Solving the Virtual Card Dilemma

You’ve no doubt heard about virtual cards. They are, as the name suggests, a virtual version of a credit card – no plastic, no chips, no PINs. From the buyer perspective, they offer many advantages over physical credit cards – improved security, better control, complete transaction details, and so on – but what many on the buying side don’t realize is that, from the supplier side, virtual cards actually create payment processing and reconciliation challenges.

How Virtual Card Acceptance Works Today

Once a buyer has paid an invoice with a virtual card, the AR team on the supplier side receives an email notifying them that a virtual card has been used to make a payment and that they must now process that payment. In most cases, the card details are sitting in the body of the email. Due to the strict parameters and rules applied to the card, this isn’t an issue from a security perspective. The issue is that the vendor has to manually plug those details into their POS system or virtual terminal. They must input the card details, wait for the success or failed message, deal with that message appropriately, and then ensure the remittance data is entered into the ERP. Entering remittance data, in most cases, involves manual data entry (from email to ERP) and in the best case involves copy/paste actions. The level of effort is high and if the dollar value of each transaction is low, it means that the ROI diminishes quickly for the supplier. For a supplier receiving only a handful of virtual card payments, the process is somewhat manageable. However, with the growing popularity of virtual cards, especially from the buying side, suppliers are either forced to hire more staff in AR or refuse to take virtual cards.

In one case we know of, a supplier had to build a team of 20 full-time resources to deal with the volume of virtual card emails. It became a mess to manage. Suppliers en masse are revolting and despite double-digit growth in virtual card payments each year, the churn on suppliers accepting virtual card payments is more than 15%.

What’s the Solution

What we are left with is a payment method that has a positive impact for the buyer but negative impact for the supplier. So how can we make virtual cards a positive experience for everyone? There are two issues that need to be solved for: easily processing the card and, once processed, getting the remittance data into the supplier’s ERP without manual data entry.

By implementing Straight-Through-Processing (STP) and working directly with acquirers like First Data, card issuers can get the card processed and get the funds into the right bank account. But then there is still a remittance problem. How does that data get into the supplier’s ERP?

You need a supplier-centric solution that facilitates a more robust way of taking payment details, transports them into an ERP and closes out the open receivables. This solution now exists and it’s finally making it easy for suppliers to accept virtual cards.

Making it Easier for Suppliers to Accept Virtual Cards

This new solution aggregates all virtual card payments received by a supplier across all issuers and compiles it into one comprehensive file-based or API-based data transmission, for delivery directly into the supplier’s accounting system. This creates a digital data source that suppliers can more easily integrate into ERP systems or use for cash flow forecasting.

As more and more suppliers begin to use this new solution, we’ll start to see virtual cards compete with ACH as a commonly accepted payment method. By streamlining the approach to existing reconciliation processes, this new solution helps to improve the overall payment experience between buyers and suppliers of all sizes.