Virtual-Card Adoption – Not An ‘All-Or-Nothing’ Strategy

As chief financial officers (CFOs) become more familiar with the opportunities of virtual card adoption, they’re also becoming more well-versed on their biggest challenges.

In addition to overcoming the inertia against change and modernization within the enterprise, CFOs can find significant resistance to migrating away from paper checks toward v-cards thanks to a lack of vendor acceptance.

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, said Neal Anderson, president and CEO of OnPay Solutions.

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 still benefit from a v-card program.

Going Touchless

With remote working mandates forcing the enterprise to accelerate its digitization journey, CFOs have elevated their payments modernization roadmaps to the top of their priority lists.

“For CFOs in this day and age, it’s all about no-touch payments,” Anderson said. “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.”

V-cards can support this effort as they offer a fully digital workflow to generate a one-time-use card number that can be used to quickly and securely make a payment without human intervention. Working with financial technology providers that can facilitate straight-through processing means suppliers themselves won’t be faced with the friction of manually re-keying card details into their own systems, either.

But a lack of vendor acceptance and resistance to absorbing interchange costs continue to limit the AP department’s ability to capture key benefits of v-cards.

“We’re not talking about hundred-dollar dinner charges at a restaurant,” said Anderson. “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.”

Mixing Payments Tools

As CFOs move forward in their payments digitization strategies, migrating away from paper checks is of utmost importance, particularly in today’s touchless world. But it would be a mistake for these professionals to take an all-or-nothing approach to v-card usage.

“We consider a successful adoption rate to be at around 20 to 25 percent of overall accounts payable spend,” explained Anderson, who added that for the remaining transaction volume, organizations can — and should — embrace a mix of other digital payment tools, like physical cards and ACH.

There are several strategies finance and AP teams can take to migrate as much spend as possible to v-cards. Again, working with a financial technology partner can accelerate the process of enquiring with vendors about their willingness to accept cards.

“If they decline it, that’s fine,” Anderson said. “[That vendor] is probably an ideal candidate for an ACH payment somewhere in the future.”

Many CFOs underestimate how much a supplier wants to keep its customers happy, he noted, so they may be surprised to find that more suppliers than expected would be willing to onboard to v-card acceptance. That’s particularly true once they become aware of the potential for early payments, often a favorable trade-off when accepting interchange fees, as well as the value of seamless remittance data capture into their own systems.

Strengthening Cash Flow

The opportunities to optimize cash flow can be realized on both ends of a v-card transaction. CFOs must understand they will meet resistance from some suppliers, but according to Anderson, it’s important to remember that not every supplier has to accept v-cards in order for a company’s v-card program to be successful.

“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,” Anderson noted.

Rather, vendors that already accept physical card payments may be a more successful target. For the rest of the supplier pool, AP teams can identify which vendor or spend categories would generate the most value by identifying v-cards as their preferred way to pay.

Gradually, card acceptance is proliferating, with the global pandemic accelerating suppliers’ embrace of cards. Acceptance is indeed a difficult hurdle for AP teams to overcome, but as Anderson noted, it’s not a hurdle that needs to be cleared entirely.

Instead, v-card adoption plays a significant role in modernizing CFOs’ payment strategies, which should include a mix of tools — like ACH and physical purchasing cards — to truly optimize spend.

Identifying which areas will benefit the most from v-cards will drive the greatest 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,” Anderson said. “A virtual card is a key component of that. It’s part of the strategy, but not necessarily a standalone program.”