Why virtual cards are taking over the business world.
The use of virtual cards has gained momentum over the last five years – and that trend will accelerate further as operational finance adapts to the world’s “new normal.”
The potential for growth is impressive. A 2019 report by Juniper Research predicted that virtual card spending would top one trillion dollars by 2022. Of course, we all know that many predictions made in 2019 have been turned upside down by COVID-19. However, some of the ways in which CFOs are helping organizations adjust to the coronavirus through their financial operations could push the use of virtual cards even beyond that ambitious prediction.
What is a virtual card?
Virtual cards have numerous benefits over physical corporate cards, checks, invoices, and PO processes. Those benefits include many factors that are especially important in times of economic uncertainty, including ease of use, greater control, and more accurate reporting.
In this post, we’re going to take a closer look at how virtual cards can help you to:
- Use approvals to gain control over spending.
- See all spend owners and enable accounting automation.
- Take power away from vendors.
- Reduce risk and minimize damage from fraud.
- Make purchasing easier for employees.
Use approvals to gain control over spending.
One of the biggest advantages for your finance team is that virtual cards allow them to take back control over how money is being spent.
Instead of giving employees high-limit cards and fighting fires as – or after – the transactions roll in, finance teams can use a cloud-based platform like Airbase to have employees create spend requests and generate vendor-specific virtual cards once the requests are approved.
An approval system allows finance teams to approve purchases and set spend limits up front instead of reacting to the monthly credit card bill and Expensify reports, where there’s no way to recover the expenses that have already occurred.
See all spend owners and enable accounting automation.
Using an approval system in conjunction with virtual cards allows the finance team to automate more of the reconciliation and reporting work. Giving each virtual card a spend owner makes it easy to track ownership of each transaction in the system.
Accounting can also set rules to automatically code recurring transactions to the correct expense account and add the appropriate tags before posting it to the General Ledger.
Take power away from vendors.
Giving a vendor your credit card information is essentially giving them the power to charge you whenever they want. This means you often don’t find out about a price increase, or remember a subscription auto-renewal, until you see the charge on the statement at the end of the month.
Smart businesses use virtual cards to protect themselves by generating a unique card for each vendor. Companies using Airbase, for example, can create virtual cards with custom spending limits to ensure that vendors are not able to charge over the agreed amount or make multiple unapproved charges.
Reduce risk and minimize damage from fraud.
Having multiple employees, vendors, and subscriptions all sharing high-limit corporate cards creates operational problems and exposes companies to risk.
Besides being inefficient, the more services and people who have access to the same card, the higher the fraud risk. And suspending or canceling a card due to fraud kicks off a whole new set of tasks related to hunting down account owners and updating card details for all of the affected merchants and services.
It’s an unfortunate fact that corporations should be paying more attention to fraud prevention strategies moving forward. To name just one example, although corporate T&E spend decreased during the second quarter of 2020, T&E spend violations rose 206.7 percent year-over-year. Virtual cards protect businesses with spend limits and canceling a card is less hassle because you only need to update the payment information for a single vendor, rather than all of the vendors using a shared card.
Make purchasing easy for employees.
High-performing teams in small to midsize companies need to be agile, and this often includes making purchases of products and services quickly and efficiently. Virtual cards are a key to doing so within budget. While they look and act just like traditional credit cards, virtual cards offer added simplicity, security, and protection for the company.
These features can help you improve efficiencies quickly. For example, if you run a food delivery startup, you can set it up so that your 1099 delivery drivers can get one-time virtual cards for the amount of each food pick-up order. This is a more secure way to pay while also making it easier for your accounting team to keep track of the funds.
This same process also works with your full-time employees when they hire freelancers or contractors to help them with projects. Instead of handing over the company credit card, you can create a virtual card in their name with a pre-set spend amount.
More companies are adopting virtual cards as benefits like these become increasingly apparent. However, virtual cards are always most effective when they are a part of a complete expense management system. As a recent TechCrunch article noted, it’s ultimately the software behind the card that will differentiate a standard virtual card from an indispensable one.
Experience the benefits for yourself.
Now, more than ever, virtual cards are a clear upgrade over traditional credit cards, especially for fast-growing companies. These easily created cards help preserve budget, minimize fraud risks, and increase control over expenses, all without sacrificing speed. If you’d like to learn more about how virtual cards can help you manage all non-payroll spend with greater visibility and efficiency, let’s talk.
Airbase offers a one platform solution to manage all non-payroll spend. It provides oversight and control over spending with real-time reporting and automatic syncing directly to your general ledger. Control all payments – physical cards, virtual cards, ACH, and checks – from one place. Close faster. Empower employees. Control spend.