Demystifying straight-through payments and how they can help your organization, especially when accounts payable team members are working from home
Read more4 Reasons Organizations Resist Virtual Cards
There are at least four reasons why some organizations have not yet adopted Virtual Cards or, more broadly, an electronic accounts payable (EAP) solution. Do any of the following pertain to your organization? Revisit the reasons for their decision and ensure they had the right information first. You might be able to reopen the case.
1. Few Regularly Used Suppliers
A common target for Virtual Card usage is regularly used suppliers. This list might be short for some organizations, thereby a Virtual Card program may not be the best fit. For example, one end-user told me they do not use Virtual Cards because, as a research laboratory, their suppliers were always changing due to their always evolving purchasing needs. They found that traditional Purchasing Cards worked best. This is a valid reason. However, for other organizations, there are few regularly used suppliers because no one has pursued strategic sourcing. Besides not gaining the benefits of a Virtual Card program, they are potentially losing out on cost reductions that can be obtained through negotiated pricing.
2. Too Hard to Convert Suppliers
Your organization might be under the impression—without concrete evidence to support it—that your suppliers will not accept Virtual Cards. Before casting Virtual Cards and other ePayables aside, work with your current Commercial Card provider (or even a provider who is trying to gain your business) to do a “supplier match.” You might be surprised at how many of your suppliers are already accepting Virtual Card payments from other customers. In addition, many providers offer supplier on-boarding services, with or without an extra fee, to make the process easier for you. It pays to explore provider options.
3. The ERP System Cannot Support It
In response to this excuse, I have to ask, “Are you sure?” ERP systems are more robust today than ever before and include many different payment choices (or you might be able to add one). Further, you might be able to apply a default payment type by supplier. To accommodate Virtual Cards, the “payment release” step of the accounts payable process may simply generate another output. Instead of just checks and an ACH file, there would be a Virtual Card file to upload to the provider. Talk with your ERP system vendor to learn more about the capabilities.
4. Organization Resistance to Change
This is the catch-all reason that, unfortunately, often prevails above logic. If decision makers reject a sound, factual business case for Virtual Cards, then there is not a lot you can do until there is a leadership change or shift in organization priorities. Wait for the right time to bring this up again and ensure your business case includes the fraud protection aspects of Virtual Cards/EAP.
Separate the facts from the myths to ensure you are making a sound decision about Virtual Cards and other EAP solutions.
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About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…
Why one bank opted out of Virtual Cards.
Like end-users, providers have faced the question of which type of electronic accounts payable (EAP) solution to adopt and make part of their commercial payment offerings. Some providers focus on Virtual Cards, also known as supplier-initiated payments (SIP), which come in various forms. Others have gone the route of buyer-initiated payments (BIP). There are also providers who make both types available to clients. One bank who is forging a clear EAP path with a particular type shares the rationale for their decision.
Union Bank’s View
Fancy checks. This is one way Diane M. Kush, Sr. Product Manager, MUFG Union Bank N.A. (“Union Bank”), describes supplier-initiated payments. She shares supplier challenges with SIP:
- Payments made to suppliers one email at a time
- Email requests coming from multiple buyers/customers
- Supplier labor costs associated with handling these emails
- Missed emails = missed payments, resulting in reconciliation issues for both buyer and supplier
After considering the options, Union Bank decided to offer their commercial clients a BIP solution. Supplier benefits include lower card acceptance costs and lower labor costs. Payments are automatically and electronically deposited into the supplier’s account. Consider Diane’s example of a buying organization who approves three invoices from one supplier, totaling $50,000:
- With SIP, the supplier proceeds in trying to process separate transactions, one for each invoice, and gets declined. Then the supplier must contact the buyer to determine what’s going on.
- With BIP, the buyer’s approved $50,000 is directly deposited for the supplier. In this way, BIP shares attributes with ACH payments. Plus, the supplier has access to a portal that provides invoice payment detail, if desired.
To learn more about Union Bank’s solution, contact William Kniering at William.Kniering@UnionBank.com.
Related Blog Posts
- End-user perspective (May 4, 2015): Electronic payables insight to save you time.
- Provider perspective (November 3, 2014): Recast your ballot: Does BIP or SIP win your vote?
For Union Bank, the key to their electronic accounts payable future is buyer-initiated payments. For others, it might be a different option.
What Do Suppliers Think?
Are suppliers more receptive to SIP or BIP? I have heard mixed opinions on this. One provider who offers both relayed to me that suppliers lean toward SIP for different reasons; for example, the design of their receivables process, which they might be unwilling or unable to change. Others have told me that, with appropriate education, suppliers see the value of BIP. I agree with the power of education, no matter what payment option you are trying to sell to suppliers, and buyers must ensure suppliers receive benefits, too.
Final Thoughts
There are many successful EAP programs out there, both BIP and SIP. As with any business decision, one size does not fit all. Each party needs to evaluate what will work best for their goals and business. Because my mission centers on education, I would be happy to publish additional views on EAP options, so feel free to contact me. Blog comments below are welcome as well.
About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…