How, why, and when to use virtual credit cards for your business

A virtual card is a digital payment method that can be used in the same way as a traditional credit card. But alongside the benefits of physical credit cards, like high payment security, virtual cards have a range of additional features that make them uniquely valuable to businesses looking to improve payment controls, accounts payable (AP) efficiency, and working capital management.

When virtual cards are integrated with AP automation software and ERP systems, transaction data can be captured and processed efficiently. This allows for real-time spend monitoring and automated reconciliation, decreasing the manual burden of spend analysis.

Virtual cards can also be used to pay suppliers who do not participate in supply chain finance or dynamic discounting solutions, extending working capital solutions to cover smaller tail-end suppliers.

Given their benefits, it’s worth considering adopting a virtual card solution in your business. In this post, we’ll explain how virtual cards work and how buyers can benefit from this type of payment.

How does a virtual credit card work?

In practical terms, a virtual credit card functions just like a physical card: it has a unique 16-digit card number, an expiry date, and a three-digit CVV (card verification value) code. You can use these details to make payments in the exact same way you would a normal credit card.

However, unlike a physical card, a virtual card does not use the same card number for every transaction. Instead, a unique number is generated for each individual specific purchase. Once the payment has been made, the unique card details become defunct and can no longer be used.

Supplier payment process

When a supplier is paid using a virtual card, the process typically includes the following steps:

1. Once a supplier’s invoice has been approved, payment details are sent to the virtual card provider.
2. A single-use account is created, and details of the virtual card are sent to the supplier.
3. The supplier processes the transaction using the virtual card account details. The bank authorizes the payment, and funds are made available in the supplier’s account.
4. Settlement data is then matched with the relevant payment instructions, and reconciliation takes place automatically in the buyer’s ERP system.
5. The buyer pays the bank in line with the agreed terms.

Why use a virtual credit card?

Businesses that use virtual cards can benefit in many ways, from greater payment security and spend control to automatic reconciliation and enhanced spend analysis. These are some of the top reasons to use a virtual card:

Payment security

Virtual cards provide significant security benefits compared to traditional credit cards, enabling businesses to reduce their exposure to potential fraud. Since they are designed to be used only once for a specified amount and purpose, they bear unique numbers and are non-transferable. Moreover, unlike physical cards, they can’t be misplaced, stolen, or cloned.

Spend control

Virtual cards allow expenses to be easily tracked and categorized. They can also be pre-programmed, enabling businesses to set limits for individual users regarding purchase types and transaction values. This helps to avoid maverick payments (whereby purchases are unauthorized or fall outside a company’s procurement policy) and facilitates adherence to budgets and accurate accounting.

Cash flow optimization

By paying suppliers using virtual cards, businesses can access benefits similar to those offered by supply chain finance and dynamic discounting solutions. Suppliers receive payment straight away, while buyers can keep hold of their cash for longer (in line with the payment terms stipulated in the virtual card solutions), resulting in cash flow improvements for both parties.

As such, companies can use virtual cards to improve their working capital management strategy for smaller suppliers that do not participate in SCF or DD solutions. This allows for a greater proportion of spend to be optimized, giving businesses more working capital to invest in growth for example.

Seamless payments

Virtual cards can integrate with a company’s ERP system. This enables companies to use a seamless payment mechanism within their existing AP software, eliminating the need for manual accounting and invoice and expense submission. Since each virtual card has a unique number, businesses can access a clear audit trail of transactions.

Spend analytics

Companies can also use preset data fields to gather relevant information throughout the lifecycle of a virtual credit card transaction. As a result, businesses can not only gain real-time oversight of spending but also use spend analytics to analyze spending patterns and forecast future cash flows.

How to use virtual credit cards in your business

Virtual cards are a versatile payment option that can be used in nearly all situations where traditional cards are employed. In addition to online payments, virtual cards can also be used for in-store contactless payments when added to a digital wallet on a device that enables near-field communication (NFC).

Common use cases for virtual cards include:

1. Supplier/vendor payments: By paying suppliers on credit terms, companies can preserve their working capital for longer. Suppliers receive payment almost as soon as details are entered into their point-of-sale system, while the buyer’s ERP system performs the reconciliation automatically.

2. Online purchases: Companies can increase their protection from fraud by using single-use or value-locked virtual cards for online purchases. Traditional cards run the risk of data breaches and details being compromised and used fraudulently when used for online purchases. This does not apply to virtual credit cards since the number expires after payment is made, which also removes the risk of credit card information being reused by the seller.

3. Employee expenses: Companies can also use pre-programmed virtual cards to improve their control over employee spending. Physical corporate cards – which are often used by employees for travel and other expenses – can be used to purchase goods and services without prior approval and require employees to keep receipts for tax and accounting purposes. With a virtual card, purchase data is retained automatically, providing greater visibility over employee spending behavior. Businesses can also impose spending limits, restrict transactions to approved suppliers, and adjust limits for ad-hoc purchases when needed.

Choosing a virtual credit card solution

Virtual single-use cards can help companies analyze spend, reduce the risk of fraud, and automate reconciliation. They can also help optimize cash flow and working capital for businesses and their suppliers. But to maximize the benefits of a virtual card solution, it’s important to choose the right provider.

Taulia Virtual Cards integrate seamlessly with your ERP without the need for IT project support and are also embedded into procure-to-pay workflows on the SAP Business Network. Our solution features robust payment controls and value-added tools and gives your suppliers access to rich remittance details.

Our partnerships with Visa and Mastercard mean that Taulia Virtual Cards can work alongside your bank’s virtual card program. In many cases, you can use your existing commercial credit line through our solution, thereby maximizing the return on your credit relationships.

Last but not least, by targeting suppliers that are currently underserved or not represented in your existing strategy, Taulia Virtual Cards can fill the gap in your existing working capital management solutions.