Payment transactions straightforward

With “virtual credit cards” corporates can streamline payment processes. For this reason, they are likely to become a fixed part of the payment process very soon.

Let's start with the good news: According to data from the Federal Statistical Office of Germany, order volumes in the German industrial sector are continuing their upwards trend. The bad news, however, is that one of the reasons behind the substantial order cushion is the difficulty securing upstream products, which is making it hard to process orders. Given this background, businesses are becoming increasingly preoccupied not only with cost considerations but also with the stability and reliability of supply chains.

This situation is highlighting just how much businesses and their suppliers depend on one another. Suppliers remaining financially stable is therefore also in the interests of their customers. When it comes to processing payments for deliveries, however, the two parties naturally have different goals. While suppliers want to be paid as quickly as possible because they often need the funds to pre-finance production, businesses are primarily focused on optimising their working capital by keeping the funds within the business for as long as possible. Small and medium-sized enterprises in particular may find it difficult in certain circumstances to bridge the gap between the sale of a product or service and the incoming of payment. Possible consequences: liquidity problems.

One solution here is the use of “virtual credit cards”: Digitally generated credit card numbers, known as Virtual Account Numbers (VAN), are used to make payment transactions. Various parameters can be pre-set, such as the validity period, the number of transactions permitted or a limit for individual transactions. This approach simplifies processes for the business, as relevant transaction data such as the cost centre or the order number can be added at the point of issue and the virtual account numbers can easily be generated by the corporate finance department via a self-service portal.

The reconciliation of supplier invoices via credit card payments is a new potential application for virtual account numbers. The key benefit for suppliers is obvious, as the transaction allows them to receive payment shortly after the invoice has been approved, while on the buyer side the funds remain part of the working capital initially and are only reflected in the balance sheet at the end of the settlement cycle. The benefits for corporate treasurers are that the virtual account numbers can be integrated into the purchasing systems, and it is possible to define at which point in the delivery process the card number is released to the supplier — on order, after delivery or after receipt or quality control. This simplifies processes but still offers the necessary security via the acquirer commissioned by the card company and offers relief for the corporates. In addition, virtual account numbers make it easy to manage transactions with suppliers that are used only once or infrequently, facilitating access for small businesses and increasing flexibility within the supply chain.

Featured article by Yilmaz Aydin, Vice President Transaction Service Sales and Julie McGovern, Vice President Global Trade im Bereich Enterprise Partnerships MasterCard, 16.12.2022, DerTreasurer 04