Overcoming the Challenges of Virtual Cards

Aaron Lehew

Virtual cards are the fastest growing segment of the commercial card market, growing at a staggering rate of 20% per year. Experts estimate that virtual cards will account for up to 52% of U.S. mid- to large-market commercial card spend, equating to $4.8 trillion in 2026. Virtual cards are essentially digital representations of credit or debit cards issued by financial institutions (issuers) that are used for online and card-not-present transactions. They offer users added security and flexibility and are typically single-use or temporary with a set spending limit and an expiration date. 

The advent of virtual cards as a form of payment is the result of forward-thinking CFOs making it their mission to digitize accounts payable (AP) and move away from traditional, costly check payments. However, virtual cards and their associated processes create new challenges and opportunities for supplier accounts receivable (AR) departments. Virtual card payments can provide an opportunity for suppliers to collect cash from outstanding invoices faster and add a sense of certainty and predictability to payments. But as AP departments and issuers roll out virtual card programs for the benefit or their organization, they must also be aware of the new challenges virtual cards present to suppliers. 

Here are what we’ve found to be the most talked-about challenges facing supplier AR teams:

  1. Payment reconciliation: One of the primary challenges AR teams face with virtual cards is reconciling payments. Each virtual card transaction generates a unique payment, and matching these payments to the corresponding invoices can be a time-consuming and error-prone process. Manual reconciliation may not suffice, necessitating the need for automation tools and software.
  2. Manual data extraction: Virtual cards are usually sent to suppliers via email. With hundreds of different card issuers and disparate formats of transmission, suppliers are required to manually extract card numbers and remittance data, sometimes mobilizing multiple full-time employees just to retrieve payment information.
  3. Card acceptance and merchant fees: The format of virtual card payments requires payments to be processed via a merchant processing service. Some suppliers and businesses may encounter challenges in accepting virtual cards due to associated merchant fees. Virtual card transactions can incur higher processing fees compared to traditional payment methods, which can impact a company’s profitability. Often suppliers struggle to optimize the interchange rate by not processing with Level II or III data.

    Suppliers may also struggle to understand the financial benefit of accepting a virtual card payment. Analyzing the value of the time required to collect typical invoice receivables versus a virtual card may or may not reflect a benefit for the company.

  4. Limited transaction data: Virtual card transactions may provide limited transaction data compared to traditional payment methods. This lack of information can hinder the reconciliation process and make it challenging to track payment details accurately. Leveraging data enrichment tools and collaborating with payment processors to access comprehensive transaction data can help overcome this challenge.
  5. Integration with accounting systems: Integrating virtual card payment data into existing accounting systems can be complex. Ensuring seamless integration and data accuracy is crucial to maintain efficient AR operations for processing, allocating and reporting on these payments.
  6. Compliance and regulations: Accounts receivable teams must navigate the regulatory landscape associated with virtual cards, having to navigate card data with payment card industry (PCI) compliance concerns.

Maximizing value of virtual cards

What can AR departments do about virtual credit cards?

This is where AR automation comes in. Automated solutions are changing the way companies do business — urging them to think outside the box and leverage new technology to become more cost-effective and competitive.

Automation’s rise in popularity has directly impacted the use of virtual cards, making them a common B2B payment method. Automated AR solutions address the problems created by virtual card programs head on and help to bridge the gap between buyer preferences and supplier frustration. What AR automation does is offer flexible payment options to customers without the time and frustration that comes with manual processing, all the while lowering costly interchange fees.

Here’s how AI-driven automation helps overcome the biggest virtual card obstacles:

  1. Virtual payment instructions are extracted from email and AP platforms
  2. Payments are then authorized and processed automatically
  3. Level 3 data is included in the settlement of payments
  4. Remittance information is then consolidated and delivered right into the supplier’s ERP

Virtual cards are a promising development in the world of digital payments, offering enhanced security and compliance with the help of automated features . However, AR departments must address several challenges to fully leverage the benefits of virtual cards. By implementing automated reconciliation processes, optimizing fee structures and creating payment acceptance guidelines, AR teams can overcome these challenges and streamline receivables management. Coupled technology — like Esker  and Boost — that can automate, optimize and auto-reconcile payments will be essential for success in the dynamic landscape of receivables moving forward, as they provide the tools businesses need to improve working capital performance and gain a sharper competitive edge.

Will your payment acceptance strategies help you stay ahead of the curve and maximize the potential of your working capital performance?  Take a closer look at Esker’s partnership with Boost Payment Solutions to learn more about the benefits of fully automating virtual card processing for AR departments.

Author Bio

Aaron LeHew

As a Business Development Manager for Esker along with 15+ years of experience in manufacturing and distribution, Aaron background in process improvement throughout the Order-to-Cash cycle.  Aaron has a passion for serving those looking to move beyond the status quo in order to retain and grow their business. Outside of work you will find Aaron chasing his 3 young kids, or training for local crossfit events.

Author Photo: