October 10, 2017
When it comes to payments in the B2B world, customers are looking for more convenient ways to pay their bills. With the latest technological advancements, their options are expanding. As with any new technology, however, new challenges arrive that can slow down the invoice-to-cash process. But if a supplier has the right A/R process in place, new technology doesn’t have to mean that there will be new challenges to overcome.
Virtual cards, also known as Single-Use Accounts (SUA), are among the latest in payments technologies. They are auto-generated credit card numbers that A/P departments can send to suppliers as a link contained in an email, for a one-time-use payment. Their growing popularity with customers is due to a variety of factors.
One reason is that virtual cards provide A/P departments visibility and control over the buyer’s payments. Another reason is that they automate the account reconciliation process – the more automated the process, the less chance for human error. Additionally, there is an increased level of security on the payments side. We’ve already discussed that virtual cards have a one-time use, randomly generated number. But they can also be set to the exact cost of the bill and can be set to expire after a specific amount of time, reducing the chance of theft or fraud.
On the flip side, this emerging payment process introduces new challenges for the suppliers and the A/R side of the invoice-to-cash process:
One challenge is that the infrastructure that supports virtual card payments does not currently integrate neatly with ERP systems to enable straight-through processing. In addition, while the issuing of a single-use number is automated, the supplier processing side of it is not. Consequently, A/R departments receiving virtual card payments often have to manually retrieve the card number and remittance information, process the payment and then manually apply the cash into their ERP system.
If a supplier is given a virtual card number for payment, this will often require them to pay an interchange fee on each transaction that is completed. While these interchange fees can differ based on the type of card used, fees can get expensive, costing suppliers an average of 2.5% of the payment per transaction.
While the A/P department may start using virtual cards due to its improved security, on the A/R side, there can actually be some increased security risks. A company receiving credit card payments, for example, needs to be PCI-compliant, which means they need to comply with Payment Card Industry (PCI) Data Security Standard (DSS) in order to host credit card data securely with a hosting provider.
Additionally, while buyers may have a secure system to send the virtual card payment email, the supplier’s email may not be as secure. Ensuring appropriate security protocols can be costly for many suppliers and can open up businesses to data breach risks.
Despite its challenges, virtual card payments are not going away. In fact, their usage is growing almost 10% annually. By 2021, virtual card spending is expected to surpass that of traditional purchasing cards and checks. And as we are seeing that increase in the volume of emailed virtual card payments, we are also seeing further strains being put on businesses’ A/R departments.
But that strain can be relieved if the A/R department implements its own automated solution to process those virtual card payments. A part of that solution should include a comprehensive electronic invoice presentment and payment (EIPP) portal. A good portal will give A/R teams the ability to completely automate the payments process, and that includes virtual card payments. When searching for an EIPP portal, suppliers should find one that can accept payments, generate the payment file, easily integrate with their ERP and then automatically close out each invoice as it is paid. Additionally, it should be PCI-compliant and should incorporate the highest security standards and latest encryption technologies.
While virtual cards are not yet mainstream today, they are projected to become commonplace in the near future. As companies utilize more automation in their businesses, virtual cards will be a natural part of the B2B payment process. The ability to handle this payment process seamlessly will result in more predictable cash flow and higher customer satisfaction.