How virtual cards drive business continuity

August 14, 2020 Tracy Kellaher

The unparalleled levels of disruption caused by the COVID-19 pandemic has tested business resilience to the extreme. Across industries, companies have needed to pivot and change how they function at speed to ensure continuity of business.

But many businesses have struggled as the friction points in their back-office processes buckled under pressure. Just nailing the basics became a painstaking process for many organizations.

Over the course of the pandemic, we've talked with companies who’ve asked their payments team to don personal protective equipment (PPE) to enter their offices once a week to cut checks. While others have tried moving huge check printers to home offices just to keep payments flowing—with varying degrees of success.

Paper checks account for $12.5 trillion of business spend every year in the US alone

The common thread among these companies is they rely heavily on paper. Be it on the e-invoicing side, where data from Ardent Partner’s finds that 49% of all invoices remain paper-based, or on the payments side, where checks and other paper-based or manually intensive payment methods remain surprisingly common.

These legacy practices may get you by in more stable times, but cracks appear quickly when they come under pressure. And, unless addressed, cause ripple effects that undo even the best-laid continuity plans.

Virtual card adoption is on the rise, yet usage is limited

In virtual cards, companies have a powerful solution at their disposal to help solve some of the challenges they’re facing.

A virtual credit card is a randomly-generated card number associated with your actual plastic credit card—think of it as a disposable number that can be used once, or multiple times up to a certain currency amount, or expiration date.

Most companies have “plastic” corporate or purchasing card programs, or at least a few cards issued to individuals in their organization for B2B payment scenarios, especially for travel. However, if they’ve added on virtual cards as well, it’s usually to solve niche B2B payment problems within their organization. Setting up virtual cards as a centralized payment solution for certain vendors, post-invoice, is a common use case, for example.

Yet many are not yet fully aware of where and how to use virtual cards to ensure business continuity. This is to be expected. In recent years, virtual card adoption has gradually increased. Yet, on the whole, few companies are maximizing the solution to its full potential.

The numbers prove this out. Research from Accenture found that virtual cards accounted for $169 billion in purchases in 2018—and were growing at over 10 percent a year. While the growth is impressive, it only accounts for a fraction of overall business spend. To put this into perspective, checks still account for $12.5 trillion of business spend every year in the US alone.

A solution that can solve multiple problems

Will the COVID-19 pandemic be what tips the balance in favor of virtual cards and resigns checks to the history books? I believe it will. Since the crisis began, we’ve seen companies extend their use of virtual cards in a variety of creative ways to deal with the challenges thrust upon them. And, sometimes, to ensure the business can continue to function.

Take buying PPE, for instance. In these times companies must ensure they have the necessary PPE to make it safe for their people to work. But given the high-demand for PPE across the board, manufacturers are demanding payment upfront. This is a risky and complex task using cash or checks, but with controlled virtual cards, companies can pay for PPE quickly while also maintaining full visibility and control over the transaction.

Virtual cards are also proving useful for teams managing budgets while the business is moving at a million miles per hour. One area we’re seeing this occur is in the technology space where companies are increasing their marketing spend as they look to adopt digital tools. To support these projects, our clients create multi-use virtual cards with spending limits and expiration dates, which marketing teams use to pay for Facebook ads or other social media spend.

We’ve seen companies extend their use of virtual cards in a variety of creative ways to deal with the challenges thrust upon them. And, sometimes, to ensure the business can continue to function.

By enabling access to payment options, department heads can ensure that marketing has the funds at their disposal to move at pace and with minimal friction. They can also maintain budget control, while finance retains spend visibility and reduces risk of their plastic liability cards floating around a fast-moving organization.

Traditional supply chain payments are another area where we’ve seen companies leverage virtual cards during the crisis. Many companies are focused on tightly managing working capital and looking for solutions that extend payment terms without harming their sellers. Additionally, they’re seeking to reduce the pressure on accounts payable by limiting the overall number of POs and invoices required.

This very real pressure is driving a renewed discussion around virtual cards—and creating a unique opportunity for companies to have conversations with suppliers about moving away from checks and ACH, to virtual card acceptance.

As liquidity tightens, sellers are recognizing the cash flow gains and process improvements that come with card acceptance. It’s the right time for accounts payable teams to conduct a Spend File analysis focused on the long tail, non-strategic suppliers.

Moving these suppliers out of your ERP can save thousands of dollars per supplier in annual maintenance fees. To put this in perspective, First Advantage moved 10% of their sellers from check to virtual cards in just a few weeks, by simply asking.

Getting lasting benefits from virtual cards

The COVID-19 pandemic has shown companies they just cannot afford to continue using paper-based and manually intensive payment processes. The way businesses operate must finally take the leap into the 21st Century.

With each passing day, more companies are finding the value in using virtual cards and other forms of digital payment to solve some of their most pressing issues. As they do this, it’s stripping away any doubts they might have had about shifting away from checks and laying the foundations for significant change to happen. And what’s most exciting is that the advantages of this shift to digital will extend way beyond payments. All corners of the organization will enjoy operational and strategic benefits, including getting a much deeper and detailed insight into how they work with their supply chain.

The future of B2B payments is exciting. And after a series of false dawns, I believe the much-debated digital revolution is now upon us. The only question is what companies will move quickest to take full advantage of the opportunity?

About the Author

Tracy Kellaher

Tracy Kellaher is Director in Tradeshift's Fintech Success organization, where she where she leads the development and commercialization of Tradeshift Go, our industry leading virtual card solution.

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