Alphabet Soup: 3 Key Ways Card-Based Virtual AP Trumps ACH for B2B

Jan 19, 2016 10:00:00 AM


The future of accounts payable, as with consumer payments, is increasingly paperless. For most organizations, going electronic with payments is not a matter of "if," but "when" and "how." And if you're like many AP professionals, the question of "how" might be keeping you up at night: How do you differentiate between the various electronic methods for business-to-business payments, and how do you determine which is best for your organization?  

Let's start with the two most preferred electronic payment platforms: Automated Clearing House (ACH) transactions, and commercial card transactions, which include purchase-cards (P-Cards), virtual cards, one-time use cards and/or single use ghost accounts (SUGA). Here's a quick rundown of three key differences between ACH and card-based virtual payments:

1. Security

ACH transfers require the buyer to have the supplier’s bank account information, sensitive information that suppliers may be hesitant to share, especially with one-time buyers. The buyer also has a risk associated with maintaining and updating the supplier’s bank account information. If current banking account information isn’t maintained, the ACH transfer will not occur or the wrong account may be credited. 

With virtual cards, the supplier uses the buyer’s one-time (single use) card information and the card limit matches the amount of the invoice being paid. The buyer isn't required to store any supplier banking information, and card information can even be protected by a password provided to the supplier. These features automatically reduce security and fraud risks, and eliminate Payment Card Industry (PCI) compliance issues.

Additionally, with ACH transactions, the buyer assumes overhead and risks associated with validating the supplier’s bank account information to comply with the Office of Foreign Assets Control (OFAC) and the USA PATRIOT Act. In the card world, the merchant bank handles all of those requirements for the buyers.

2. Remittance Advice

The remittance advice sent with ACH payments is usually insufficient for automatic processing, instead requiring manual intervention. Some banks cannot display all the available information on the remittance advice, while others charge additional fees to display details. Furthermore, with ACH the remittance data is usually sent separate from payment, complicating the reconciliation process.

In contrast, virtual card information (sixteen digit card number, expiration date and cvc) is sent via email or fax along with complete detailed remittance information and typically does not require any manual processing. Remittance details can also be customized free of charge.

3. Rewards

Cost is another factor when considering ACH vs. commercial card transactions. As opposed to the potential cost of using ACH, you are eligible for rewards or rebates through virtual card use. Typically the higher the spend levels put on the card, the higher the rebate dollars shared back. That’s hard dollar revenue back to your organization’s bottom line—just for using virtual cards for electronic payments. 

Typically seen as a “cost center,” an organization’s AP department is often under pressures to cut costs and add value. With virtual cards, many AP departments have generated enough rebates to fund process improvement capital projects including payment automation, e-invoicing systems or ERP conversion.

The Takeaway

If you're considering a move to automated payments, it’s important to weigh your options—and the pros and cons of each—to ensure that you’re maximizing your organization's Accounts Payable efficiencies. Both ACH and virtual cards are electronic. Both eliminate check use. But we're huge fans of card-based virtual payments because of the benefits they yield for both the buyer and the supplier; benefits that ACH transactions just can't match.

To learn more about how card-based virtual payments can change your AP game by helping you stop wasting money, leverage simplicity, save time, and enhance security, download our primer on virtual payments:


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Portions of this post were adapted from information shared by our partners at AOC Solutions

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