Virtual Cards Unlock Modernized Accounts Payable

Paper checks sent through the mail continue to be the preferred payment method for businesses, with 62% of firms using this approach to pay for goods and services. However, the ongoing reliance on checks is causing numerous delays and complications for AP teams, not to mention inviting a host of potential security issues.

For many businesses, ACH payments offer an appealing alternative to paper checks. In Q3 2022 alone, ACH payments represented more than $19 trillion in transactions. However, despite their remarkable transaction volume, ACH payments are plagued by fraud and inefficiency.

Virtual cards are fast becoming a popular replacement for legacy B2B payment systems, offering ease of use and effective mitigation of fraud and other complications. Businesses that have implemented virtual cards have reported high levels of success.

B2B payments are the lifeblood of the modern economy. Experts project that $111 trillion will flow between businesses by 2027, with the average firm conducting more than 1,400 B2B transactions annually. This large quantity of payments belies the difficulty inherent in each transaction, however: Accounts payable (AP) teams devote countless staff hours to processing each payment, yet errors abound.

Seeking a streamlined alternative to their paper-based operations, many businesses are turning to ACH payments. While these electronic payments offer a faster option than traditional methods such as checks, they are still slow and prone to complications. By contrast, virtual cards are quickly emerging as the superior option for rapidly and securely processing B2B payments.

Paper Checks Cause Major B2B Headaches
ACH Payments Fall Short as a Digital Alternative
Virtual Cards Prove Their Worth for B2B Payments
Virtual Cards Solve Critical AP Challenges

Paper Checks Cause Major B2B Headaches

Reliance on paper payments persists in AP.

According to experts, the typical AP department has operated largely in the same way for the past 20 to 30 years, with firms relying on the payment form that, on the surface, seems the easiest and most straightforward: paper checks. However, this time-honored method proves inadequate for the demands of today’s businesses, as it significantly increases the risk of delays, errors and security incidents. For example, a fraudster can steal a check from the mail or pose as a vendor and request a new check to be sent to their address. At this point, it becomes a simple matter for them to alter the recipient field and deposit it into their own account.

29%

of commercial payments in 2022 were conducted by cash and checks.

Corporates express numerous challenges relating to legacy payment methods.

Last year, cash and check payments accounted for more than 29% of B2B transactions, but businesses are tired of their inherent complications and challenges. In a recent survey of 1,800 businesses, corporate officials reported that their primary challenge was managing, tracking and reconciling check-based payments to suppliers and that these complications had adverse downstream effects for their procurement and travel expense teams. This is because cash flow affects nearly every department within a business, and inefficient AP is a top contributor to cash flow delays and challenges.

ACH Payments Fall Short as a Digital Alternative

ACH payment fraud rose sharply in 2023.

50%

of FIs reported ACH fraud in 2023.

A recent PYMNTS Intelligence study revealed that 50% of FIs have encountered ACH fraud this year, up from 28% in 2022. Same-day ACH payments showed an even greater increase — from 10% to 45%. The most common type of ACH payment fraud is an impersonator scam, where a malicious actor poses as a bank employee, vendor or even the IRS to deceive businesses into sending money to the wrong recipient. What makes ACH payments so problematic for businesses — and enticing for criminals — is that once they are processed, they are difficult to reverse, meaning any money lost to ACH fraud is likely irretrievable.

ACH payments offer fewer tools for resolving payment disputes.

Adding to the frustrations with ACH payments is the lack of remedies for resolving disputes, fraud claims and other issues. Unlike card networks such as Visa and Mastercard, ACH has no mediator for disputes. While this means that ACH payments cost less than card payments in the B2B arena, it has also led to increased fraud on ACH rails, as malicious activity is difficult to thwart once funds are dispersed.

Virtual Cards Prove Their Worth for B2B Payments

Virtual cards are critical to helping businesses control and simplify expenditures.

This is due to the capacity of virtual cards to implement controls on a merchant level, offering AP teams insights into spending patterns with particular vendors and preventing overspending or unauthorized transactions. These controls also serve as a strong defense against fraud, as any malicious actor will be an unauthorized user by default. Other B2B transaction methods offer similar controls. However, with virtual cards, the controls take effect before the money is spent rather than afterward when losses are far more difficult to recoup.

19%

of fleet and mobility companies use virtual cards, compared to 5% of other companies.

Companies leverage virtual cards to modernize capital management.

Fleet and mobility companies represent one of the more interesting use cases for virtual cards, as highlighted by a recent PYMNTS Intelligence report. The study reveals that 19% of firms within this sector have adopted them, compared to just 5% of companies overall. Virtual cards are well-suited for this industry, as fleet and mobility firms allocate a substantial proportion of working capital to facilitate growth. This includes investments in vehicles, back-office operations and system upgrades to keep pace with the dynamic logistics landscape. The controls of virtual cards help these firms improve transparency and security amid the high volume of transactions.

Virtual Cards Solve Critical AP Challenges

An efficient and effective accounts payable department is crucial to the smooth operation of any business. Too often, however, outdated AP practices and systems lead to delays, fraud and frustration among the staff responsible for keeping the business running. There is no reason for AP to be as complicated as it is, except for inertia and a reluctance to make significant changes to corporate operations. The past two decades of the eCommerce boom have demonstrated that processes as complicated as shipping products across the world are invisible to the consumer apart from a simple click of the mouse. AP should be no different.

Virtual cards offer a vital solution for achieving this simplicity. From the accountant’s perspective, it is akin to using a personal credit card for everyday transactions — a skill that most employees should already possess. The additional benefit of enhanced fraud protection is the icing on the cake. Deploying this solution should be a no-brainer for businesses of any size.

About

Finexio is the leading AP Payments as a Service company focused on embedding end-to-end business payment capabilities for mid-market and enterprise organizations into AP software, Procure-to-Pay platforms and financial institutions. Finexio customers benefit from "done-for-you" payments operations services that support 100% of their business payments digitally. CFOs and finance teams seamlessly transition away from manual payment processes to modern, safe and secure electronic payments, realizing significant time savings, reduced payment costs, increased cash flow, fraud prevention and unmatched visibility into their payments data.

PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

The PYMNTS Intelligence team that produced this Tracker:
Managing Director: Aitor Ortiz
Senior Writer: Andrew Rathkopf

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Accounts Payable Payments as a Service Tracker^® Series Report

Unlocking Modernized Accounts Payable With Virtual Cards