Virtual Cards for Accounts payable – What are they and what do you need to know about them?
What is a virtual card? If we don’t already know, we should be able to guess. It is simply a credit card that has been issued without plastic. It is generally a 16-digit merchant generated number that can be used for multiple transactions, or one-time. We have all used our personal credit cards online, whether we are doing Christmas shopping or weekly shopping at Amazon.
Commercial use Virtual card paypal vcc for businesses work almost exactly the same. As you might expect, there are subtle differences in the offerings.
The card that is used to pay accounts payable should not be confused or referred to as a “P” card, which can sometimes be used interchangeably. The P-card functions like a credit card, and allows for goods and services to be purchased without the need for traditional purchasing. You can choose to have a physical card, or you can remember the 16-digit code. However, purchasing cards are only issued to employees who must follow the company’s procedures and policies. The cards are usually reserved for certain items and have a fixed limit. These are generally not used to pay suppliers for AP payments.
A T&E card (or a travel and entertainment card) is also used to pay for business-related expenses such as hotel and airline bookings. It is not used for AP payments.
Let’s take a look at what is being used for accounts payable. The three most popular cards that are distributed by banks and other independent organizations are American Express, MasterCard, Visa, and American Express. American Express is not accepted by as many merchants, so it does not have a large presence.
As mentioned, these cards can be offered virtually as either a ghost card, or as a single-use card. The 16-digit number is sent to the vendor via secure email. They can then use the card number to get payment by simply running it on a point-of-sales device.
Today, there are two main virtual cards. The ghost card is one type of virtual card, while the other is for single-use.
Ghost cards are virtual cards that have a 16-digit number. They can be used repeatedly and redeemed for multiple payment. It has a longer expiration. If a vendor wishes to divide up a received payment into a partial payment at location A and another partial payment at location B or C, they are allowed.
This scenario can lead to a reconciliation nightmare if the payments are split up by multiple locations. The ghost card has another issue. A longer expiration date may seem to be an advantage, but it can lead to greater fraud risk.
A single-use virtual card gives the vendor a 16-digit number that can be used once and has a shorter expiration date. This allows the issuer control over credit limits and billing. These single-use cards have some reconciliation and security advantages. Vendors may not charge more than the allowed limit of the card, as they are only issued for a dollar amount. Single-use cards make reconciliation much easier because each payment comes with its own card number.
The interchange fee is charged to the card issuer for each card option. As an incentive to customers using their card, the card issuer gives back a portion of the collected fee to both the customer and the institution. An organization that chooses to pay its suppliers using a virtual card will actually get a rebate by simply paying their bills.
Payout terms and rates can also vary. This can be paid monthly, quarterly, or annually by some institutions. The rebate discount can range from 50 to 150 basis points.
When moving to a virtual solution, another consideration is who will solicit vendors to accept the card. There are different levels of enrollment depending on which institution you are considering. You will need to either do it yourself, or follow up on the initial enrollment.