6 Things AP Departments Must Know About Virtual Cards

Paying suppliers with virtual cards is a hot topic in accounts payable (AP).

Among businesses with annual revenues exceeding $1 billion, the adoption rate of virtual cards stands at 70 percent, Juniper Research reports. Virtual cards are particularly prevalent in the financial services industry, with 81 percent of organizations adopting the payment method.

But many AP leaders are unsure about the role that virtual card payments can play in their payment mix. Other AP leaders mistakenly believe that suppliers are unwilling to accept payments via virtual card. Some AP leaders fear that virtual cards will leave their organization more vulnerable to fraud. 

The fact is that virtual cards are an increasingly valuable tool for optimizing a buyer’s payments. 

Here are six things you must know about paying suppliers with virtual cards. 

#1. Virtual cards are not the same as procurement cards (or p-cards).

A virtual card is a plastic-less one-time-use card transaction with a randomly generated 16-digit number. Virtual card payments can be accepted by any merchant that receives card payments.  Virtual cards go through an approval process much like invoices, which makes them ideal for high-ticket purchases (many businesses make six-figure payments using a virtual card). Buyers also can set a maximum charge or timeframe for a virtual card transaction or restrict the card number to a supplier. Buyers receive cash-back rebates based on purchases paid via virtual card. 

#2. Virtual cards can transform AP into a profit center.

Buyers earn cash-back rebates on qualifying payments to suppliers made via virtual card. With a growing number of suppliers willing to accept virtual card payments, these cash-back rebates can add up. Many AP departments earn enough cash-back rebates to offset their overhead and deliver value to the business. The cash-back rebates from virtual cards also help lower an organization’s costs of goods purchased.

#3. Virtual card payments can improve working capital.

With virtual cards, buyers can better control the timing of payments to suppliers. Improved control over spending and budget management makes virtual cards attractive to businesses, Juniper Research says. Virtual card payments can be instantly initiated, scheduled for later, or set to be paid to terms. And many buyers use virtual cards as part of an initiative to rationalize their payment terms to suppliers: suppliers willing to receive favorable payment methods such as virtual card payments are paid sooner than suppliers that require payment via paper check, which are a burden on buyers.

#4. Virtual card payments result in fewer exceptions.

Buyers determine the amount of a virtual card payment. This means that there is no possibility of overpayment or underpayment – reducing time -consuming and costly exceptions processing. And reconciling virtual card payments is much easier than reconciling purchases made with a p-card.

#5. Virtual cards are the most secure form of payment.

At a time when the Association for Financial Professionals (AFP) reports that payment fraud is high, virtual cards offer AP departments peace of mind. Virtual cards experience a fraud rate of just 0.02 percent, compared to 0.07 percent for ACH transfers and 0.29 percent for checks, according to the 2022 AFP Payments Fraud and Control Survey. Virtual cards use a randomly generated one-time-use number. Virtual card payments cannot be intercepted. Suppliers know when a payment will arrive, and buyers know the status of each virtual card payment to suppliers. The payee on a virtual card payment cannot be changed. Every virtual card payment is designated for single use and is only valid for a certain supplier, date range, amount or other criteria that helps prevent misuse. This means that a virtual card can never be charged for one penny more than it was authorized for. What’s more, a complete 16-digit virtual card number is never transmitted from a customer; suppliers only receive a portion of the card number. Additionally, many virtual card solutions providers use sophisticated data encryption to safeguard sensitive data. And, unlike ACH transactions, virtual card payments don’t require suppliers to provide their banking account information to customers.

#6. Virtual cards offer suppliers significant benefits.

Not all suppliers accept virtual card payments. But virtual cards offer big benefits to those that do. Suppliers can be sure when a virtual card payment will arrive. Virtual cards also enable suppliers to eliminate the high cost of processing checks and the hassles of depositing checks. And virtual card payments include detailed remittance information for easy reconciliation with a receivables system. The remittance information that accompanies virtual card payments can be customized, and, unlike ACH payments and wire transfers, there are no limits to the amount of data that can be provided.

Optimize your payments with virtual cards

Virtual cards play a critical role in an AP department’s payment strategy.

From cash-back rebates and working improvements to supplier benefits and the reduced risk of fraud, there are lots of reasons for AP departments to consider paying suppliers with virtual cards.

Mark Brousseau

Mark Brousseau

Over the past 29 years, Mark Brousseau has established himself as a thought leader on accounts payable, accounts receivable, payments, and document automation. A popular speaker at industry conferences and on webinars and podcasts, Brousseau advises prominent end-users and solutions and services providers on how to use automation to improve document- and payments-driven business processes. Brousseau has chaired numerous educational conferences and has served on several industry committees and boards. He resides in Center City Philadelphia with his wife and three sons.