In Part I of my virtual card blog series I described the nature of a virtual card program. In Part II, I described how corporations can use virtual card programs to help generate revenue. In Part III, I will discuss how virtual cards differ from purchasing cards (PCards) and ghost cards.
Virtual cards are just that – virtual! They are unique card numbers that are tied back to a real card number. The real card number allows the issuer to control overall credit limits and perform billing. Virtual cards are ideal for A/P payments because they can be generated when needed (on a batch or real-time basis) and allow the payer to specify the maximum credit limit (to the penny) as well as when each card number expires. Virtual cards are easily processed by suppliers using their POS terminal or online merchant terminal. Authorization and settlement occur identically to other card types.
Most of the time they are single-use, meaning that once the full value of the virtual card has been charged, the card number is deactivated. Typically the cards have a short time-to-live, often expiring at the end of the month following the one in which they were issued. These features make virtual cards inherently the most secure form of card payment.
PCards are a form of company credit card issued to authorized employees who can then purchase goods and services within certain restrictive limits. Employees can make purchases that bypass a traditional purchasing procedure involving purchasing requisitions and purchase orders. PCard programs have made some inroads into A/P. The idea is to use the PCard to pay for purchases made via the traditional purchase order process. The payer avoids the work and expense associated with a check payment while capturing the rebate associated with PCard transactions. However, as an A/P solution for invoice payments, PCards have proven to be sub-optimal because of challenges with integration, automatic reconciliation, spend reporting, compliance and more.
Without the proper restrictions, PCards provide a means for employees to circumvent established purchasing rules, making it difficult for the company to take advantage of bulk pricing deals with a small number of preferred suppliers. Additionally, purchases made with the PCards may need to be allocated across several departments, which then require a detailed and sometimes difficult reconciliation process to determine which purchases are to be charged to each department. This reconciliation is especially difficult if Level III data is not passed (Level III data is granular and detailed information about each purchase).
Ghost cards are similar to virtual cards in that they do not involve plastic. They are simply account numbers linked to a high-limit charge account which an organization uses to conduct a high number of transactions. Sometimes these card numbers are provided to employees or departments so that purchases can be easily charged back to that department. Other times, the end-user organization will issue the number to a specific supplier or to all suppliers of a specific supplier type (e.g. office suppliers) for ongoing use.
A ghost card resolves some of the issues associated with traditional purchasing cards. When spend analysis identifies that a large number of transactions are made with a particular vendor, a ghost card account number may be created to reduce invoices and improve purchasing efficiency. This ghost card may only be used for purchases from the specific vendor. This is often referred to as a vertical approach.
Alternately, A/P departments may find that they are getting bogged down processing one category of expense such as travel, event planning, or office supplies. In these situations, a ghost card account number may be created with a restriction limiting its use to pre-determined Merchant Code Categories. This is somewhat similar to a traditional PCard but there is not a physical card and the account may be accessed by many employees. This is often referred to as a horizontal approach.
Misuse of ghost cards can be further limited by the same controls available for PCards: charge limits, transaction limits, monthly limits, MCC limits and frequency of use limits. Additional flags may also be generated by ERP systems, such as when a transaction exceeds a predefined threshold.
Leaving the Check Behind
What is the optimal type of card program for an A/P department? Understanding how various card programs can best serve a corporation is the key to ensuring the best payment methods are utilized. The latest advances in payables technology now enable organizations to easily migrate traditional A/P payments, even those to strategic suppliers, to virtual card. The use of single use virtual cards as a payment solution for B2B invoice payments has a proven track record of success. Building on that success, the virtual card programs help companies leave the check behind, streamline their processes, continue to move toward hands-off straight-thru-processing, reduce costs, and benefit from new channels of revenue generation.
What types of card program are you using in your A/P department? If you are using virtual card programs, are you generating revenue? I’d like to hear from you.