By Geralyn Frances
Using virtual card accounts for B2B settlements offers benefits for customers and suppliers.
Looking for a way to create a little good will and streamline payment processing at the same time? Try virtual cards.
Virtual card accounts and their use in the order-to-pay process certainly aren’t new, but they are growing in popularity for B2B settlements. Their efficient, secure and streamlined process is miles above paper check payments and is
often favored over ACH payments as well. Zachary Industrial Inc., a Texas-based $2 billion construction and maintenance company generates enough rebates from virtual cards to pay for all of its payment processing.
Virtual card accounts were introduced about seven years ago and have evolved to become a key answer to electronic B2B settlements. Matthew Dragiff, VP Product Management at SunGard, goes so far to say that, “they are driving the payments industry today.” Creating efficiencies by replacing the cumbersome paper check process of printing, mailing, receiving and clearing was easy, but virtual card accounts offer an improved process above other electronic payments as well because of streamlined data exchange and enhanced security.
For instance, as compared to the alternative electronic ACH, the virtual account provides the ability to quickly identify the remitter. This improved data exchange exists within a highly secure process which has resulted in its quick adoption for B2B settlements.
How Does a Virtual Card Work?
In a virtual card account a fictitious account number is supplied and is assigned to a supplier, who is paid via a one-time electronic payment. The company paying only has to provide the virtual account number when making a payment and not their credit account information. The virtual card process can be setup as part of an integrated payments platform solution which typically supports multiple payment types. Many card payment solutions will include vendor enrollment services as well.
As Mr. Dragiff explains, “Virtual cards are designed for processing B2B payments over the same card network as traditional credit cards.” But, unlike procurement cards that are settled once a month with the card companies, virtual card payments are single transaction events, with a unique card number assigned one time and for immediate settlement.
Because the payer can be easily identified by the payee, A/R data reconciliation is expedited and funds can be accounted for quickly. The resulting real time updates of accounts receivable gives the credit department a speedier view of individual customers’ outstandings which improves credit and collection processes. This is a plus for suppliers who offer merchant card processing for payment.
Some corporations have asked for even better identification means, for instance, applying dynamic numbers to the virtual card. For instance, a payer ID number can be embedded in the otherwise random sequence of numbers, for even quicker identification of the remitter. This makes virtual cards more attractive to merchants, as it saves time on their end with posting of receivables.
Another way to entice suppliers to invest in accepting card payments is to offer better terms or provide incentives such as more spend volume if accepting electronic card payments.
Customers, who are remitting payments via a virtual card account also reap benefits. Such has been the case for Zachary Industrial, which captured over $100,000 worth of card rebates in one year by implementing a virtual card account solution in its payables department.
The company’s outsource partner, SunGard, is the intermediary processor whose secure, hosted product offering, AvantGard PayNetExchange, processes its payment file and sets up vendors to receive payments from the virtual card accounts. The product’s robust enrollment program opened the door for Zachary to pay vendors via virtual cards and obtain substantial rebates in return.
Pesky Processing Costs
SunGard gives one example of how a corporation can eliminate some of the processing costs: A corporation with 5,000 checks per month at a cost of $1.50 each is spending $90,000 per year just to pay invoices by check. By migrating 25 percent of those checks, assuming an average check value of $1,100, to a virtual card program that has an average rebate of $13.75, a corporation can earn $206,250 per year from the rebates alone. Additionally, by migrating 50 percent of those 5,000 checks to ACH at $0.50 per payment, a corporation could save approximately $30,000 per year in transaction fees.
For Zachary Industrial, when they moved 31 percent of paper checks to electronic (7 percent virtual card and 24 percent ACH) they generated over $100,000 year in rebates in addition to lowering its costs of processing payments. One of the keys to success of virtual cards for remitters is the extent of vendor enrollment which allows for the transition from check to card. After being given a target list of vendors to contact, SunGard then starts a comprehensive campaign which includes emails, direct mail and calling.
Oh Yeah, Fraud
Combating payment fraud remains an issue as evidenced by the 2012 results of the annual AFP payments fraud and control survey. In that survey, B2B payment fraud was shown as declining but remains high, with about 66 percent of all organizations reporting some incidence of payment fraud. Businesses shouldbe diligent in their efforts to switch to electronic payments, as “fraudsters aim for convenient targets of opportunity, especially big companies that handle many checks.” Some corporates have yet to implement a commercial card program and others have not taken advantage of their potential in generating substantial rebates and in streamliningthe accounts payable process (see “Corporate Card Programs Can Add Value,” IT, June 2012). Virtual card accounts enable companies to reap both these benefits and do it without the expense and maintenance of plastic cards nor the risk of a compromised card account number.
Data VigilAnce
After getting vendors to sign up, the next issue is maintaining the integrity of the suppliers’ data. The updating and maintenance of data has been an ongoing quality issue for corporate payables areas, particularly when moving to electronic payments. SunGard takes on the responsibility for keeping vendor data maintained and updated in its PayNetExchange solution.
AvantGard PayNetExchange boasts an easy, lightweight implementation and interfaces with corporations’ accounting/ERP systems, processing all payment types on behalf of its customers; checks, wires, ACH and virtual cards. The virtual card account product is an extension of SunGard’s outsourced payment services.
Commercial banks offer similar solutions for corporate payments processing, however, SunGard notes that it is often its system behind the scenes as AvantGard PayNetExchange is available to banks as a white label product. Additionally, “banks tend to be more restrictive in file acceptances,” notes Mr. Dragiff. The bank-independent SunGard solution allows corporates to be bank-agnostic, remaining flexible and avoiding locking themselves into a corner with one banking partner.
In summary, by implementing SunGard’s payment solution, AvantGard PayNetExchange, Zachary Industrial has benefitted from the following:
IMPROVED CASH VISIBILITY
- Reduced payment processing costs
- Generation of >$100,000 rebates annually
- Migration of 31 percent payments to electronic
- Improved reconciliations
- Improved process efficiencies
- Improved security and control
- Centralized processing of payments
And there is more room for improvement beyond the current paymentmakeup of 31percent electronic and the remainder paper check. The ROI calculator, which can be found on SunGard’s website, can be utilized to help assess the benefits to be gained for individual companies.
good for cash forecasting
What does this mean for corporate treasury, beyond the obvious rebates earned and cost reduction? For one, electronic payments are more suited to accurate cash forecasting and planning as the uncertainties of check float and days clearing are erased. Therefore, the timing and control that electronic disbursements provide raises cash visibility. Additionally, less manual work and human interface also reduces instances of fraud as compared to in-house disbursement processing and paper checks, reducing business risk in the order-to-pay process.
Virtual card accounts are now the pulse of the payments industry. Advantageous to both business customers and their suppliers, expectations are for their continued growth for B2B payments.
A payment processing platform like AvantGard PayNetExchange makes for easy transition to a virtual card solution as it is system-flexible, all-encompassing and bank indifferent. Virtual card account settlements are improving a core corporate process, and are especially attractive as they offer substantial benefits on both ends of the business supply chain.