Breaking down the barriers to B2B payments for suppliers and buyers

Virtual cards are a fast-growing and popular payment method with businesses for a variety of reasons. They offer a combination of new revenues from rebates to cost savings through automation to security and working capital management. RPMG’s 2022 Virtual Card Report forecasts that virtual card payments will grow at a CAGR of 23% through 2024.

However, despite tremendous growth, overall acceptance of virtual cards by suppliers remains stubbornly low. Supplier objections usually include fees associated with virtual card acceptance, lack of payment acceleration and manual processing of virtual cards received via email.

Supplier objections to virtual card adoption

Typically, supplier payment terms are a main inhibitor. However, even if a buyer decides to pay their suppliers early, they are unable to because of operational shortcomings. Buyers often offer to pay suppliers faster to accept cards, and these promises are not consistently fulfilled. Unfulfilled promises from buyers to pay early, and challenges with approvals, are only the tip of the iceberg when it comes to the disconnect in value propositions for virtual cards. Suppliers are constantly chasing customers for their invoice status, inevitably creating relationship friction. When a supplier is offered and consistently receives accelerated payments, they will see accelerated cash flow along with the elimination of collection costs which lessens the need for trade credit insurance.

Another obstacle suppliers face is the manual nature of processing virtual cards. Typically, suppliers receive emails where they are directed to a portal to login, receive the card number, then manually process the payment. Mercator Advisory Group estimates that 90% of virtual card transactions are processed this way in North America. To make matters more complicated, supplier remittance data rarely integrates neatly with AR technology or supplier ERP systems. Once again, this creates more work for the supplier and AR teams.

Although suppliers bear the burden of these challenges, virtual cards are exceedingly popular with buyers. Virtual cards enhance a buyer’s ability to grow revenue, manage working capital by leveraging the benefits of available credit lines to commercial card accounts, automate processes and enhance security controls.

Leveraging these buyer benefits enables efficiency and convenience across business operations through treasury, accounts payables, sourcing, procurement, and supply chain management. Virtual cards are often a rebate-generating alternative to traditional fee-based payments. Nevertheless, the value of virtual card products is generally limited by the level of supplier acceptance. Traditionally, the benefits — such as rebates, working capital and process optimization for buyers — far exceed those available to suppliers.

Breaking the barrier

Buyers who take an active role in the supplier enrollment process and provide incentives to suppliers that encourage virtual card acceptance have seen some success in driving vendor adoption. Strong buyer participation solidifies expectations, drives deadlines and creates incentives and consequences.

That said, rebalancing benefits between suppliers and buyers is crucial to increasing acceptance for suppliers and realizing the virtual card’s full potential. Solutions like Track Instant Pay, Mastercard’s next generation virtual card solution, have entered the market at a critical time, addressing supplier challenges directly by leveraging some of the latest advances in information technology. Track Instant Pay uses sophisticated machine learning to analyze invoices and identify the very few likely to be rejected, enabling the rest to be authorized for payment on the same day they’re received. Using straight-through processing, digital payments are sent directly and securely to a supplier’s bank account through a Mastercard virtual card with no manual intervention required.

How is this possible? Track Instant Pay harnesses the power of cloud computing, AI and APIs to create an immediate payment experience for suppliers. With cloud computing data, it is seamlessly received, processed and stored. Machine learning is then used to analyze that data, and API’s automatically execute immediate payment authorizations with straight-through processing. Utilizing these modern technologies enables Track Instant Pay to lower costs through automation, enhance safety and security with layers of controls and quantify supplier performance risk.

Harnessing these modern technologies allows the outcomes between buyers and suppliers to be rebalanced, where both receive meaningful value. Suppliers can drastically accelerate cash flow, lower costs through automation, enhance safety and eliminate collection costs. For smaller suppliers, accessing early payment is one of the most efficient, cost-effective ways — and potentially the only way — of increasing capital. With virtual card solutions there are no loan applications, pledging of assets or increasing debt; it is simply a payment. In addition, the supplier is entitled to enhanced remittance details. With more suppliers saying “yes” to accepting virtual cards, buyers can realize the benefits of using virtual cards across a more meaningful portion of their supplier payments.

Businesses are striving to improve productivity and grow revenue streams. As they expand, seamless B2B payments, along with the ability to leverage emerging technologies to increase efficiency and enhance security, are more important than ever.