Virtual cards are becoming increasingly popular as a better business-to-business payment solution. The name describes its biggest feature: it is a card that exists only in the online world. Virtual cards are tied to actual card numbers and bank accounts, but allow companies to maintain better control over their use, set limits, and maintain additional payment data than using other types of electronic payments. Let’s begin by first explaining what virtual cards are and how they work.
What are Virtual Cards and How Do They Work?
A virtual card is not a card at all. Virtual cards contain card numbers that are different from the user’s debit or credit card numbers. These cards are generated for business payment purposes and often expire within a set amount of time. These cards contain company-chosen pay limits, preventing vendors, suppliers, or employees from exceeding a specified amount. You use virtual cards much like other payment forms, though their common use is for online business transactions.
The three most commonly used virtual cards are single-use cards issued for one-time payments much like gift cards; authorization-only virtual cards that are linked to a corporate card account; and a lodge card, which is given to a vendor with a set limit to pay invoices for services or products.
Virtual cards are similar to ePayables programs in that both opt to replace paper checks with money processing directly through credit card information, though virtual cards do offer tighter restrictions and control than ePayables.
Why Use a Virtual Card?
It may sound like virtual cards are unnecessary for business-to-business transactions if you trust your vendor. However, setting credit limits is often necessary for financial tracking purposes and for maintaining control over outgoing money, even to reliable companies. For these reasons, it is becoming more common for businesses to use virtual cards for most or all of their transactions. Major card company Visa is noticing this trend and has recently announced a partnership with a virtual card company to bring them to more businesses.
Using a virtual card eliminates the risks that come with using physical credit or debit cards, particularly for processing online payments. Companies do not need to provide account information to vendor payments or any other sensitive financial information with virtual cards.
What is a Purchasing Card?
A purchasing card, often referred to as a P-card, is a type of company credit card given to employees to make business purchases. Businesses can put tight restrictions on the card, such as spending limits and business location limits. You can even set up a P-card that can only be used for one specific vendor or type of service, and inversely set a card to block certain types of purchases.
Purchasing card statements, unlike other credit card statements, include a great amount of detail, such as a description of the purchase, amount paid, tax paid, and location of payment. These details help AP departments quickly process financial information and electronically reconcile payments without needing additional paperwork. This helps streamline your AP process and maintain pristine financial records.
Why Use a P-Card?
As we just mentioned, the biggest advantage to using P-cards as a business is the amount of control you have over spending. It is easy to control your finances if you know exactly how much money is coming in and going out. Another benefit of a P-card is it eliminates the need for employees to create and process purchase orders, which means services and goods are delivered faster. Reducing paperwork is always a good thing, as it saves your company time and money, not to mention avoids costly mistakes when paperwork is misplaced or missing information.
For vendors, paying with a P-card guarantees payment since it is a form of credit and processes right away. This means vendors are paid quickly and can also avoid needing to create invoices and process paperwork. It’s a win-win for both sides and makes the entire process of making business purchases much easier.
Advantages to Single-Use Virtual Cards
Single-use cards can only be used one time and become invalid after use, meaning vendors cannot process unauthorized payments. Payments are associated with specific virtual card numbers, so tracking payments and accompanying invoices is much easier. Comparing the advantages and disadvantages is a good way to determine whether or not you feel it is worth the effort for your company to adopt virtual cards.
Virtual Cards at a Glance
The future of business-to-business payments will include a rise in virtual card use for payments. There is a distinct advantage for businesses that want tighter control over their finances and are looking for a way to capture more accurate and detailed information about their expenses. With major companies getting on board with virtual card payments and partnering with companies supporting them, now is the time to consider this secure payment method.