With the skyrocketing growth of commercial virtual card acceptance in the business-to-business (B2B) space many organizations are struggling to find an Issuing Bank who can deliver a product and service that will provide a successful ROI.
Typically, most organizations think that their existing treasury bank can implement a virtual card solution for their supply chain. However, these banks cannot deliver on offering a long-term strategy for the entire supply chain, which includes “the long tail” (or, the small volume suppliers). Most banks must monitor their efficiency ratios, which means if your organization does not have a 10-digit annual supply spend to support the bank’s revenue requirements, the bank will not assign a dedicated team or person to manage your virtual card program or ensure maximum accounts payable process efficiencies and supplier participation.
Before any organization begins to implement a virtual card program with their Issuing Bank, they should ask the Issuing Bank tough and specific questions about their commercial virtual card programs before selecting a preferred partner. Organizations of all kinds should be clear on what the Issuing Banks deliverables would be for any commercial virtual card program.
Here are ten questions you need to cover with an Issuing Bank:
1. Based on Issuing Bank’s supplier analysis they conducted (if they indeed did conduct one), what do they forecast to be supplier enrollment/throughput volume by the end of year 1, year 2, and year 3? It’s important to understand the landscape of opportunity. Buyer beware if the Issuing Bank does not offer any supplier analysis of your vendor master that would provide a forecast for your organization. You’ll be left with empty promises and an unsuccessful virtual card program.
2. Does the Issuing bank have a real commercial virtual card solution or is it a retrofitted Purchasing Card (P-Card) program? Some Issuing Banks may be using a legacy Purchasing Card program to make it look like virtual card program, but they are not the same, and your organization and your suppliers will be left frustrated.
3. Who at the Issuing Bank will be leading supplier outreach, education, on-boarding and the enablement process? Issuing Banks monitor their efficiency ratios, and one of their most significant expenses is employee headcount. To manage this expense, the Issuing Bank must watch the level of headcount expense to revenue very carefully and may not add a supplier sales or support person to your account. Many large Issuing Banks will put all the supplier outreach, onboarding and enablement on your organization to handle yourselves. This is a pervasive strategy with larger Issuing Banks. Buyer beware!
4. What is the Issuing bank’s minimum annual spend enrollment threshold to pay a supplier via commercial virtual card? Many Issuing Banks require a minimum supplier yearly spend even to enroll them in a virtual card program. Most hover around $1-2M/annual spend which will leave your long tail suppliers without the option to enroll and receive virtual card payments. In many cases, this could mean thousands of your suppliers continue to depend on the inefficiencies of paper checks.
5. Will the Issuing Bank handle and process any supplier ‘special processing requirements’? Examples include using a supplier’s portal to post payments; call a specific contact each time a payment is ready for the supplier to process or make payments to the supplier on a specific day of the month which may be earlier than the payer’s payment terms. If the Issuing Bank does not handle special processing requirements, then there will be countless suppliers who will not be able to enroll or receive virtual card payments.
6. Does the Issuing Bank recycle virtual card numbers once the supplier processes the payment? If yes, there is a high risk of fraud and security issues using recycled virtual card numbers.
7. Can the Issuing Bank offer Buyer Initiated Payments (BIP) or straight through processing as well as Supplier Initiated Payments (SIP)? BIP is growing rapidly due to the fact virtual card payments are pushed directly to the supplier’s bank account without any supplier intervention. BIP keeps supplier costs down and is highly efficient. Very few Issuing Banks offer BIP, and this type of virtual card payment is preferred for approximately 10% of all organizations supplier base.
8. Based on the supplier analysis conducted by the Issuing Bank, how will they assist your organization to achieve your terms adjustment initiative? Typically, organizations are in need of guidance on understanding industry standard supplier payment terms and need assistance with strategy, roll-out timing, and supplier messaging. It’s critical to understand this strategy and have a defined roadmap to execution.
9. What is the Issuing Bank’s overall strategy for supplier sales and what reporting is made available weekly/monthly to your organization to monitor supplier participation? It is in your organizations best interest to understand the Issuing Bank’s step-by-step plan and strategy to roll out a virtual card program to your suppliers. Don’t accept a verbal on this or your accounts payable team will find themselves fielding frustrated supplier questions and complaints on a daily basis. Know what you’re getting in to and be sure you receive monthly reporting of supplier enrollments and statues, at a minimum.
10. What is the Issuing Banks currency conversion fee for suppliers transacting outside of the United States? Issuing Banks make much money on cross-border fees, and they set this amount. Make sure your organization understands what these fees are and how this will affect your ROI, as well as, how this will financially impact your international suppliers as well.
Once your organization has researched the Issuing Bank, you may select to partner with for a virtual card program, and have asked all the right questions. Your organization will be on its way to a streamlined and efficient payment cash flow to your suppliers.
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