Nonprofits can face greater pressure than their for-profit peers when it comes to compliance. Making sure the books add up properly is key to keeping their legal nonprofit status, and that means cash management is paramount.
The virtual card has gained attention in recent years for its ability to not only digitize corporate payments but to safeguard them, often coming in the form of a one-time-use card number designated for a specific purchase category and value.
The nonprofit industry has a lot to gain from this payment technology, claims a new whitepaper from vendor management consulting firm Vendor Centric.
The company published its analysis on the role of virtual cards in the nonprofit sector, “The Nonprofit CFO’s Guide to Virtual Credit Cards,” last week, exploring how a sophisticated payment tool like the v-card can be particularly valuable to this breed of business.
“Nonprofits are well-positioned to benefit from virtual credit cards,” the report concluded. “Not only do they add an enhanced level of security and fraud protection to the accounts payable process, they also simplify processes and provide a mechanism for generating new forms of revenue to support the nonprofit mission.”
According to Vendor Centric, there are four key benefits for nonprofits when it comes to the v-card.
The first is cash rebates. Commercial cards are often a preferred payment choice among payers for their opportunity to build up rewards. Virtual cards, the report noted, can do the same.
But what a commercial card can’t do as well as a virtual card is security. The second major benefit to v-cards, according to Vendor Centric, is the strengthened internal controls the payment tool provides. By designating a purchase amount and category, an accounts payable professional can safeguard against fraud or use of a virtual card for an unauthorized purchase.
Speaking of the AP professional, that’s the third benefit: streamlined accounts payable processes. Because virtual cards are just that — virtual — they automate the payment and reconciliation processes, connecting payment data directly into financial systems.
Finally, the fourth major benefit of virtual cards is better cash management, stated Vendor Centric. The heightened spend controls of v-cards mean better financial data and a clearer vision of cash flow.
Not-For-Profit
These benefits can be realized by corporations of all types. But, for nonprofits specifically, virtual cards can aid in ways unique to the industry.
“Virtual cards … provide a unique solution for nonprofits who provide financial assistance to individuals in the form of grants or reimbursements,” the paper stated. “There are a variety of creative and flexible approaches nonprofits are using to improve the payment experience for both the nonprofit and the individual receiving the assistance.”
Convincing Suppliers
According to Vendor Centric CEO Tom Rogers, adoption of a virtual card can be aligned with the existing trend among nonprofits for more efficient payment processes.
“We are seeing a tremendous growth in the adoption of AP automation technology by nonprofits,” he said in a statement. “The new breed of AP automation solutions are easy to implement and provide an array of benefits, including efficiency, fraud mitigation and, in the case of virtual credit cards, new forms of revenue through cash rebates.”
Corporate buyers may like commercial card products for their ease of use and the rewards they can rack up through a card program, but for suppliers, the benefits of accepting these tools aren’t so obvious.
The biggest hurdle to supplier acceptance of payment tools like virtual cards is the interchange fee burden.
But, according to Vendor Centric, “the benefits of accepting virtual card payments outweigh the costs.”
The firm makes the case that accepting virtual cards leads to better cash flow, with buyers paying their invoices faster; reduced processing costs, as the automation associated with virtual cards lowers the fees associated with processing and reconciliation; and strengthened customer loyalty, with vendors that accept virtual card payments becoming a preferred vendor over those that don’t.
It’s up to nonprofits, the paper concluded, to educate their vendors on the benefits of virtual card acceptance; whether suppliers will agree that they outweigh the costs, however, is not guaranteed.
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