How Virtual Cards for B2B Payments Improve Cash Flow, Capture Efficiencies, and Reduce Fraud
Originally Published October 12, 2020 – Updated August 2, 2022.
Cutting costs and mitigating risk is top of mind for many CFOs, especially in times of business uncertainty. One area that can positively impact your bottom line and decrease risk, if managed properly, is payables. Yet inefficient processes, incomplete reporting, lack of transaction visibility, and the growing risk of fraud can lead to missed payments and decreased cash flow.
At Coupa Pay, we’re seeing many CFOs move away from traditional credit card transactions because of the risk they pose. One large financial institution recently confirmed this, with many CFOs shifting their physical credit card spend to what we call a “controlled invoice” process to reduce risk, increase visibility and efficiencies, and gain control over spend. Virtual cards (vCards) — also sometimes referred to as virtual credit cards (VCCs) — combine the benefits of physical/purchasing cards (p-cards), the functionality of a check, and the efficiencies of ACH (Automated Clearing House) payments and SEPA (Single Euro Payments Area) credit transfers to improve cash flow, capture efficiencies, and reduce fraud. They offer a controlled invoice process because the business can control how much is spent and who is paid.
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Used properly and strategically, vCards enable an organization to:
- Improve payable processes for both buyers and suppliers by streamlining day-to-day payments and providing greater control over cash flows
- Enhance security that mitigates the risks of misuse, protecting against fraud better than traditional physical business credit cards
- Extend Days Payable Outstanding (DPO) on purchases and drive increased rebate revenues, while also creating operational efficiencies for AP with automated reconciliation
Keep reading to discover:
- What vCards are and why vCards are trending
- The drawbacks of existing solutions
- Why virtual cards need to be integrated into a Business Spend Management solution
- The six benefits of adding vCards to your payments processes
- How to best integrate vCards into your payments systems and workflows
- How a modern P2P payments platform can help capture the most value from vCards
A virtual card is a digital representation of a credit card that is typically generated for a specific use, like paying a supplier invoice or purchase order. Virtual cards can be created instantly through a pre-approved process and are assigned to the specific amount of the payment or order they are tied to. Each virtual card has a unique number that ensures security and reduces risk. This allows employees to utilize a card payment in more scenarios while still encouraging adherence to their employer’s pre-approved spend policies.
vCards use a unique 15- or 16-digit virtual card number that is automatically generated, with payment authorized only for the designated supplier and a designated amount. This information, along with remittance detail, is emailed securely to the supplier. The supplier then submits the transaction. With vCards integrated into a modern Business Spend Management (BSM) technology platform, the transaction is automatically reconciled with the associated purchase order once the payment is processed.
The vCard market is poised for growth
Despite the digital revolution in consumer payments, most companies in the United States still rely on checks and the Automated Clearing House (ACH) network to pay and be paid by their business partners. In Europe, B2B payments are dominated by Single Euro Payments Area (SEPA) credit transfers. But there are clear signs of change.
- In a 2022 Citizens Bank survey, 83% of corporate decision-makers at small and mid-sized businesses (SMBs) expect their company’s bank to provide the latest technological tools — with real-time payments functionality ranked as most important.
- According to Juniper Research, the global value of vCard transactions will reach $6.8 trillion in 2026, from $1.9 trillion in 2021. B2B payments will continue to account for the majority of virtual cards transaction value, representing 71% of the total value in 2026.
- The global real-time payments market is expected to reach $193.07 billion by 2030, says a 2022 report from Grand View Research, Inc.
Smart businesses — from large enterprises to SMBs — committed to technology innovation and capturing new value and agility are leading the way with vCard adoption. Larger firms are investing in payments innovation generally, with most already taking steps toward AP automation or planning to do so. SMBs, meanwhile, are taking advantage of the opportunity to adopt AP automation to get ahead of the competition and facilitate fast growth.
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Checks remain one of the most common forms of B2B payment in the U.S. Many companies, however, are reducing their use of checks due to the high costs (estimated at up to $8.64 per payment for the mid-market segment), the lack of visibility, and the often laborious manual work involved with processing checks. In 2021, PYMNTS reported that nearly 40% of all B2B payments are still made by check, down from about 50% in 2018. As the decline of paper checks persists, the growth of electronic forms of payment, such as virtual credit cards, continues to climb.
ACH payments are great for large payments and with frequently paid suppliers, but payments can take two to three days to settle, which is not ideal for expedited payments or payments that are part of an early payment program. From a supplier onboarding standpoint, it can sometimes be difficult to get bank details from suppliers, so it often takes additional AP effort to hunt down the bank details of their suppliers.
Traditional physical credit cards are typically used by multiple employees and aren’t pre-approved, so they must be manually coded and reconciled by accounting. Corporate controls typically require approval for each expense transaction, but it’s not always clear who should approve. Without POs to specify the accounting, it is difficult for the accounting team to code purchases to the appropriate general ledger account, which leads to a lack of visibility into and control over spending. In addition, physical cards tie up credit and are increasingly misused for fraudulent purposes. (For more information on why European buyers in particular should explore card payment strategies over the traditional bank transfer, check out this blog post.)
Deploying a comprehensive Business Spend Management (BSM) strategy across your company, complemented by a BSM platform that connects all spend processes in one place, lets a company easily implement vCards and maximize the benefits. By integrating all aspects of spend and buy-side cash flow — from procurement to payments to working capital optimization — BSM takes a holistic approach to how companies source, procure, expense, invoice, and pay for the goods and services that make their business run.
Modern BSM platforms offer seamless integrations not only with existing ERP systems but also with suppliers and banking partners, facilitating the move to vCards. With these groups working together in one system, you have the tools to free up cash while supporting important suppliers to keep your business running smoothly.
1. Improve cash flow and DPO
vCards enable businesses to pay suppliers faster compared to using checks, ACH payments, or SEPA credit transfers. With vCards integrated into a company’s P2P processes, and with the ability to pay on order, businesses increase cash flow by extending DPO, given the time between purchasing and paying the bank statement.
At the same time, suppliers increase their cash flow by reducing their days sales outstanding (DSO). It’s a big win-win for both buyers and suppliers. Obtaining capital float is turning into a primary value driver for the move to a virtual card. vCards also help strengthen supplier relationships, as suppliers get robust data that they can use to help reconcile their account receivables systems.
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2. Drive savings and efficiency
Virtual cards provide savings and drive process efficiencies by reducing the time, resources, and costs spent on check-cutting, reconciliation, supplier onboarding, and exceptions. By automating tasks such as card charge detail reconciliation, vCards lower processing costs for both buyers and suppliers.
By leveraging Coupa Pay virtual cards, Thoughtspot was able to defer card payments for cash burn management while gaining real-time visibility and insight into daily spend. Pre-approval of PO-backed virtual cards reduced daily transactions by 80%.
Moving spend to virtual cards for international payments can also eliminate wire transfers or cross-border card payments that drive down FX costs, move funds faster, and eliminate unnecessary fees. vCards are an ideal replacement for check payments and useful in situations where ACH payments and negotiated discounts can't be maintained.
3. Increase rebates and become a revenue-generating center
vCards can be leveraged to increase card rebates from existing rebate programs and spend tiers with your bank. This enables your department to become a revenue-generating center, rather than just a cost center.
4. Reduce fraud and minimize risk with enhanced visibility and controls
Virtual cards enable you to achieve greater spending control with the ability to set unique parameters for each purchase, including limits for the amount, payment date range, and merchant type. Without an integrated form of payment like vCards for credit card–based transactions, a company’s visibility and control of spend is hampered, and managing risks is tricky, given the large number of transactions firms make every day.
“Moving to card on invoice with Coupa has enabled us to eliminate extra charges that suppliers were passing through. Now, with Coupa we are tracking the dollars saved, and it is significant.” — Elizabeth Mozeley, Director of Global Category Management, Sonoco
Virtual cards offer a simple, effective tool to manage fraud with special security, anti-fraud, and reconciliation features. For example, vCards are transaction-specific and can deliver strict controls at the point of purchase and automatic reconciliation on the back end. Controls can be set per transaction for account limits and merchant type. Virtual cards do not have any hard data that can be used fraudulently, even if stolen, and with predetermined limits, overcharging can’t happen.
5. Protect against the clawback of card rebate agreements
Many businesses have set expectations and agreements with their banks issuing the credit for their traditional business cards. When companies aren’t reaching their spend targets, the banks can potentially “claw back” rebate pre-payments. In response, many businesses in this situation are adopting vCards to get more AP spending onto cards via virtual cards to meet their spend commitments and increase their rebates.
6. Maximize unused credit
Physical credit cards tie up your credit from the point you issue credit cards to your employees (usually $3,000–$5,000 per card), which can mean months and months before the credit is actually used. One of the compelling advantages of vCards over physical cards today is that vCards offer dynamic credit and don’t tie up credit the way physical cards do, because each single-use vCard is its own balance based on a specific PO or invoice.
The most optimized way to start a vCard strategy is to holistically look at your existing payments processes considering all your other payment types (such as ACH, checks, and SEPA credit transfers). Your ability to convert suppliers from one payment type to another will depend on your ability to offer the suppliers value. When a business recognizes the benefits of vCards and is ready to capture the value they can deliver, the organization will need to make some choices and change some internal processes, systems, and workflows to support vCards most effectively. Here are a few tips to help you plan your move to vCards.
Choose a bank — or, better yet — choose a BSM platform with vCards built in
Many banks are offering vCards directly to customers. The banks offer what we call “card on invoice,” where they pay a supplier on an approved invoice. There are suppliers that will absolutely take this method for payment. But there are also some limitations on the business benefit for the supplier (interchange costs, little to no improvement in DSO, hard to reconcile in their Accounts Receivable system). Banks also are not integrated with a company’s purchasing and controls system, so the ability to capture ongoing supplier enablement is hard. The bank usually does one initial onboarding campaign, but the truth is supplier onboarding and enablement must be an ongoing activity for procurement and AP departments.
IT teams always welcome ways to avoid extra integrations with banks. Most companies have different card programs with different banks based on the country of their business entity. The reality of tackling multiple bank integrations to support the vCard initiative for the business can easily wipe away a lot of the value that these card programs produce. Mid to larger companies wanting to “spread around” their card spend to several bank partners, as well as companies unable to award their card business to just one issuer, need a unified platform to support a multi-issuer program if value is going to be created.
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Address supplier concerns, onboarding, and enablement
When adopting vCards, there are supplier concerns to be addressed and programs to deploy to assure successful supplier adoption. This includes messaging and onboarding programs to help suppliers understand all the benefits of adopting vCards, and then helping suppliers successfully adopt and fully benefit from them.
vCard deployment faces hurdles, but it’s worth the investment. As with any change to your procurement and payments processes, getting employees and supplies to adopt a new way of doing things can be challenging. You can create adoption marketing programs until you’re blue in the face, but if your vCard program is detached from your spend management processes and technologies, you’re likely to see minimal usage, negating the great benefits of this payments tool.
Along with the internal controls and approval workflows expected from a BSM solution, Coupa Pay includes the missing link — payments processes with integrated vCards — as part of its streamlined workflow. Companies have the option to issue a one-time-use virtual card right at the time of purchase or as payment on an invoice. Accounting and budgeting information can be collected and approved up front as part of a purchase request, eliminating the risk and reconciliation issues of physical card transactions.
Coupa Pay virtual cards let companies maintain existing relationships and credit lines with one or more bank partners, selecting strategically to optimize card rebates and geographic coverage. Coupa Pay works with leading bank partners, including American Express, Bank of America, Barclaycard, BNP Paribas, Brex, Citibank, J.P. Morgan, Silicon Valley Bank, U.S. Bank, Wells Fargo, and Wex. The recent strategic collaboration with Airplus and HSBC grants European companies expanded access to a fast, seamless, and secure way to manage payments. Barclaycard, Coupa Pay’s global inaugural issuing partner, also recently expanded its offering in the United Kingdom to mutual Coupa customers in Germany, Sweden, Ireland, France, and Switzerland.
Oliver Wagner, CEO of AirPlus International, is looking forward to the brand-new partnership: “By partnering with Coupa Pay, we are extending our global payment offer. Our joint customers will be able to use our multi-currency virtual cards on the Coupa platform while maintaining their relationship with their existing bank partners,” he explains. “Ultimately, we will help companies to improve their end-to-end purchasing process for enhanced visibility, transparency and control, taking Business Spend Management with integrated virtual payment to the next level.”
Coupa Pay’s collaboration with leading financial institutions makes it straightforward for Coupa users to take advantage of the benefits of vCards with their established banking relationships. With a robust selection of vCard providers pre-integrated into the Coupa platform with Coupa Pay, there is no implementation required to enable vCard usage. Once a company has decided to use vCards within Coupa Pay, APIs ensure that data simply flows from Coupa’s BSM platform to the vCard issuer for payment, and then back to the company’s ERP for reconciliation.
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Backed by deep integration between payments and purchasing, Coupa Pay can drive the effective use of vCards in ways that banks simply can’t. Companies see all the benefits of banks’ virtual cards along with all the controls and integration of the leading BSM platform. Supplier acceptance of vCards as payment is straightforward, providing suppliers fast access to cash and often reduced costs with straight-through processing (STP) — even before they’ve issued an invoice.
To ensure that any significant increase in vCards being sent for processing doesn't create an unnecessary burden on Accounts Receivable (AR) resources, Coupa Pay has partnered with STP partners Billtrust, Boost, and Stripe. These STP partners provide vCard AR automation services that process card payments and deposit funds directly into supplier bank accounts in a completely touchless manner. Suppliers also benefit from improved reconciliation with the payment data flowing directly into the ERP.
Thanks in part to virtual cards, Coupa customers in North America have established a community-powered benchmark of 96.7% pre-approved spend. What could your business achieve with that kind of visibility into and control over spend?
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