When was the last time you received a paper check in the mail and physically took it to the bank to deposit it?
In today’s tech-enhanced economy, personally receiving a paper check in the mail and taking it to the bank to deposit it probably feels like a trip back to the Stone Age. Someone call Marty McFly and have him fire up the DeLorean; grandma sent you a check for your birthday. Paper checks are antiquated, inefficient, and plagued with the risk of fraud and human error.
Electronic payments, electronic fund transfers, and automatic deposits have become very common and convenient for businesses and consumers alike. Although consumers have been much quicker to adopt this technology, a recent survey by Zogby Analytics found that 50% of large US companies already have an electronic payables initiative, 37% have a payables initiative underway, 13% are considering a program, and only 1% of US companies surveyed are not considering an ePayables initiative.
There are many reasons why electronic payments are growing in popularity for businesses. Compared to checks, convenience is an obvious benefit. However, businesses can also lower processing costs, improve controls by automating the account reconciliation process and minimize human errors. When leveraging technology to manage finances, an ePayment program can also help businesses boost income through rebates and supplier discounts.
One of the newer and most flexible types of electronic business payments is the virtual card. Although still, a relatively new technology, virtual card payments are growing in popularity and experts expect to see continued adoption of this technology for many years to come.
A virtual card is a randomly generated 16-digit credit card number that is created to pay for a single transaction at a predetermined amount. However, there is no physical card associated with this card number. You can set the maximum charge amount for the virtual card number and set the card to expire on a pre-determined day. To vendors being paid by virtual card, payment appears the same as any other credit card. In general, virtual cards are accepted by any vendor or business that takes payments by credit card.
There are several benefits to using virtual credit cards to pay your vendors as an alternative to checks or ACH payments including - cost savings, stronger internal controls, streamlined AP processes, and cash rebates.
Virtual card payments are cheaper than producing and mailing out physical checks, which the AFP estimates costs businesses approximately per physical check printed. Virtual cards also add an enhanced layer of security and fraud protection to the accounts payable process by serving as a buffer between your actual credit card details and the merchants you work with.
In addition to cost savings, virtual cards produce substantial cash rebates. When coupled with the cost savings of reduced or elimination of physical checks, virtual cards can transform accounts payable departments into revenue generators. The amount of your rebate is tied to your payment volume, so the more you use virtual credit cards, the larger your rebate.
Virtual credit cards only work electronically. The downside to this method of payment is that you can’t send an employee to buy office supplies, for example, because there is no physical card. A PCard would still be required for these kinds of transactions.
Another challenge is vendor acceptance, some vendors do not accept credit card payments, or do not allow a credit card over a certain amount. Other vendors require special handling – phone or web portal – to pay with a credit card. Some ePayment providers will pay vendors that require special handling on your behalf. Just remember, the more you pay with virtual cards, the more substantial your rebate, so you’ll want to address as much of your payables to maximize your rebate.
Virtual Credit Card Use Will Continue To Grow
Regardless of the ePayables program you are using or looking into; one thing is clear: businesses are beginning to catch on the virtual card trend. According to a survey by RPMG, 25% of Fortune 100 companies used cardless accounts in 2014, with monthly spend averaging $330,698. Interest from the healthcare industry and larger corporations have been particularly strong, but small businesses can still benefit from this technology too.
For now, physical checks cannot be completely eliminated for expenses like payroll, but in our current economic climate businesses should be proactive in managing cash flow and increasing productivity where ever they can. Although the accounts payable department might be the last place to look for greater efficiencies and new revenue, maybe it's time to consider the options. Why not utilize payment technology that Doc and Marty probably couldn't have imagined in 1985?