How smart accounts payable teams make money with this virtual card hack.
The first time I created a virtual card, it felt a little magical. Once my request was approved, I generated a card with one click. In the time it took to auto-share the card details with the vendor, the beauty of the logic became clear. A unique number generated for this payment sent a secure signal to move funds to the vendor, while also sending the information to my company’s GL for automatic booking. No card details lingering for inscrutable types to take advantage of. No expense reporting needed. No need for the finance team to wait for information to close the books. Just a full audit trail of the transaction and an updated GL showing real-time spend. Magic!
Later, as I had an opportunity to interview some of our customers, I learned that they had taken the magic of virtual cards even further. Because they had the option from within our spend management platform to select a virtual card as a payment type to pay an invoice, they got all of the magic, plus a clear monetary benefit. Since purchases made using virtual cards generate cash back for a company, shifting payments from ACH, check, or wire to virtual cards, meant a profit on each transaction. I’ve come to think of this as monetizing AP.
In this scenario, accounting teams transform a payment type that costs them money into one that makes money for their company.
A good example of this is from Lattice controller, Jason Lopez, who made a conscious decision to monetize his company’s AP by shifting eligible expenses to Airbase’s virtual cards. “The cashback we earn is money that hits our account at the end of every month. It adds up, and is enough to cover the cost of the very spend management software we use to make and manage our payments.”
ReCharge’s controller, Eoin Hession, made a similar move and also quickly noticed the financial rewards. “It is absolutely helping to offset the cost of the Airbase platform,” he explains.
Whether the amount earned is viewed as offsetting a specific expense, or simply an extra income, these forward-looking finance pros are making sure that their companies aren’t leaving money on the table with this efficient AP hack. In addition to making money, they also save by no longer using expensive payment types like checks, which are estimated by Bank of America to cost between $4 and $20 per payment. While not as dramatic, virtual cards also offer savings compared to making payments via ACH. Even though many banks provide a certain number of ACH payments each month for free, once the threshold is exceeded, the fees can add up.
Doing the math makes it clear that, over time, the savings can be meaningful. Depending on the terms of a card, paying a $10,000 bill by virtual card can earn a company $150 (assuming 1.5% cashback). Compare this to a check that, let’s say in an efficient finance department, would cost at the low end of $4. This $154 in savings, compounded over say 1,000 payments for a total annual spend of $5 million, would be $79,000. While we would not expect a company to substitute all of its payments with virtual cards, even a portion of this can earn a company tens of thousands of dollars in additional income.
How to monetize AP.
Let’s assume that instead of creating a virtual card to make that payment myself, I had raised a PO. I would have followed the same approval workflow by submitting a request that would be automatically routed to the right person, or people, for approval. The AP team receives the invoice for processing. At this point, AP could make a choice to execute payment from within the Airbase system using any one of three payment types: check, ACH, or an Airbase virtual card — which includes cashback. A quick check will reveal if the vendor accepts cards, and if so, AP can use this option.
Transitioning to virtual card payments is easy when your bill payments are part of a one-stop spend management platform that consolidates all payment types into one bill payment system. It’s like having a command and control center for all non-payroll spend. All information is upfront and instantly available, and all bills flow through the same process, eliminating the need to reconcile different platforms, providing a full view of company spending, and giving AP control over all payment types.
A wide array of prominent companies accept bill payments by virtual cards for services in marketing, recruiting, operations, and more. Popular vendors include Apple, UPS, Grubhub, and Dropbox. Check out these common expense areas and examples of vendors in each segment for which finance pros have switched to virtual card payments.
In spite of the rapid adoption of digital payments and virtual cards, not all vendors accept card payments, but any that accept credit cards will always accept virtual cards, even if they have sent an invoice.
Then there are the types of vendors that many virtual card programs prohibit due to inherent security risks. Airbase doesn’t allow virtual card payments for the following:
- Security brokers/dealers
- Dating/escort services
- Massage parlors
- Betting/casino gambling
- Non-FI and wired money orders
- Government-owned lotteries
- Government licensed horse/dog racing
- Non-sport internet gaming
Earn cash back and save on the costs of checks, ACH, and fraud.
As mentioned, the cost of writing checks and sending ACH payments can add up, but there are other important savings from using virtual cards. Incidents of payment fraud are rising, and the traditional ways of paying bills are particularly vulnerable. The 2020 AFP Payments Fraud and Control Survey found that 74% of surveyed businesses experienced fraudulent activity related to checks, 33% experienced fraudulent activity related to ACH debits, and 22% experienced fraudulent activity related to ACH credits.
The controls afforded by virtual cards eliminate a great deal of that risk because:
- A virtual card is vendor-specific and can only be used to pay that vendor.
- Setting a spend limit or a safe maturity date on a virtual card offers further protection.
- A single-use card is automatically deactivated after it’s been charged.
Virtual cards are afforded the same protection that physical credit cards receive. For example, Airbase’s virtual cards are protected against unauthorized charges by VISA fraud protection.
Pre-approvals for card payments add control.
An advantage of using a PO process for employee spending, instead of using employee cards, is that it’s a more controlled process, including the approvals that are clearly secured before the money is sent out. Virtual cards in the Airbase system come with a pre-approval process built-in so that AP has a full audit trail of the expense being approved. Card payments are particularly useful when a vendor seeks a card on file for monthly subscription fees that are normally paid by the employee using a department company card, or their own card, which adds the requirement for monthly reimbursements.
Putting a traditional corporate card on file for recurring payments can, however, open a company to unwanted or wasted spend. Zombie spend happens when, for example, an employee leaves a company but their recurring payments aren’t canceled. A virtual card with a set expiration date will alert you to an approaching renewal date to determine if the service is still necessary.
Accidental payments can also arise when you are asked to provide a credit card number as a condition for a free trial of a product or service. It’s extremely easy to forget to ensure they don’t charge your card when the trial is over. Although many free-trial offers are legitimate, the Better Business Bureau reports a rise in complaints related to credit card charges resulting from so-called free trials. When you create a virtual card to enter as a condition for a free trial, you simply have to set it to expire at the end of the trial period, or attach a very low limit to the card. If it turns out that you do want to purchase a subscription, you can create a new card to replace the expired one or edit the parameters of the card to increase its amount.
When virtual cards are part of a bill payment platform, companies get all of the control mechanisms of a PO process (approvals and documentation) with the safety and convenience of a virtual card.
With the right card program, AP has a great tool at their disposal for making payments and earning cashback. The cash earned by making this substitution may not turn AP into a profit center, but it surely distinguishes it as determined to improve the company’s bottom line. Isn’t it time you monetized your accounts payable?
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.