Purchasing Cards vs. Virtual Cards for E-Payments
You may be looking to migrate away from paying suppliers via check, but it can be confusing to choose from amongst all the available electronic payment methods. Comparing different types of cards like Corporate Cards, Ghost Cards, Purchasing Cards (P-Cards) and Virtual Cards can be especially daunting. Where do you even start?
This vast array of card types may leave you wondering:
- What differentiates one type of card from the other?
- What type of control do they allow?
- Which makes the most sense for your business when looking to automate supplier payments?
Let’s look specifically at P-Cards and Virtual Cards.
P-cards are a specific type of commercial charge card issued to certain employees who are expected to follow designated guidelines when purchasing goods and services. They typically use P-Cards to make high volume, low value purchases. The cards can be configured with restrictions that are attractive for businesses such as spending limits per user, monthly purchasing limits, and limits on allowable suppliers, purchases, or categories. Companies leverage these cards to achieve cost savings via elimination of steps in the purchasing process and earn valuable card rebates. At the same time, they face some hurdles with their usage. These include:
- Limited control - Even though you can set stipulations on P-Cards, employees still have the freedom to spend money unchecked. They also allow employees to bypass pre-established purchasing processes such as utilization of purchase orders (POs).
- Reconciliation difficulty - With no easy way to map a transaction back to a specific PO or invoice, ensuring that money spent matches the money leaving an account is much more complex.
- Fraud exposure - Since P-Cards are typically physical cards, they can be lost, misplaced, or stolen.
- Lack of integration - P-Card spend data may not sync with other purchasing data, which leads to problems when needing to conduct a thorough and accurate spend analysis.
- Non-automated handling - With a P-Card, someone must maintain the card itself. They must then either purchase their goods and services in person with that card, enter the card numbers online, or phone in payments. These constitute as exceptions to your other payment workflows, and need to be handled manually.
Virtual Cards, on the other hand, offer superior data reconciliation, fraud protection, control, and compatibility with existing systems. These unique, 16-digit numbers are generated as needed and are essentially “card-less” credit cards. They’re also issued for a specific supplier for a specific amount. This facilitates reconciliation as each payment is tied to its own unique card number. The unique card number feature makes them incredibly secure as well - even if the Virtual Card is compromised, it’s almost impossible to misuse since it has a pre-set pay limit, becomes inactive once the maximum dollar value has been reached, and has a predetermined expiration date.
Virtual Cards also enable strict controls. A supplier cannot process a Virtual Card until the buyer approves the associated invoice and initiates payment for the total amount. Lastly, Virtual Cards work in conjunction with your existing automated AP ecosystem. In a matter of clicks, you can send off Virtual Card payments to your suppliers as part of one consolidated payment file and update your records to indicate those invoices are paid.
Research from First Annapolis predicts that Virtual Card payments will grow from $160 billion in 2018 to over half a trillion dollars by 2024. So, while there may be some initial confusion surrounding when and how to use Virtual Cards, more and more businesses are recognizing the distinct advantages they offer and how invaluable they can be in enhancing operations and increasing visibility.