Every time a company makes a payment by check, direct deposit, or automated clearing house (ACH), it shares its bank account information with the entity receiving the payment. That occurs because a routing and account number are required for the payment to go through.
If a company decides to pay using a credit or debit card, it reveals the card number to the entity with each payment. Both options come with a risk of theft or fraud. Someone can intercept the transaction, record the account or card number, and gain access to a company’s money.
Virtual payment cards provide a more secure option for making payments, as they do not expose your company’s bank account or credit card numbers. Virtual cards for accounts payable have a few other benefits, too. They speed up the process, allowing suppliers to get paid more quickly.
Virtual Cards and Accounts Payable
When a company uses a virtual card for payment, it provides the payee with a randomly generated, 16-digit number. The number is created through a process known as tokenization. It links back to a company’s bank account or credit card, but there’s no discernible connection between the two. A hacker wouldn’t be able to crack the token’s code to discover what the actual account number is.
A company that makes business to business (B2B) card payments using a virtual card often has more control over the transactions than businesses that might pay with checks, ACH, or traditional credit cards. With a virtual card, the company can set a maximum payment amount. If the amount of the virtual accounts payable invoice is $100, the company can authorize a payment of $100 using the virtual card number. If the supplier tries to charge more, the transaction won’t go through.
Companies that have recurring invoices from suppliers can set up a supplier-dedicated virtual card number. Instead of using the number a single time, the business can reuse it repeatedly. However, the restriction is that it can only be used to pay invoices from one particular supplier.
Virtual payment cards are relatively easy to integrate into an existing process. In most cases, companies that wish to switch to using virtual cards don’t need to change credit cards or open a new bank account. Many credit card companies and banks already offer a virtual card feature through their apps. Financial institutions that haven’t yet started to provide the feature can do so easily through Hydrogen’s API platform.
Benefits of Using Virtual Cards for Accounts Payable
If your company is considering switching to virtual cards from other payment methods for accounts payable, such as checks or credit cards, there are many reasons to do so. Here are some ways you can benefit from using virtual cards for your virtual accounts payable or receivable:
1. Speeds up the Accounts Payable Process
Older payment methods aren’t exactly the most streamlined. If an accounts payable department issues payments using checks, someone has to take the time to write out each check. The checks then need to be sent to the payee, who needs to record the payment, fill out a deposit slip, and then send the checks to the bank. A virtual card eliminates many steps in the process. Payees get the cash right away, rather than having to wait to deposit a check, or wait for the payment to clear.
2. Lowers the Cost of Payments
The company using virtual cards to make payments doesn’t have to pay anything to use them. Paying with a virtual card number is so quick and easy that there are few labor costs involved. Virtual payables cards are more affordable compared to other options, and in some cases, they also allow a company to earn cashback or a rebate. If the virtual card number is linked to a rewards card, the business can earn a small portion of each payment in the form of cashback.
3. Offers Increased Security
Virtual cards tend to be much more secure than payment options that expose a company’s account information. Unlike a traditional debit or credit card, it is nearly impossible to physically steal a virtual card. In most cases, once the 16-digit number has been used, it’s no longer valid and can’t be charged again. Even if a number can be reused multiple times, it is often connected to a single payee. Any other use would be unauthorized and would result in the transaction being declined.
4. Gives Companies More Control Over Payments
The payment linked to a virtual card is destined for a particular supplier, and it only charges a specific amount. This process puts companies in control of their payments, as the risk of the supplier charging the wrong amount or making a typo that leads to an incorrect charge is eliminated. Payments made with virtual card numbers can be automatically recorded, which reduces the risk of data entry errors or lost information.
5. Helps Companies Manage Cash Flow
When a company pays with a check, it can take some time for the cash to leave the bank account. There might be a delay in the check making it to the supplier, or the supplier might not deposit the payment quickly. In that case, it can be challenging for a payer to track how much cash it actually has on hand. Virtual card payments are instantly reconciled, providing a company with an accurate idea of how much cash it has available.
Virtual Cards Benefits for Suppliers
Using virtual card numbers for accounts payable benefits more than the companies making the payments. There are also advantages for suppliers’ accounts receivable departments. Perhaps the most notable benefit is that accepting virtual card payments instead of, or in addition to, check payments allows a supplier to receive money more quickly. Suppliers do not need to spend time preparing checks to deposit when customers pay with a virtual card number. The payments can also arrive more quickly, as they are easier for clients to make.
Since the card numbers work like any other credit or debit card number, suppliers can use their existing systems to accept the payment. They do not need to set up a separate processing procedure. Since the card numbers are often one-time use only, suppliers do not need to retain their clients’ payment information.
Work With Hydrogen to Build a Virtual Card Issuing App
If your mobile banking app or online banking platform hasn’t yet made virtual card numbers available, there’s never been a better time to jump in and get started. As more and more companies become interested in using virtual cards to pay invoices, the demand for virtual payments will only increase.
Hydrogen offers configurable no-code solutions that make it easy to build a virtual card issuance and tokenization app, no matter how much or how little experience you have with the technology. Reach out to us and start building your app today.