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Improving cash flow with virtual card payments: A clear and present imperative

The shift to digital payments has moved beyond being a trend into being a necessity for sellers. B2B buyers want transactions that are convenient, fast, error-free and secure, while improving cash flow with virtual card payments is more important to a seller than ever.

Embracing virtual credit card payments is about more than just about keeping up with buyer expectations (though those expectations have gained a lot of ground, as we’ll detail further on). It’s about simple business survival. Digital transactions of any kind enhance operational efficiency, reduce costs associated with cash handling, and provide valuable data for informed decision-making.

Plus, in an increasingly interconnected world, virtual credit card payments are essential for expanding customer reach and accessing new markets. Ignoring this transformation means an enterprise runs the risk of irrelevance and lost revenue. 

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The challenges of outmoded B2B payment processes

Inconsistent B2B payments and remittance information create multiple obstacles and issues for companies. Here's just a topline look at the most common headaches that can be brought on by outmoded payment processes like manual credit cards—or worse, check payments:

• Prolonged reconciliation: When there's a mismatch between invoices and payment data, it messes up accurate financial reporting and cash flow management.

• Increased costs: Correcting these discrepancies manually demands significant time and effort, driving up operational costs.

• Strained relationships: Delays or inaccuracies in payments can adversely affect relationships between buyers and sellers, potentially impacting future collaborations.

• Risks in auditing and compliance: Discrepancies in financial records spike the likelihood of audit failures and non-compliance with regulations.

• Decreased efficiency: Inefficiencies in payment processes can hammer a business's overall productivity and efficiency.

• Increased risk of fraud: Inconsistencies in payment data and remittance errors can create a window for fraud by exposing vulnerabilities, enabling unauthorized transactions, and allowing identity theft.

The moral of this story? Accepting virtual cards is the solution to manual processing troubles. By accepting virtual cards—and especially by automating them—we conveniently remove those oh-so-common human blunders, streamline the reconciliation process and erase the intrinsic hazards that come with outdated payment methods, while delivering the many other benefits of virtual card payments for businesses.

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So what’s delaying virtual credit card payment adoption?

They’re not Luddites or compulsive foot-draggers; many sellers are grappling with the challenges posed by accepting payments via virtual cards, primarily because reconciling these payments with open invoices can be a manual and labor-intensive process without automation.

This complexity is compounded when remittance data arrives in a jumble of formats, such as emails, compelling the accounts receivable personnel to manually transfer this data into their enterprise resource planning (ERP) systems.

That’s the reason cited by 64% of finance leaders for shying away from virtual credit cards, in addition to the challenges of accessing emailed virtual card payments, retrieving entire virtual card numbers, and accurately applying payments to the corresponding invoices.

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Another primary barrier to accepting virtual credit card payments is the high cost of interchange fees, which make up about 80% of the fees sellers must pay for credit card processing. They’re also aware of the soft costs involved, such as the labor needed by accounts receivable departments to process payments and apply them to invoices.

Even so, forward-looking finance teams have made the move, and they’ve turned to payment automation systems to facilitate it.

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The benefits of virtual card payments for businesses

Here’s what a merchant can gain by accepting virtual card payments from its customers. The benefits of virtual card payments for businesses far outweigh any of the possible challenges of adopting them, which aren’t really “challenges” at all, considering the fact that easy-to-adopt payment automation solutions exist.

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Manually processing virtual credit cards: Delays, errors, and costlier outcomes

The manual process of accepting virtual credit cards is fraught with inefficiencies, delays, and errors. Here's a breakdown of potential issues that can arise at every stage of the traditional virtual card acceptance experience:

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1. Invoice generation and delivery: when the seller sends invoices to their buyers.

What could go wrong:

• Delayed Invoicing: Inefficient invoicing processes can cause late payments and disputes.

• Incorrect invoice information: Errors in invoice details, like amounts or due dates, can cause confusion and delays.

• Delivery failures: Invoices might not reach the intended recipient due to email issues or other communication breakdowns.

2. Buyer approval and virtual card generation: when a buyer approves the invoice and triggers a virtual card notification via email.

What could go wrong:

• Approval delays: Slow approval processes can impact cash flow and supplier relationships.

• Virtual card errors: Mistakes in generating or communicating virtual card details can lead to payment failures.

• Security risks: Manual handling of sensitive financial information increases the risk of data breaches.

3. Manual data entry and processing: when the supplier manually opens the emails and logs into each issuing bank platform to extract the full payment details.

What could go wrong:

• Data entry errors: Manual input of virtual card details is prone to human error, resulting in incorrect payments and reconciliation issues.

• Time-consuming work: Manual data entry is labor-intensive and time-consuming, dinging operational efficiency.

• System integration challenges: Integrating data from different sources into various systems can be complex and subject to mistakes.

4. Payment processing and reconciliation: when the supplier manually enters the payment data into their merchant processing system and ERP platform.

What could go wrong:

• Payment delays: Manual processing can lead to delays in payment processing, impacting cash flow.

• Reconciliation errors: Mismatches between invoice amounts and payments can cause discrepancies and reconciliation issues.

• Chargebacks: Errors in data entry or processing can lead to chargebacks, damaging the supplier's reputation and incurring fees.

5. Payment deposit: when the funds are deposited into the seller’s demand deposit account (DDA).

What could go wrong?

• Fraudulent transactions: Even with security measures, there's always greater risk of fraudulent activity during a manual payment process, leading to chargebacks and financial losses.

• Delays: If any of the complications listed above happen, then funds may be late getting into the seller’s account.

All these challenges just underscore the need for automated and streamlined virtual credit card processing solutions to improve efficiency, accuracy, and security.

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Manual processing problems can’t be solved with headcount

Processing virtual credit card payments is one of those business functions that simply can’t be remedied by throwing more bodies at the task. That’s not only cost-intensive (and prohibitive), but error-intensive as well: Versapay research shows how human errors in payment processes are the biggest cause of invoice disputes, and adding more people to a burdensome job will just scale up the number of errors.

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Those disputes drain accounts receivable wage-hours from staffers, who could be better used on other strategic, more impactful tasks like cash flow analysis. And let’s never forget how recurrent disputes also toxify customer relationships.

As we'll see soon, automating the process of virtual credit card acceptance can eradicate these problems. Another problem it solves is the shortage of good finance department talent since automation helps businesses accomplish more with less, and retain top-quality employees.

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Why B2B merchants should accept virtual cards

Why are B2B payments from buyers ever late? It’s usually got nothing to do with malice. It’s most often thanks to obstructions scattered throughout the invoice-to-cash cycle, or misunderstandings during B2B payment communications.

A sizeable share of the fault for this lies with manual B2B payment methods. Traditional non-electronic forms of payment, such as paper checks, significantly inhibit the B2B payment process. This makes payments less efficient for buyers and adds extra costs for sellers. The result? High invoice processing costs, lack of transparency, restricted data access, and extended payment durations.

Virtual credit cards are possibly the most transformational method in the entire payment landscape. But would they really accelerate B2B payments?

“Business buyers are increasingly turning to virtual cards to make faster, more efficient payments while giving them flexibility and better cash-flow management. Suppliers are benefiting from these faster payments,” — Colleen Taylor, President, Merchant Services, US at American Express

This is the gist of why B2B sellers should accept virtual cards—because it’s increasingly what B2B buyers want. When we surveyed those 400 finance leaders on virtual credit card use and acceptance, we found that the vast—or maybe a better word is huge, or overwhelming—majority would pay invoices faster if their suppliers accepted virtual credit card payments.

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But there’s more:

• 100% of buyers are already trying to use virtual credit cards to pay invoices.

• 78% anticipate using them more in the next year.

• 80% said they preferred working with sellers who accept virtual card payments.

• 59% said that they’d consider choosing (or switching to) a competing vendor if they accepted virtual credit card payments.

• 52% reported trying to pay for an invoice with a virtual credit card, only for the seller to refuse to accept it.

The upshot of all this? By reducing payment processing time with virtual cards, buyers and sellers alike are following an ever-larger herd. If you’re not accepting virtual credit card payments, you’re going to be frozen out by buyers who want the convenience and security of virtual credit cards. Who will those lost buyers be? Practically everyone you want to sell to.

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How to automate virtual card processing for B2B payments

As we’ve mentioned, virtual credit card acceptance technology lets an organization automate the B2B payment process by accepting unique, digital card numbers instead of traditional physical credit cards.

The operative word, of course, is “automate,” and here are the benefits virtual card processing automation solutions can bring:

• Elimination of manual data entry: Automation significantly reduces the need to manually retrieve and enter payment data. By automatically extracting remittance and card details from emails and integrating them directly into an AR system, the process becomes faster and less prone to human error.

• Faster processing: Virtual card processing automation solutions enable straight-through processing of virtual card transactions, so payments get processed without the delays of manual workflows. Reducing payment processing time with virtual cards means cash flow is accelerated while operational efficiency gets a boost, too.

• Increased efficiency: Being able to process more invoices more rapidly via automation also means there’s no need for a corresponding increase in headcount. In fact, staffers can be re-deployed to less tedious and more strategic tasks.

• Improved reconciliation: Virtual card processing automation solutions streamline the process of reconciling payments with outstanding invoices in real-time, not only saving time but simultaneously minimizing disputes and inaccuracies in payment matching. This can result in a silky-smooth collection process.

• Enhanced security and compliance: Automated solutions provide a secure way to manage sensitive payment details, adhering to PCI standards through encryption and tokenization of card data. This reduces the risk of data breaches while improving security across the board.

• In-depth reporting and insights: Automation enables finance teams to access comprehensive reports on transactions, which allows them to mine out insights critical for decision-making and enhancing cash flow management.

• Better customer experiences: Virtual card processing automation solutions make processes run more cleanly and smoothly for everyone involved, and virtual credit card acceptance gives both the customer and the seller a new, more convenient B2B payment option.

How does automated virtual credit card acceptance work?

In slightly more than a nutshell, here’s how to optimize B2B payments with virtual cards:

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1. Virtual card creation by buyer

The buyer uses their bank's online portal or app to generate a one-time-use virtual credit card number, which is tied to their main account but has a set limit and an expiry date.

2. Virtual card information shared

The buyer securely sends the virtual card's details—including the card number, its expiration date, and the CVV—to the seller/vendor. This often happens through email or a secure transfer, with the details incorporated into an invoice or payment request.

3. Seller receives payment details

On the seller's side, their payment platform captures the virtual card information through a secure method like encrypted email, parsing out the card number, expiry, CVV, and the amount due for the invoice.

4. Card is validated and transaction authorized

The information gets passed on to the seller’s bank for validation and authorization, ensuring the virtual card is valid, the credit is sufficient, and the transaction is legitimate.

5. Security enhanced via tokenization

For added security, the actual virtual card number may be tokenized—replaced with a unique symbol to keep card details safe. Plus, transaction data undergoes encryption to prevent unauthorized access.

6. Funds transferred

Once the go-ahead is given, the funds move from the buyer's central account to the seller’s, with the process handled by the virtual card issuer to bridge the transaction.

7. Transaction reconciliation and reporting

Both parties receive a breakdown of the transaction, including the virtual card number used, the amount, and the date, aiding in their reconciliation and financial reporting efforts. The buyer's bank and the supplier’s accounting system each manage and document these transactions.

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Best practices for virtual card acceptance in B2B

To ensure a smooth, secure, and rewarding process, an organization should follow these best practices for virtual card acceptance in B2B:

• Choose a reliable payment gateway: Select a reputable, reliable payment gateway that has robust security features, wide card acceptance, and efficient transaction processing.

• Educate employees: Train employees on the correct handling and storage of virtual card information to prevent unsanctioned access.

• Reconcile transactions regularly: Frequently conduct regular reconciliation between payment records and invoices to prevent discrepancies and fraud.

• Monitor for fraudulent activity: Implement fraud detection tools and monitor transaction patterns for signs of suspicious activity.

• Provide secure payment options: Offer multiple payment options, including virtual cards, to accommodate different customer preferences.

• Integrate with current systems: Seamlessly link virtual card acceptance into your ERP, CRM, and accounting systems to make workflows more efficient.

• Stay up-to-date on security standards: Ensure compliance with industry standards like PCI DSS to protect cardholder data.

By observing these best practices for virtual card acceptance in B2B, businesses can elevate that process and ensure they see all the benefits we've already discussed.

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Moving beyond automated virtual card payment processing

To overcome the hassles, hurdles and headaches that finance teams saw as being part-and-parcel of virtual credit card payment processing, more and more of them are automating those tasks. Here’s a walkthrough of how that can be done—and the reasons why it makes sense to make it part of automating all of an enterprise’s accounts receivable operations.

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Making great connections with other platforms

Integrating virtual card payments with ERP systems can serve to simplify finance operations. With a product such as Versapay Virtual Card Connect, you’re able to integrate virtual credit card acceptance with our ERP Payments product or our Collaborative AR product.

This is a perfect beginning, since now you’re going to start taking virtual card B2B payments across all sales channels directly in your ERP. This will absolutely help optimize costs, reduce manual resources, and accelerate cash flow. Better yet, your customers will love it, and you’ll deliver better B2B payment experiences. Nice job!

But like we just said, it’s a great beginning. Why stop there?

There are still limitations when you are only automating this single component of AR, such as the fact that a single, isolated automation leaves gaps in the invoice-to-cash cycle. So picture the efficiencies, savings, and customer satisfaction you’ll generate if you automate the entirety of your AR processes, from invoicing to collections. 

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The end-to-end benefits of accounts receivable automation

When all AR processes are automated within a unified system, each function gets to perform at a higher, faster, more efficient level.

Take the invoicing process as just one example. It’s central to accounts receivable and the entire organization’s fiscal fitness. But a recent Wakefield-Versapay study discovered that no less than 77% of AR teams were dealing with delays in invoice processing that mostly stem from operational mistakes and inadequate technologies.

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Here’s how automation can pay off for each function under the accounts receivable umbrella:

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Future trends in virtual card acceptance for B2B payments

When does technology ever stop evolving? As new innovations keeping arriving and recent ones see broader adoption, we can expect to see some future trends in virtual card acceptance for B2B:

• Increased adoption of tokenization: Tokenization, which replaces actual card numbers with unique identifiers, will become even more prevalent to enhance security and reduce fraud risks.

• Integration with AI and machine learning: AI and ML will be used to detect fraudulent transactions, optimize payment routing, and provide predictive analytics for risk management.

• Biometric authentication: Biometric technologies like facial recognition and fingerprint scanning will be integrated into virtual card acceptance to strengthen security and streamline payment.

• Blockchain technology: Blockchain can provide a secure and transparent ledger for B2B transactions, lowering the need for intermediaries and improving efficiency.

• Virtual card acceptance in emerging markets: The adoption of virtual cards will expand into emerging markets as digital infrastructure and internet penetration keep growing.

• Enhanced security features: Advanced security measures like dynamic CVV codes and 3D Secure will become more common as defenses against fraud.

• Mobile optimization: Virtual card acceptance will be optimized for mobile devices, enabling businesses to accept payments on the go.

These future trends in virtual card acceptance for B2B, some already quite near, will likely shape how businesses use virtual, making it an even more secure, efficient, convenient and universal B2B payment method.