4 Reasons Organizations Resist Virtual Cards

There are at least four reasons why some organizations have not yet adopted Virtual Cards or, more broadly, an electronic accounts payable (EAP) solution. Do any of the following pertain to your organization? Revisit the reasons for their decision and ensure they had the right information first. You might be able to reopen the case.

1. Few Regularly Used Suppliers

A common target for Virtual Card usage is regularly used suppliers. This list might be short for some organizations, thereby a Virtual Card program may not be the best fit. For example, one end-user told me they do not use Virtual Cards because, as a research laboratory, their suppliers were always changing due to their always evolving purchasing needs. They found that traditional Purchasing Cards worked best. This is a valid reason. However, for other organizations, there are few regularly used suppliers because no one has pursued strategic sourcing. Besides not gaining the benefits of a Virtual Card program, they are potentially losing out on cost reductions that can be obtained through negotiated pricing.

2. Too Hard to Convert Suppliers

Your organization might be under the impression—without concrete evidence to support it—that your suppliers will not accept Virtual Cards. Before casting Virtual Cards and other ePayables aside, work with your current Commercial Card provider (or even a provider who is trying to gain your business) to do a “supplier match.” You might be surprised at how many of your suppliers are already accepting Virtual Card payments from other customers. In addition, many providers offer supplier on-boarding services, with or without an extra fee, to make the process easier for you. It pays to explore provider options.

3. The ERP System Cannot Support It

In response to this excuse, I have to ask, “Are you sure?” ERP systems are more robust today than ever before and include many different payment choices (or you might be able to add one). Further, you might be able to apply a default payment type by supplier. To accommodate Virtual Cards, the “payment release” step of the accounts payable process may simply generate another output. Instead of just checks and an ACH file, there would be a Virtual Card file to upload to the provider. Talk with your ERP system vendor to learn more about the capabilities.

4. Organization Resistance to Change

This is the catch-all reason that, unfortunately, often prevails above logic. If decision makers reject a sound, factual business case for Virtual Cards, then there is not a lot you can do until there is a leadership change or shift in organization priorities. Wait for the right time to bring this up again and ensure your business case includes the fraud protection aspects of Virtual Cards/EAP. Read more about getting EAP in the door...

Open Fraud Survey

Speaking of fraud, I encourage you to participate in the current survey by AP Now, Newer & Less-commonly Occurring Payment Frauds. It digs into all sorts of frauds that your organization might be overlooking.

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  1. July 24 Public Sector Virtual Symposium: Preparing Public Sector Auditors for Tomorrow’s Terrain
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Separate the facts from the myths to ensure you are making a sound decision about Virtual Cards and other EAP solutions.

Separate the facts from the myths to ensure you are making a sound decision about Virtual Cards and other EAP solutions.



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About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

Getting EAP in the door.

When you think of electronic accounts payable (EAP) solutions like Virtual Cards and buyer initiated payments, what is the first end-user benefit that comes to mind? Chances are, it is the potential to earn revenue share/rebate. We have all seen or heard phrases like “turn AP into a profit center.” There is no denying the monetary appeal, but in this fraud-gone-wild era, I think the fraud protection benefit deserves more press. Whether you are an EAP provider or end-user trying to convince management to implement an EAP solution, be sure to stress the following five points in your business case.

The Protective Side of EAP Solutions

  1. Suppliers cannot overcharge you, charge too soon, or process duplicate charges that require your time and energy to resolve. Because payments to suppliers are based on the amount your organization approves, transaction disputes are rare (or dare I say non-existent?). 
  2. Checks reflect your organization’s bank account number; sensitive information is “out there.” EAP payments do not have this risk.
  3. Fraudsters cannot create a usable counterfeit card from a Virtual Card nor can they steal Virtual Card information to make fraudulent purchases.
  4. No need to pursue external controls like Positive Pay, which often come with a cost. (See definition at the end of the post.) EAP solutions are already secure.
  5. Unlike ACH payments to suppliers, EAP solutions eliminate the need for suppliers to provide their bank account information. Your organization does not have to store and secure this type of supplier data, which is a win for both of you.

Conclusion

EAP payments are not the best fit for every situation (e.g., one-time purchases/suppliers for which traditional Purchasing Cards are ideal). However, they are a good option to add to the mix. Ultimately, every organization needs to develop a payment strategy that best serves its needs; namely, one that minimizes costs and fraud risk.

Access more information about EAP solutions.

To get ePayables/EAP into your organization, ensure your business case stresses the protective benefits.

To get ePayables/EAP into your organization, ensure your business case stresses the protective benefits.


Positive Pay Defined

Positive Pay is a service offered by most banks. As part of the service, companies transmit to their banks their check issuance file each time checks are written. The file contains a list of check numbers and dollar amounts. When a check is presented for payment, it is matched against the file. If there is a match, the check is honored and the check number removed from the file. If there is no match, the check is handled according to the preset instructions from the company.

Payee Name Positive Pay is an enhanced product that includes the payee’s name along with the check number and dollar amount in the file sent to the bank.

Source: 101 Best Practices for Accounts Payable

How e-Payables can be a bridge to something better.

The benefits of electronic payables (also known as electronic accounts payable or EAP) have been widely reported, but maybe it is still unclear if, or how, these solutions can help your organization. Setting aside demographics like size, I view internal culture as a key indicator, concluding there are three types of organizations for which ePayables can add value for different reasons. Based on the following, where does your organization fit? Answering this question can help you create an appropriate ePayables business case to sell management on the idea. 

The Savvy  

Savvy organizations actively focus on electronic payments, and establish effective policies and procedures to support their goal. In a perfect world, everyone would be in this category. 

As a complement to traditional Purchasing Cards, ePayables act as a bridge to new territory for card program expansion and the purchases typically not allowed on a P-Card. Advantages over ACH payments include the ability for organizations to:

  • better manage cash flow (e.g., consolidated monthly payments to the card/solution provider versus individual payments to each supplier)
  • earn revenue share

The Skeptical

Some organizations, driven by fear, are still reluctant to implement a traditional P-Card program or only use P-Cards on a very limited basis. They favor checks and remain skeptical about electronic payments. ePayables might appeal to them on a psychological level. Management can take comfort in how ePayables support an invoice-based purchase-to-pay (P2P) process like they have always used and simply mean a change in payment method.  

A few years ago, I would have been disappointed in a push limited to ePayables when an organization is not using P-Cards well or at all. However, I am now convinced that, if an ePayables solution can be the bridge for moving an organization forward and away from cumbersome checks, then it signifies progress, even if all else remains the same. Down the road, they might be more open to the powerful combination of ePayables and P-Cards.

The Sabotaged

Last week, I wrote about an end-user organization lacking in accountability, where employees and management alike use P-Cards to conduct wasteful shopping sprees (access the post). The discouraged program manager, for good reason, is not interested in expanding their P-Card program. It is a cringe-worthy example of how lax management can sabotage an organization. ePayables can provide a bridge back to better organization control over spending

Help your organization bridge together its payment strategy through the inclusion of an electronic payables solution.

Help your organization bridge together its payment strategy through the inclusion of an electronic payables solution.

What About “None of the Above?”

Finally, there are organizations who have determined no need for ePayables because traditional cards work well for them for all kinds of purchases. They have already minimized checks and achieved P2P process efficiencies, so they are savvy as-is. To these organizations I say: Keep it up and continue to evaluate your P2P processes for improvement opportunities.  


Does your organization need help developing a payment strategy including ePayables and traditional Purchasing Cards? Contact Recharged Education today


About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more

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