B2B Payment Challenges Part 2: Demystifying Virtual Cards

Blog | March 15, 2017

We’ve discovered that suppliers are seeing a surge in the number of credit card payments from customers. Taking a deeper look, suppliers have identified that this increased card usage is being driven by a very specific type of commercial credit card called a “virtual card”, which comes with a unique set of acceptance challenges for accounts receivable (AR) teams.

Read on for part 2 of our 3 part blog series as our payments expert, Nick Babinsky, explains what virtual cards are and how they’re impacting AR teams.

QUESTION: What exactly is a virtual card and how does it work?

NICK BABINSKY: Virtual cards, also known as Single Use Accounts (SUA), are one-time use, auto-generated credit card numbers sent by accounts payable (AP) departments to their suppliers. These cards offer buyers a lot of control, convenience, and security. Once an invoice is approved for payment, the buyer’s virtual card platform (which usually lives in their bank or AP portal)  automatically emails a one-time use credit card number to the supplier for the exact dollar amount of those invoices. After the supplier charges that card number once, it can’t be charged again.

QUESTION: What kind of impact are virtual cards having on AR teams?

NICK BABINSKY: A pretty large one! Virtual card usage is growing almost 10% annually, and by 2021, virtual card spending is expected to surpass that of traditional purchasing cards. That means more and more A/R departments are going to start seeing this payment method being utilized by customers.

Virtual cards are beneficial for accounts payable (AP) departments, but their accounts receivable (AR) counterparts are struggling to see the value on their end. While virtual card payments are 100% automated for AP teams, the infrastructure that supports virtual card payments does not currently integrate neatly with ERP systems or other accounts receivable (AR) technology to enable straight-thru processing. Instead, AR departments receiving those payments must go through a tedious, manual process: they must open each emailed card payment, click through a link to retrieve the full virtual card number, manually process the card number through a physical or online terminal, and finally, apply the payment to the correct invoice(s) in their ERP system. Most accounts receivable (AR) teams normally don’t have the ability to pass Level II/Level III payment data for interchange savings, adding to the frustration.

Want to learn more?

Read our entire interview series on B2B Payment Challenges.

Part 1 – B2B Payment Challenges: Why is payment acceptance so complicated?

Part 3 – B2B Payment Challenges: Making payments cost effective & efficient

And don’t forget to check back next week for another fascinating discussion with the Payments expert, Nick Babinsky. You can message him directly on Twitter @NickBabinsky.