paying with virtual card
Smarter Payments

A Closer Look at Virtual Card Benefits for Both Buyers and Suppliers

Buyers and suppliers are both looking for ways to increase efficiency and improve their bottom line. Virtual card programs can unlock shared value that meets the needs of all parties.
Kevin Morey, Head of B2B Supplier Experience, J.P. Morgan Commercial Card
November 17, 2017

Conversions to electronic payments have increasingly included the use of virtual card accounts as a B2B payables solution, but middle market businesses appear slower to adopt new technologies than larger corporations. With both buyers and suppliers looking for ways to increase efficiency and improve their bottom line, virtual card programs can unlock shared value that meets the needs of all parties. In particular, single-use account solutions can make a noticeable difference in improving business relationships, as well as helping improve daily cash management. With a single-use account, each supplier payment carries a unique 16-digit virtual account number, so the credit limit on each number is set to the specific amount of each payment.

Seeing the Benefits

By incorporating a single-use account solution, mid-sized businesses are able to automate the payment process by combining the benefits of a purchasing card, the functionality of a check and the efficiencies of ACH. On average, credit card statements allow payment to be made one month after the initial due date because of the statement cycle, which enables companies to maximize working capital gains by extending days payable outstanding and holding onto their cash longer.

Similar to the hesitancy seen among middle market businesses in transitioning to new technology, suppliers can also be resistant to giving up their traditional payment systems. But suppliers realize similar gains by receiving payments faster and reducing collection costs. According to the 2015 RPMG Electronic Accounts Payable Benchmark Survey, the predominant reason suppliers cite for not accepting electronic accounts payable solutions is the associated merchant fees1, which are typically perceived to be higher than other forms of payment. This concern can often be allayed by educating suppliers and discussing the real costs and the full benefits that virtual cards provide.

A 2016 Mercator Advisory Group report notes that immediate supplier benefits2 can include the following:

  • Lowering receivables financing costs
  • Improving processing costs by up to 60 percent
  • Virtually eliminating chargeback costs

The below chart provides a summary of single-use account value-added benefits.

Buyer Benefits

  • Reduce processing costs through digital efficiencies
  • Better control fraud and out-of-policy usage while also minimizing errors
  • Increase data visibility for improved cash forecasting and better risk management
  • Improve working capital by holding onto cash longer (extend days payable outstanding)
  • Create revenue share potential based on the overall payments transaction value

Mutual Benefits

  • Cost savings/efficiencies
  • Working capital gains
  • Improved forecasting/visibility
  • Better buyer/supplier relationships
  • Fraud control/security
  • Easier reconciliation

Supplier Benefits

  • Improve working capital through faster payment receipt (reduce days sales outstanding)
  • Minimize chargeback potential through buyer-approved payments
  • Help reduce receivables and check processing costs with detailed electronic remittance data
  • Lower acceptance cost reduction through higher-value payments and improved transaction data
Mutual Benefits • Cost savings/efficiencies • Working capital gains • Improved forecasting/visibility • Better buyer/supplier relationships • Fraud control/security • Easier reconciliation Supplier Benefits • Improve working capital through faster payment receipt (reduce days sales outstanding) • Minimize chargeback potential through buyer-approved payments • Help reduce receivables and check processing costs with detailed electronic remittance data • Lower acceptance cost reduction through higher-value payments and improved transaction data Buyer Benefits • Reduce processing costs through digital efficiencies • Better control fraud and out-of-policy usage while also minimizing errors • Increase data visibility for improved cash forecasting and better risk management • Improve working capital by holding onto cash longer (extend days payable outstanding) • Create revenue share potential based on the overall payments transaction value

Helping Suppliers Better Understand Virtual Cards

Persuading suppliers to accept a virtual card as a form of payment can present challenges, especially because many middle market companies don’t have the resources to conduct an extensive campaign to engage and enroll their suppliers.

Companies looking to implement a virtual card solution should evaluate a payment provider’s supplier recruitment capabilities when selecting a program. The right provider will have a dedicated campaign manager to design and develop a tailored supplier enablement strategy and lead a successful recruitment campaign. They will become a critical component in overcoming supplier concerns, increasing acceptance of virtual payments and maximizing rebate potential.

A supplier experience team will provide continuous guidance in the form of consulting, supplier support and program analytics to uncover additional opportunities as the program matures. The goal is to optimize the value of a virtual card program, providing additional benefits to all parties involved.

Comprehensive Supplier Campaign Support Model

With our large supplier network, extensive recruitment experience and broad base of acceptance, we help middle market businesses drive maximum adoption and capture more spend. A dedicated campaign manager guides organizations through the entire process and applies proven methodologies to drive maximum supplier adoption.

1. Analyze Suppliers

Conduct spend analysis/segmentation and identify targeted suppliers

2. Client Consultation

Define project team, timeline and goals, develop rollout plan and update policies

3. Supplier Recruitment

Launch campaign and conduct supplier outreach to facilitate acceptance

4. Supplier Support

Provide ongoing payment processing, registration and troubleshooting support

5. Client Activities

Follow our proven methodologies to get the most out of your program

5 4 3 2 1 Client Activities Follow our proven methodologies to get the most out of your program Supplier Support Provide ongoing payment processing, registration and troubleshooting support Supplier Recruitment Launch campaign and conduct supplier outreach to facilitate acceptance Client Consultation Define project team, timeline and goals, develop rollout plan and update policies Analyze Suppliers Conduct spend analysis/segmentation and identify targeted suppliers

Whether you’re a buyer or supplier, we can help accelerate your transition to a more modern and effective method for making or receiving payments. We offer implementation services, supplier recruitment and relationship management support. To learn more about virtual payments, visit our solutions page or contact your Chase representative.

1http://www.rpmgresearch.net/product-view.php?product_id=66
2https://www.mercatoradvisorygroup.com/Reports/Supplier-Enablement-of-Cards-in-B2B-E-Payments-Requires-Persistence_-Data_-and-Technology/

 

SUBSCRIBE TO OUR ECONOMIC NEWSLETTER

Weekly insights on the economic issues that matter most to your business.

Subscribe

How We Can Help

Our Services

Rely on our world-class products and services to help take your business to the next level.

Learn more about Our Services

Our Expertise

Benefit from industry experts who specialize in serving the specific needs of your business.

Learn more about Our Expertise

GET IN TOUCH

Find out how we can help your business.

Contact Us

 

Copyright © 2017 JPMorgan Chase & Co. All rights reserved.