of this payment option.
  • Processor Limitations. Before embarking on the virtual credit card adventure, check with your payment processor to ensure that they will be able to handle these payments seamlessly. The last thing you want to do is to add more manual work or another level of complexity to your accounting process.

Moving Toward Virtual Accounts Management

Virtual credit cards are one element of the evolving accounts payable and accounts receivable system. For many working in the business-to-business arena, life still revolves between different and often unintegrated systems to issue invoices, collect payments, and reconcile accounts.

Automation is an unavoidable and desperately needed next step in account management for today’s B2B companies.

For accounts payable professionals, a virtual AP system can better manage expenses with flexible issuing options that can accommodate one-time or subscription-based payments as well as simplify the reconciliation process. By integrating the AP automation with an existing enterprise resource planning system, it’s easier than ever to streamline data and eliminate human error.

It will no longer be necessary to wait for month-end or quarter-end reports in order to make business decisions; virtual AP allows real-time visibility into current transaction data so you can generate up-to-the-minute reports whenever they are necessary. Virtual credit cards can be added to payment options such as ACH, check, and bank transfers to help AP departments more easily integrate payments into their overall systems.

Managing AP virtually and using virtual credit cards can reduce manual processing and facilitate better management of vendors to improve margins, gain efficiency, and control the payment process.

Accounts receivable professionals, on the other hand, can secure faster payments if their organization is willing to accept virtual credit cards in addition to conventional forms of payment such as checks, ACH, regular credit cards, and bank transfers. The more flexible an accounts receivable department can be in terms of accepted payment forms, the more easily it can collect on invoices in a timely manner.

For example, Paystand offers an integrated payment solution for many accounts receivable departments, which allows companies to embed a “Pay Now” button into their invoices or email reminders. Once customers choose to pay an invoice, they are taken through a portal that offers all the payment options available. Paystand’s bank-to-bank network allows no-fee payment transactions; however, options such as virtual credit cards, ACH, and regular credit cards can be incorporated through the portal as well.

The integration and automation benefits are similar to the accounts payable team: faster payments, faster reconciliation, fewer errors, lower costs, and less risk. In addition, such a system can eliminate a great deal of manual work on the part of accounts receivable professionals, making their jobs more challenging and fulfilling. Being able to retain trained accounting professionals is even more critical in today’s tight labor market.

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