How do virtual credit cards work?

After they’re approved for a line of credit on a virtual business card program, companies can issue virtual cards and start sending payments easily via a five-step process:

1. The company sends an approved payment file to its virtual card provider, typically a financial institution.
2. The card provider generates a unique 16-digit virtual card number for the payment amount.
3. The card provider then delivers the card to the payee on behalf of the company, often through a secure email message. The payee then processes the transaction through its bank.
4. Once authorized, the payee’s bank and the company’s bank settle the transaction.
5. The payment posts on the company’s account, and a reconciliation file is automatically sent to the company’s Enterprise Resource Planning system (ERP) to match bills.

Implementing a virtual card program provides companies with other important benefits, including:

• Controls and expense management: Virtual cards offer detailed reporting to help companies track and analyze their spending patterns in real time. Companies can set spending limits on each virtual card number to better enforce compliance with policies and remain within budget.
• Digitization, automation and working capital: Virtual card transactions automatically feed into accounting systems, which can help streamline bookkeeping and reconciliation. Virtual cards can easily integrate with ERPs, providing valuable information for accounting, travel and expense monitoring and procurement.
• Security: Single-use card numbers limit the exposure of sensitive data compared to card numbers used repeatedly.

Safety and security of virtual card programs

In addition to more effective controls, virtual cards can offer enhanced security features, including:

• Single-use authorization: Virtual cards can be authorized for a single transaction up to a preset limit, reducing the exposure of sensitive financial data to breaches, fraud or misuse. 
• Instant issuance and termination: Virtual cards are generated and issued instantly, and they don’t need to be physically destroyed if the number is compromised. Cards can easily be deactivated through the issuing system.
• No physical card: Without a physical card in employees’ wallets and purses, bad actors have fewer touchpoints to compromise sensitive card data.
• Detailed reporting: With real-time payments information, it’s easier to quickly identify and address anomalies or compliance issues.

How to choose a virtual credit card provider

It’s important that businesses find a card provider that offers the features and capabilities to best serve their organizations. There are many considerations when choosing a program provider, such as:

• Credit card networks: Depending on the provider and card program, cards may operate through a specific network such as Visa or Mastercard. Businesses should confirm that existing vendors will accept payments through the card’s particular network.
• Software integrations: Different card providers may offer different integrations with companies’ existing software for accounting and treasury. Ensuring a seamless connection with software can unlock efficiencies in operations.
• Card controls: Program managers should understand available controls from different providers. It’s important your company finds a provider that offers spend controls that meet your company’s policies and sets employee restrictions on types of spending, spending amount and frequency of use.