The title of this posting, which appeared in the online magazine Director of Finance, suggests that most people/companies think of virtual cards in the context of paying for travel. While the travel segment has been a primary user of virtual cards (through travel management systems and integrators (i.e.; Conferma)), usage is certainly not limited to this business case. Virtual cards as an accounts payables tool has extended into multiple segments, including the world of academic institutions. While card-based account usage in payables remains a relatively small percentage of overall invoices paid, for the past several years the growth rate has been consistently greater than 20% in all the major global regions.
‘But virtual cards aren’t just for travel programmes – far from it. In fact, they can be an essential tool to cover wider business costs and managing the payment process with suppliers, too, given the increased amount of data and efficiencies they offer’.
The U.S. remains a substantial user of checks in B2B payments, but we expect this will change at an accelerated pace over the next five years or so. A key driver of this change is a now sharper focus on digitization and implications around competitive efficiencies as companies take advantage of modern technology. This shift in payment types will be distributed across the various electronic methods, which have traditionally been ACH, wires and to a lesser extent, cards. The new kids on the block however, including Same Day ACH and RTP, will pick up some of this check shift volume, as will virtual cards, which have some advantages.
‘Virtual cards not only simplify reconciliation – they can help companies unlock wider process efficiencies. Increasingly, virtual cards are integrated with companies’ existing finance and e-procurement systems, so this payment option is readily available in procurement professionals’ usual workflow – so they don’t need to exit the platform to generate the virtual card. Thanks to this integration, finance systems can collect, store, manage and interpret the increased amount of data provided by the systems.’
So as business growth improves, payment volumes increase. Couple that with a shift away from checks into e-payments and you have a multi-trillion dollar event occurring. Cards will take some of this shift but the age old supplier hurdles tied to the MDR and general friction in the process will tend to lessen the opportunity. However, we believe that innovations (i.e.; push payments, aggregation) that reduce supplier pain points (real and imagined) can change the conversation from cost and resources to more free cash flow.
‘The benefits of virtual cards extend to the suppliers receiving payment, too. Businesses not only benefit themselves from the richer data generated by this payment method, but can also provide this to their suppliers when making payments, in line with the company’s needs and preferences. In doing so, the company’s paper trail is enhanced which makes the reconciliation process simpler….If a supplier knows that they can rely on a company to pay them on time, it can help build a positive relationship in the long term. This may even mean the business can negotiate an early settlement discount for future purchases – and the benefits to the bottom line of this are not to be underestimated.’
So if the buyer side sees the benefits of change away from paper and the supplier side can be more effectively persuaded to take a broader look at receiving card payments, a happier supply chain can result.
‘Nevertheless, while purchase orders and the traditional invoicing system still play a role in the procurement process, cards can offer more flexibility to businesses when making commercial purchases – they’re not just for travel. Instead, they are an important part of any modern payments strategy.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group