November 28, 2024
The Hidden Costs of Not Using Virtual Cards: A CFO’s Perspective
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The role of the CFO is evolving as the digital revolution unfolds. These financial leaders are increasingly tasked with identifying hidden inefficiencies and finding ways to improve resilience…and efforts are not going unrewarded.
Digital leaders are creating much more shareholder value than laggards. Between 2018 and 2022, these people achieved average annual total shareholder returns of 8.1% vs. 4.9% for laggards.
A prime area of opportunity is in payment management. This is where traditional methods (like checks and physical credit cards) are still the most popular choice.
Yet, sticking with these conventional payment methods means CFOs may be overlooking a powerful technology that reduces costs, streamlines operations, and provides better financial control: virtual cards.
This digitally generated payment option can be tied to certain transactions and suppliers, offering distinct advantages over traditional methods. It is especially useful for managing fraud, improving cash flow, and enhancing vendor relationships.
In this article, we briefly examine the hidden costs associated with not using virtual cards and the positive impact this payment method can have on your bottom line.
Preventing Fraud
The more traditional the payment method, the higher the exposure to fraud. Although it may seem like the digital world opens a business up to more risks, the opposite is true.
Physical credit cards and checks are often lost, stolen, or duplicated. When they fall into the wrong hands, it can lead to significant financial losses. Even ACH transfers (while more secure than paper checks) still expose companies to hacking, where fraudsters can obtain sensitive banking details.
Virtual cards reduce the risk of fraud by providing a single-use or limited-use card number tied to a specific vendor or transaction. This means there is much less of an opportunity to abuse this form of payment.
3 Ways Virtual Cards Prevent Fraud
Virtual cards are useful for preventing fraud because:
#1) Limited Use
Virtual cards reduce the chance of fraud by limiting each virtual card number to a specific vendor or amount, giving CFOs greater control over where and how funds are spent.
#2) Reduced Exposure
Each virtual card is tied to a particular transaction, so there’s no risk of an open line of credit being misused for any other purchases. If fraud happens, it’s typically isolated to a single card number, which minimizes potential losses.
#3) Transparency
Virtual cards offer real-time monitoring and reporting tools that enable CFOs to detect and stop suspicious transactions instantly.
Preventing fraud isn’t just about avoiding direct financial losses. Events of fraud often come with issues like:
- Legal fees
- Administrative cleanup
- Reputational damage
All of these problems can be minimized through the adoption of virtual cards.
Reducing Administrative Burden
Every non-strategic task is an hour taken away from a value-added activity. CFOs are acutely aware that traditional payment methods come with significant administrative burden. Without a streamlined payment solution, teams are often overwhelmed with manual tasks and paper documents.
Here’s how virtual cards save administrative time:
- Automated Reconciliation: Virtual cards easily integrate with popular accounting platforms, automatically categorizing transactions and creating a robust digital audit trail. This reduces the need for manual approvals and saves finance teams time.
- Streamlined Approvals: CFOs can set spending rules and automate approvals with virtual cards. This reduces the need for manual intervention and saves finance teams a lot of time.
- Reduced Paperwork: Virtual cards eliminate the need to print, sign, and mail checks. You also no longer need to store physical receipts and paper statements. This helps save office supplies and storage fees while speeding up the payment process.
By reducing the time spent on administration, virtual cards free up teams to focus on strategic tasks, like analyzing financial performance and making better, data-driven decisions.
Elevating Cash Flow Management
Controlled cash flow management is the lifeblood of any business and a key priority for CFOs. Traditional methods hinder cash flow by unnecessarily tying up funds or creating gaps in payment cycles. Virtual cards offer flexibility that enables CFOs to maintain healthier cash flows.
Virtual cards contribute to improved cash flow management in several ways, including
- Dynamic Controls: You can preload exact amounts onto virtual cards, giving CFOs greater control over how cash is disbursed and when. Companies avoid overspending with transaction limits and expiration dates.
- Minimized Delays: Virtual card transactions are instantly logged and integrated with accounting platforms, meaning there’s minimal delay between making payments and updating records. This lets CFOs understand their cash position in real time, helping them make more informed financial decisions.
- Extended Terms: Some card providers offer rebates and cashback rewards, creating a greater financial incentive to pay vendors using this method. It also helps a company retain more funds for extended periods, optimizing cash flow.
Embracing Virtual Cards for Financial Resilience
Adopting virtual cards is a strategic decision for any CFO who wants to unlock cost savings, streamline administrative tasks, and enhance financial controls.
The hidden costs of not using virtual cards include:
- Fraud losses
- Administrative inefficiencies
- Strained vendor relationships
- Cash flow challenges
In addition to providing immediate benefits, virtual cards offer long-term value by positioning the company for future growth. As businesses embrace digital transformation, virtual cards provide a practical step forward. These methods promise greater efficiency, control, and security to payment processes.
For CFOs, the advantages of using virtual cards extend far beyond mere cost savings; they represent an opportunity to enhance the strategic role of the finance function within the organization.
By switching to virtual cards, CFOs demonstrate their commitment to innovation and financial stewardship. Virtual cards help to ensure that the company’s payment practices are as resilient and forward-looking as the competition.
Virtual cards are an indispensable tool for CFOs who aim to build a more agile, efficient, and financially resilient operation. In a world where every advantage counts, not using virtual cards is too costly to ignore.
