As a startup, you and your team likely use well over 100 vendors to run everything from dev ops to online advertising. You’re supposed to monitor your spend, but when your vendor expenses are scattered across credit cards, electronic transfers, and paper invoices, it’s impossible to know what your burn rate is at any given time. What’s worse, there’s no easy, centralized way to approve vendors ahead of time and ensure that funds are being used properly. This creates serious blind spots and security risks for your startup’s finances.
Virtual cards can solve those issues by giving you the ability to approve vendors ahead of time, pay them securely, and monitor spend in real time. These are just a few reasons why more and more teams are switching their vendor payments to virtual cards. Read on to learn why it might be time for you to make the upgrade too.
What are virtual cards?
Just so we're all on the same page, here’s how virtual cards work. Virtual cards are unique 16-digit auto-generated card numbers tied to a core card account. They work just like physical credit cards for online payments, but unlike physical cards, they can be generated with just a click of a button as needs arise. You can also set limits on the cards to make it harder for them to be misused.
Although virtual cards have been around for years, it’s only recently that they’ve become more prevalent for B2B payments. Most corporate card providers now allow you to create unlimited virtual cards for your team and manage them through their spend management software. As a result, adoption has skyrocketed: according to Juniper Research, business virtual card usage will exceed $1 trillion in annual transaction volume by the end of 2022.
How virtual cards give your startup a competitive advantage
Virtual cards are ideal for startups and growth-stage companies because of the flexibility they provide, in addition to their security features. Here’s why founders and finance leads prefer virtual cards:
1. Eliminate payment fraud
By virtue of their design, virtual cards are much safer than traditional payment methods. Unlike ACH payments, wire transfers, and checks, they don't provide direct access to funds in your bank. Unlike physical cards, they can’t be stolen.
This built-in security is a huge advantage when you consider that 74% of organizations were targets of payment fraud in 2020, according to the 2021 AFP Payments Fraud and Control Survey. Some card providers allow you to set even more advanced restrictions:
- Limit the number of times that a card can be used. That way, hackers can’t use the card even if they somehow get a hold of the card number.
- Set a cap on the amount that cardholders can spend, preventing overages.
- Restrict cards to specific spend categories, preventing out-of-policy spend.
- Auto-lock cards on a specific date, preventing unapproved charges like trial conversions and subscription renewals.
If fraud does occur, most card providers let you lock the card immediately and get funds instantly credited back to your account.
2. Goodbye, surprise vendors and “shadow IT”
The beauty of virtual cards is that they can be issued in seconds. Instead of handing out a limited number of physical cards for general use, you can issue as many virtual cards as you need and only after their use cases have been approved. This gives you much greater visibility into which vendors are being used in your organization and how.
Go one step further and set a usage frequency for each card that matches how the vendor charges, e.g. one-time, monthly, annually, etc. You can also set a transaction limit that’s in line with the amount of budget that’s been approved. With these controls in place, you can rest easy knowing that cards will be used properly.
When paired with the right software, virtual cards can even help you uncover significant savings for your business. Some spend management tools can take the card controls you’ve defined to forecast how vendor expenses will trend over time. They can also detect redundant vendors (e.g. multiple project management tools), duplicate subscriptions (e.g. multiple paid subscriptions for SurveyMonkey), increasing vendor costs, and more.
3. More cash savings for your bottom line
Personal credit card programs have trained us to expect rewards and cashback for every dollar we spend. Many corporate card providers offer similar incentives, which means you can accrue substantial savings when you pay vendors by card rather than ACH transfers or checks. Say you spend an average of $200k on SaaS tools per year and get 1.5% cashback with your corporate card – that’ll generate $3k that you can reinvest directly into your business annually.
With most B2B vendors offering generous cardable transaction limits these days, there are very few vendor charges that you can’t put on your corporate card. At Ramp, our internal data on corporate card usage shows most vendors accept cards for transactions up to $50k (translating to $9k in annual cashback). Some vendors like Microsoft even take cards for up to $250k (translating to a whopping $45k in annual cashback). With these kinds of savings, why wouldn’t you switch to corporate cards and start earning cashback?
On top of these benefits, there’s no need to worry about surprise overdraft or transaction fees that sometimes pop up with ACH and wire payments. You can also take advantage of the 30-to-60 day float that corporate cards provide to build up your cash flow and pay back the balance.
How to choose the right virtual card for your business
Corporate card providers may look similar on the surface, but here’s the thing to remember: you’ll only unlock the full suite of security benefits and vendor insights if you’re using the right spend management tool to configure and monitor your virtual cards. Look for the following when evaluating card providers:
- Savings and incentives: Some providers offer a complex mix of rewards and cash savings. For most businesses, a simple, flat cashback program offering at least 1.5% unlimited cashback will maximize savings.
- Security controls: Look for granular card controls, such as category restrictions, daily transaction limits, and auto-locking capabilities. If your team lives in Slack, make sure the card comes with a Slack integration for streamlined card requests and approvals.
- Spend management insights: Ask about the spend management software that comes with the card. The software should offer real-time reporting and automated insights on how you can optimize your spend.
- Easy expense management: Make it easy for employees to submit receipts and memos, e.g. via text or email. Get a spend management tool that auto-enforces your expense policies for you.
- Efficient accounting: You’ll want spend management software that integrates easily with your accounting software to speed up reconciliation time at the end of the month.
Put simply, if you’re still using ACH transfers and checks for your vendor payments, you’re missing out on critical security, savings, and insights that can improve your bottom line. Take the next step—learn how you can start using virtual cards to optimize your startup’s spend.
About the author
Geoff Charles is the Head of Product at Ramp. He has been building financial services for over 10 years, ranging from management consulting at Oliver Wyman to product development at LendUp, Nomis Solutions, and Mission Lane.
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