Why are more buyers and suppliers turning to commercial (and virtual) cards for B2B payments?

The world of business payments has been famously slow-moving. But things are currently changing fast. Driving this rapid evolution is a technology you might not expect: the business credit card.

Also known as commercial card, this payment method has been around for years, with physical cards issued by employers for employees to use when purchasing on behalf of their company. But its full potential has been hampered by security concerns, incompatibility with existing financial systems and supplier acceptance.

So why have analysts forecast that the commercial card market will double in size to $363.1 billion by 2032? The answer lies in newer, complementary technologies that significantly enhance the utility, efficiency and benefits of the humble commercial card.

Less plastic, more flexibility

First of all, the commercial card has been digitised. Enter, the virtual card.

A virtual card is a card number that is generated for a specific purpose. It could be for a one-time transaction, an allocation to a specific employee or department within a company, or to assign a limited budget or time period for its use.

The travel industry was an early adopter of virtual cards for B2B payments, which proved critical to minimising transaction risk for buyers during the pandemic. Why? Because virtual cards are created for specific purposes, which means they can be more easily traced, making it significantly more straightforward to manage the staggering volume of chargeback claims that hit the industry at the time.

As a digital payment method, virtual commercial cards can be rapidly and inexpensively created to secure new transactions. Mastercard has recently made steps to make virtual cards even easier to manage, extending the availability of automatic reconciliation with its new mobile virtual card app, which enables virtual cards to be added to digital wallets. The move will further simplify travel and business expenses for banks' commercial clients.

Although virtual cards can be managed manually, Mastercard estimates that the ability to deliver more automation when using virtual cards means businesses can save time and money: potentially between $0.50 and $14 per transaction.

And the good news is that all these benefits are fully transferable across sectors. Juniper Research has recognised this, predicting that the number of virtual card transactions will exceed 121 billion globally by 2027; increasing from 28 billion in 2022, representing growth of 340%.

Straight-through processing for straightforward payments

We know more corporates are increasingly paying suppliers with commercial (and virtual) cards to maximise working capital. It’s a no-brainer: the payment method enables them to extend their days payable outstanding (DPO), while minimising the supplier’s days sales outstanding (DSO) and removing the cost of cash collection.

But this has always been a benefit of commercial cards. So what’s unlocking the new growth?

One reason is the arrival of straight-through processing, or STP, which flips the entire established B2B payment process on its head. STP is buyer-initiated rather than supplier-initiated; it can tokenise card details for regular supplier payments or work in partnership with virtual card providers, which overcomes one of the main challenges with virtual card acceptance: managing vast volumes of cards.

Why businesses worldwide are getting bought into commercial cards

Using STP to support commercial cards, buyers can fully automate payments and reporting, gain greater control over cash flow, and improve supplier relationships through prompt payments. This not only makes paying for goods and services more efficient and sustainable in the long-term, but it helps support compliance with initiatives like the Prompt Payment Code or the Late Payment Directive.

New STP technology can also enable deployment of a unique refund API capability. This allows buyers to generate a refund request from their Enterprise Resource Planning (ERP) system, once approved by the supplier. Doing so ends the widespread need for suppliers to retain virtual cards for long periods of time to manually process a refund. Instead, the refund API can look up the original virtual card to process the refund, either in part or in full, to improve reconciliation without supplier interaction.

In short, STP is enabling buyers to speed up transactions by automating manual processes, providing a more efficient and secure way to handle accounts payable (AP) processes.

Less time collecting money, more time growing client relationships

As we’ve explored, STP and commercial cards enable a more equitable balance between buyers and suppliers, removing the need for additional processes on the supplier’s side, which has long been a barrier to them accepting card payments.

Suppliers can collect money from sales faster by accepting commercial card payments, meaning they can focus on developing and improving customer relationships instead of spending time and money chasing payments.

STP is also removing cumbersome manual processes for suppliers. This enables payments to be processed by STP platforms, with buyers providing a simple instruction to execute a payment when an invoice is approved. At the end of the transaction, suppliers receive a buyer-branded remittance or payment notification to their ERP and accounts receivable (AR) module, notifying them that the payment is complete.

In a high interest economy, the guarantee of funds that a commercial card provides can be invaluable for businesses today. It may have taken time, but buyers and suppliers of all sizes are now embracing the digital payment revolution, recognising that it doesn’t require the overwhelming, rip-and-replace approach that they feared.

Instead, the B2B world is waking up to opportunities for enhanced data and analytics, enabled by digital B2B payments. This is already delivering clear insights for businesses to use for viewing and manage cashflow, identifying cost-saving opportunities, and optimising procurement spend strategies.

Commercial cards, virtual cards and straight-through processing are not only giving buyers and suppliers greater control over their finances, but enabling them to form the stronger long-term relationships that are critical to stability and success in the future.