Virtual Card
Reconciliation Hurdles
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In a perfect world, suppliers would process Virtual Card transactions within a day or two of receiving the payment notification, thus simplifying your accounts payable (AP) operations. In reality, some Virtual Card payment processes get stuck midway; that is, the supplier is slow to act or, worse, does not act at all. Sometimes this aspect is why AP may be lukewarm to Virtual Cards.
Given the potential snags, how should your organization treat Virtual Card payments from an accounting perspective? While every organization is unique and may take different approaches, following are suggestions plus tips for easing potential frustrations.
Access more resources pertaining to electronic payables, including Virtual Cards.
To maximize Virtual Card payments, plan ahead for how to prevent and address potential hurdles.
Accounting Entries
Again, every organization might be a little different, but the following types of entries could occur:
Upon receipt of goods (e.g., debit an asset account and credit accounts payable)
Following invoice processing, when AP initiates the related Virtual Card payment through its electronic accounts payable (EAP) provider (e.g., debit accounts payable and credit a designated Virtual or Commercial Card payable account to keep these payments separate from other payment types)
When AP pays the EAP provider (e.g., debit the designated payable account and credit cash)
Reconciliation
Chances are, the statement total from the EAP provider does not exactly match the amount in the associated payable account because you are still waiting for one or more suppliers to process Virtual Card transactions. The key is to streamline your reconciliation process. Pay the EAP provider and then focus on the remaining amount in the payable account.
Which pending Virtual Card transaction(s) does the remaining amount represent?
Which pending transactions are associated with Virtual Cards that have expired while waiting for the supplier to act?
What does your EAP provider offer in terms of reporting to help you easily identify pending transactions (Virtual Card payments you have initiated but suppliers have not acted on), including any expired cards?
If needed, does your ERP system offer any reporting to simplify the reconciliation?
Additional Virtual Card Tips
As you add suppliers to your Virtual Card program, include relevant training.
Work with suppliers to identify who within their organizations will need training.
Train the applicable supplier personnel on the Virtual Card process.
Provide documented instructions for their ongoing reference.
Within your organization:
Determine your Virtual Card expiration date strategy.
Decide if you want to send reminders to suppliers before a Virtual Card expires.
Document procedures for how AP should address Virtual Card payments that suppliers do not process in timely manner. Besides training and communications with suppliers, this might involve extending the card expiration date if possible or reissuing a Virtual Card. While you do not want to wade into the waters of unclaimed property, try to avoid defaulting back to a check payment for the offending supplier, which can derail your Virtual Card program.
Access more resources pertaining to electronic payables/Virtual Cards.