Ensuring that your business's receivables are paid on time is critical to maintaining positive cash flow. Eliminating inefficiencies in your payment processes can minimize lags, and yet it's not always easy to do, given the complexity that often surrounds business-to-business payments.
In a typical B2B relationship, payment terms are negotiated, invoices are sent, and then the wait to receive payment begins. Once a payment is received, there may be an additional wait for funds to clear before you can put them to use. The roles are reversed when making payments to suppliers, but the process may be no less cumbersome.
Advances in payment technology, however, are poised to redefine B2B payment standards. Virtual payments offer flexibility, security, and convenience to optimize the payments process. If your business hasn't gone virtual yet, here's what you need to know.
What Are Virtual Payments?
Also known as Single Use Accounts (SUA), virtual payments replace check, cash, and credit card payments with payments made via a virtual card number. This unique 16- digit number is automatically generated and sent to suppliers after receiving an invoice. The number can only be used one time, to pay a specific invoice to a specific vendor.
Virtual payments are sent and received through a virtual payment processor. These payments can be coordinated with your payables and receivables accounting programs or through an enterprise resource planning (ERP) system.
The Benefits of Going Virtual for B2B Payments
Virtual payments can eliminate many of the headaches that often go along with more traditional B2B payment processes. The primary advantages of virtual payments include:
1. Enhanced Security
In a typical transaction, sensitive financial information such as bank account or credit card numbers are shared between payer and payee. If your payments system is hacked, this information could be vulnerable.
With virtual cards, your bank or credit card information is never shared. Virtual card numbers can be used one time only, meaning they can't be cloned or reused.
2. Reduced Possibility of Payment Fraud
Payment fraud is a serious threat to your business's financial health. According to the 2017 Association for Financial Professionals' Payments Fraud and Control Survey, 75 percent of businesses experienced payment fraud in 2016, including check and credit card fraud.
Virtual cards can substantially reduce the possibility of payment fraud because the numbers can't be duplicated. And, once a virtual payment is sent, the amount and the payee can't be altered.
3. More Automation, Fewer Errors
Managing accounts payable can be time-consuming and tedious. Virtual payments allow you to automate some of the processing by batching single-use payments together, saving you precious time.
They also can eliminate the possibility of human error that goes along with having a person handle accounts payable and receivables.
4. Lower Costs, Faster Processing
Processing payments carries a cost and some methods are more expensive than others. Compared to check processing, virtual payments are five times less expensive. Not only that, but virtual payments can take just one to two days to clear, versus seven to 10 days for check payments.
The Challenges of Virtual Payment Integration
Using virtual payments in your accounts payable system is relatively easy, thanks to the automation component. It's integrating virtual payments with your receivables framework that can be more difficult.
Virtual payments are sent via email. Once they're received, virtual card numbers must be manually entered into your receivables system and processed, and then reconciled with the invoice that's being paid.
Companies like Billtrust are taking steps to partner with virtual card processors to simplify things on the receivables side, but this latest development is still in its early stages.
What's Next for Virtual Payments?
Businesses are increasingly moving toward digitized payments, including the use of virtual cards. According to research by consulting firm First Annapolis, virtual payments are expected to grow to more than a half a trillion dollars by 2024.
If you're considering jumping on the virtual payments bandwagon, there are some definite upsides to be had. Before making a move, however, remember to weigh any obstacles you may encounter with accepting virtual payments against the convenience it provides.
