Virtual card payments hide your business bank account or credit card number when you make digital payments, keeping your accounts safer. Compared to checks, they also speed up your monthly close, let you pay vendors faster, and help you keep tighter control over your cash flow.
If you think that sounds great, you’re not alone. Juniper Research expects virtual cards to grow by 360% globally over the next five years.
Welcome to the digital-first economy.
This post explains what virtual cards are, how they work, and how they can make your accounts payable (AP) workflows more efficient.
What are virtual cards?
A virtual card is a 16-digit credit card token that’s generated to take the place of your credit card or debit card when you make digital payments. But not all virtual cards are the same.
Some virtual cards can be used across multiple b2b payments. For example, you might give an employee a virtual card with a specific dollar amount. They can make credit card payments on the company account, and you can limit those expenses to a predetermined budget.
Other virtual cards are designed to generate a unique token for every payment. Tied to a specific invoice, the unique card number can only be used once, to pay that specific bill.
How do virtual payments work?
Virtual card programs generate the 16-digit token for you automatically. That token is used to make online payments or other credit card transactions, hiding your underlying card information.
When you make a payment, you’ll see it reflected in your credit card account or bank account in something close to real-time. You’re still using that account. Your actual remittance information is just hidden from vendors and even employee cardholders.
Can I use virtual payments to replace checks?
That depends on your virtual card program. Most virtual cards just replace debit card or credit card payments. So if a vendor doesn’t take credit cards, they won’t take virtual cards either.
But BILL’s Pay By Card program lets you use your card to send checks. The payment is reflected in your underlying account like any other card payment, making your monthly close much faster and easier.
How to choose a virtual card for your business
Card issuers like Mastercard, Visa, and American Express often have virtual card programs. So do many banks. The right choice for your business depends on your needs.
When you’re shopping for a virtual card program, here are 8 questions that can help identify your needs:
- Do you need single-use or reusable account numbers?
- Do you want to fund cards once or allow monthly budgets?
- Do you need physical credit cards for your virtual card numbers?
- Do you need a payment solution for corporate spend or for employee expenses?
- Do your card numbers need expiration dates — expiring if the funds aren’t spent
- How much do you care about your virtual card rewards program?
- Do you want your program to come with software to automate expense reports, or are you happy using manual processes?
- Do you care about integrating with an AP automation solution to streamline your AP workflows?
What are the benefits of virtual card payments?
There are many, many benefits of using virtual cards as a payment method over traditional credit cards, traditional debit cards, or physical checks. Here’s a quick list of the top seven.
1. Better payment security
Single-use virtual card numbers are good for one payment, tied to one invoice, limiting your exposure for every payment you make.
Reusable cards can be funded once or refilled, but your exposure is still limited to that funding amount instead of your entire bank account or credit line.
In either case, your underlying credit card or bank account information is hidden.
2. More visibility into your cash flow
When your virtual card program comes with software that helps you control and streamline employee expense management, you’ll also get better visibility into your budget with a faster monthly close.
And, of course, any credit card or debit card payment makes your monthly close easier since you’re not waiting on checks to clear.
BILL’s Pay By Card offers the best of both worlds, letting you pay by card even when you need to send a vendor a physical check.
3. Better control over working capital
Control your budget, control your working capital. The more you eliminate checks and control employee expense accounts, the easier it is to predict account balances and plan for future needs.
4. More optimized use of your credit line
You can issue as many virtual cards as you need without applying for a new line of credit or exposing your current maximum. Limit each card’s funding to a specific amount according to your needs.
5. Faster reconciliation of employee accounts
With traditional credit cards, it can be hard to track down an unknown payment or recognize potential fraud, especially when a card is used a lot. Assigning each employee a unique virtual card number automatically ties each payment to a specific person and budget, making problems easier to flag and track down.
6. Improved vendor relationships
Digital payments are simply faster and more transparent than checks, prompting fewer questions from vendors about their receivables.
Some vendors don’t like to take credit cards because of the fees, but a virtual card program that’s integrated with an AP automation solution gives you access to other forms of digital payment too, like ACH payments, that cost vendors nothing.
Electronic payments through an intelligent bill pay platform like BILL can also automate vendor notifications, letting your vendors know when their invoices have been received, approved, and paid.
7. Cash back and other savings
Electronic payment processing is often cheaper than paper checks, especially when you add up the costs of labor, check stock, ink, printer maintenance, and so on.
Virtual card programs also let you take advantage of rebates or other credit card rewards offered by your card issuer, contributing to your bottom line.
How can virtual cards help retain top talent?
It might not be a question you’d think to ask, but one of the most important benefits virtual cards can offer in today’s volatile job market is employee satisfaction. Here are five innovative ways virtual cards can help reduce turnover and keep your employees happy.
1. Home office upgrades
By September of 2021, 45% of full-time employees were working either partly or fully remotely. Dedicated virtual cards with a preset spending limit are a great way to help employees upgrade their home office.
2. Team meals and “office” snacks
Use virtual cards to give remote employees an allowance for “break room” coffee and snacks. Or give a team that lives on the road an easier way to pay for meals.
If you have a mix of office and remote employees, virtual credit card numbers can give remote workers an easy way to pay for that team-wide lunch meeting.
3. Wellness programs
Having trouble designing a once-size-fits-all wellness program? Some employees want gym memberships. Others want classes on yoga or stress management. Still others would be happy with a fitness watch to help them get their steps in.
Virtual cards make employee programs easy. Let them take their pick with budgets they can use to build their own unique program.
4. Learning and development
Speaking of classes, new technologies are changing the world of business like never before. Virtual cards designated for professional development give employees access to the subscriptions, courses, and books they need to keep their skills sharp — and to keep your business on the cutting edge of new developments.
Whether parents are in the office or working from home, child care can be a challenge. Virtual cards let companies subsidize child care benefits while letting parents decide on the programs that are best for their families.
As powerful as virtual cards are, the best virtual card program for your business will be just one piece of your complete finance tech stack.
Streamlined AP departments digitize workflows from end to end — entering invoices, getting approvals, making payments, managing employee expenses, and integrating it all with their accounting software so the books stay up to date automatically.
Sign up today for a quick BILL demo to see what AP automation could do for your business.