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Virtual Card Adoption Strategies for AP

Our CEO, Neal Anderson, sits down with PYMNTS' CEO, Karen Webster, to tackle virtual card adoption for AP. Hint: it's not an all-or-nothing strategy.

How to Automate AP Series: Podcast #5

If you missed our fourth podcast, you can access it by clicking this link: Why CFOs Must Invest in a Paradigm Shift.

As virtual cards become more prevalent in both AP and AR departments, CFOs need to be more knowledgeable about the benefits of virtual card adoption, as well as the challenges they may face. 

In addition to overcoming the usual trepidation towards modernization that many enterprises possess, CFOs may also have to fight against the preconceived notion that the journey to eliminate checks is futile due to a lack of v-card acceptance among their suppliers.

"This challenge can quickly lead to discouraged finance teams that abandon the effort to implement a v-card program altogether. It's a major missed opportunity." - Neal Anderson

In a conversation with Karen Webster, Anderson discussed why CFOs and finance teams don't have to clear the supplier card acceptance hurdle entirely to benefit from a v-card program.

Going Touchless

In light of recent shifts in our work environments, many CFOs have reprioritized their automation projects, moving them up from a 1 - 3 year project to more of a "how soon can we get this done" kind of stance. 

"For CFOs in this day and age, it's all about no-touch payments. You need to be able to move the company's money from your office, your smartphone, your kitchen table — and have your staff and the [accounts payable (AP)] team be able to do the same." - Neal Anderson 

Virtual card payments support remote work enablement in AP departments tremendously. They offer a fully digital payments process by generating a one-time-use credit card number designated for a specific vendor and payment.

There are additional benefits on the receiving end because VCards offer a straight-through process, eliminating the need to hand key the card information into the system and update card information whenever there's a change.

However, lack of vendor acceptance fueled by the reluctance to cover the interchange fee associated with card payments has held AP departments back from taking advantage of the key benefits of virtual cards

"We're not talking about hundred-dollar dinner charges at a restaurant. We're very often talking about a $10,000 invoice being paid, and for a supplier to pay 2.5 percent, that's an expensive way of being paid." - Neal Anderson

Mixing Payments Tools

  • As enterprises in every industry ramp up their journey towards automating their payment processes, CFOs must make migrating away from paper checks a top priority, especially as more companies announce a permanent shift to remote working environments. 

Still, it would be a mistake to make virtual card adoption an all-or-nothing strategy. 

"We consider a successful adoption rate to be at around 20 to 25 percent of overall accounts payable spend. For the remaining transaction volume, organizations can — and should — embrace a mix of other digital payment tools, like physical cards and ACH." - Neal Anderson

There are several approaches finance professionals can take to implement a successful virtual card enrollment campaign. The easiest route is to partner with an AP automation solution provider experienced with vendor enrollment to spearhead card acceptance inquiries.

"If they decline it, that's fine. That vendor is probably an ideal candidate for an ACH payment somewhere in the future." - Neal Anderson

Many CFOs underestimate how important it is for suppliers to keep their customers satisfied. Furthermore, the benefits of early payments and easy access to remittance data  form a colossal driver towards vendor acceptance, making the interchange fee a non-issue for many suppliers. 

Strengthening Cash Flow

The ability to optimize cashflow can be utilized on both sides of a v-card transaction. While it's true that CFOs will face resistance from suppliers towards card payments, it's essential to understand that an organization does not need 100% adoption to implement a successful virtual card program.

"If you already have a vendor who is offering you an early payment discount, and you ask them to be paid by credit card where they're going to absorb another two-and-a-half percent interchange, that's just a tough ask." - Neal Anderson

However, vendors who are already accepting physical card payments or are already enrolled in a virtual card program will likely be more ready to transition to a faster payment modality. They should be the first ones contacted during the onboarding period.

For other suppliers, it may be beneficial to assess their spend profile and discern which group (or groups) would benefit the most from selecting virtual cards as their preferred way to be paid. 

Gradually, card acceptance is increasing, with the global pandemic accelerating suppliers' embrace of cards. And with virtual card spend expected to reach 1 trillion dollars by 2022, it won't be long until v-cards are widely regarded as one of the most popular payment options. 

Virtual cards play an important role for enterprises seeking new ways to transition to modern accounts payable and accounts receivable processes, which should include an array of tools - like ACH, Same-Day ACH, Realtime Payments, and purchasing cards (p-cards) - to truly optimize efficiency. 

Identifying which areas will benefit the most from v-cards will drive the most significant value for the organization.

"CFOs really need to look at virtual cards as part of the overall electronic payment strategy, and all CFOs need to be thinking through digital transformation away from paper checks to fully electronic payments. A virtual card is a key component of that. It's part of the strategy, but not necessarily a standalone program." - Neal Anderson

There's a perfect payment method for every transaction, and it's very rarely a paper check.

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