Virtual cards are part of a wave of new and improved digital finance tools that businesses have quickly adopted. Entirely virtual, these cards offer the opportunity to solve the complex challenges, tedious payment processes, and user error issues associated with traditional financial structures. While the checks, ACH payments, shared plastic credit cards, and paper trails of yesterday served their role, global companies demand an easier, more secure future. Business as usual—including traditional financial institutions—is adjusting to make the leap.

Until recently, there wasn’t any one solution that made virtual card technology widely accessible, and the tools that were available were designed for the enterprise or for consumers. But now with more SMB-focused solutions entering the market, virtual cards can create dramatic efficiencies across any organization. 

In this article, we'll discuss the pros and cons of using virtual cards for businesses and the ways in which you can use them now to your advantage.

How are virtual cards different from physical cards?

Unlike physical cards, virtual credit cards (VCCs) are unique 16-digit card numbers generated in a digital format. Originally, virtual cards were designed for one-time use, such as for vendor payments, but today businesses employ VCCs to cover budgetary needs across departments with predetermined frequency and flexibility. When allocated, virtual cards can be customized with specific spending limits, recurrences, and expiration dates, which makes them ideal for budgeting and tracking expenses. Lastly, virtual cards offer digital protection, so they're safer to carry and use than physical cards.

Virtual credit card use cases

Empower your workforce

Businesses have good intentions when they put a physical credit card in the hands of an employee, but this practice comes with challenges—for the business and for the employee. It’s time-consuming and problematic to address fraud, theft, overspending, or general misuse—especially because tracking physical credit card payments is retroactive. The damage has already been done, but finance departments often won’t catch the issue until 1-2 months later.

Companies often try to prevent theft, fraud, and misuse by simply limiting which employees they distribute physical credit cards to—has its own set of repercussions. Oftentimes, those cardless employees are left to front personal money for client-related expenses and then wait for reimbursement, putting stress on their personal finances and adding tedious administrative time dealing with expense reports.

Virtual credit cards remedy nearly all of these issues. When an employee is given a VCC, they can still use it for all of their business expenses (just as they would with a physical credit card) but this time the employee can’t lose it, finance can increase or reduce spending limits, and accounting can track expenses in real-time. With VCCs, workplaces are empowering their entire workforce, with even more flexibility and security.

Pay vendors quickly and easily

Businesses can remedy typical vendor payment woes, like the administrative hassle and security-related issues, with virtual credit card payments. First, VCCs allow businesses to pay vendors instantly; no more waiting for checks or ACH payments. Second, virtual payments won’t get lost in transit like a physical payment might. The benefits of overcoming these common challenges are twofold: you save a ton of time otherwise spent replacing your card or disputing charges, and you reduce arduous administrative work, so employees can do what they do best.

Manage expenses by client or project

Virtual credit cards can be a flexible way not only to reconcile expenses back to a client or project but also a way to maintain visibility into current spending. This functionality mitigates the risk of overspending budget projections and employee or vendor misuse. Virtual credit cards are traced back to the same bank account, so client records stay in one digitally managed location, adding efficiency. You can attach reference codes to each virtual card and transaction to automate reconciliation. Additionally, card limits help ensure you never exceed a client's budget.

Capture more data

Virtual cards offer real-time data tracking through separate virtual card numbers tied to the account. This data can then be used to track spending as it occurs and actively manage budgets—rather than running through long monthly statements retroactively. This information can be used to make more informed decisions about where to allocate resources in the future.

Streamline bookkeeping

Virtual cards can also help you streamline bookkeeping by making it easier to reconcile your accounts. Since virtual cards create unique transaction IDs for each purchase, it's easy to compare your account statement against your online transaction history. This can help you catch any discrepancies or mistakes, which will save you time and money in the long run.

With Extend you can also create cards that automatically refill each month for things like recurring subscription payments, so you don't have to create a new virtual card every single month for that bill.

Pros and cons of using virtual business credit cards

Pros

Virtual business credit cards offer a number of benefits for businesses, including:

• Increased security – Virtual cards are more secure than physical cards because you can cancel or change them instantly if they are compromised.
• Easy tracking and organization – With virtual cards, businesses can track and control spending with real-time data. 
• Increased efficiency – Using virtual cards simplifies the accounts payable process and solves many common challenges related to expense management and payments.
• Improved cash flow – A virtual card can reduce the time, resources, and costs associated with check-cutting, reconciliation, and supplier onboarding. A virtual card lowers processing costs for buyers and suppliers by automating tasks such as reconciling card charge details.

Ultimately, virtual credit cards offer a number of benefits that can be helpful for businesses of all sizes.

Cons

While virtual credit cards offer a number of benefits, there are also a few potential downsides to consider. Here are a few of the most common cons to think about:

• Increased costs – Virtual cards sometimes come with additional fees, such as activation fees or monthly maintenance fees.

• Susceptible to hacking - If a device is hacked, someone could gain access to the virtual card information and make unauthorized purchases. Though notably, virtual cards are only valid for a specified amount. The transaction is automatically rejected if it’s used for a greater amount, safeguarding your credit line.
• ‍Limited use - Some businesses may not accept virtual credit cards. This is often the case with smaller businesses, merchants who don’t accept card payments, or businesses whose legacy systems haven’t caught up to technology integrations.

Despite these potential drawbacks, the benefits of virtual business credit cards often outweigh the cons. Virtual cards are convenient and secure overall.

How to get started with virtual credit cards

If you're looking to use virtual credit cards, getting started will depend on your chosen platform. Some virtual credit card solutions require switching banks, opening new accounts, or signing new contracts, which can be daunting. Virtual card platforms like Extend work with banks to offer a solution compatible with your existing card. This model makes getting started simple.

Virtual cards are becoming an increasingly popular payment method for good reason. They’re secure and efficient, and you can customize them to fit the needs of your business. If you’re looking for a more efficient and secure way to make payments, virtual cards may be the right solution for you. Contact Extend today to learn more about how we can help you get started with virtual cards.

FAQs

Can you use a virtual credit card in person?

Virtual credit cards can be used for online, in-app, and phone purchases. With a tokenized virtual card in your digital wallet, you can also make contactless payments to any brick-and-mortar merchant that accepts Apple Pay or Google Pay.

Can I get cash from a virtual credit card?

You can’t get a cash advance from a virtual credit card. Since a cash advance requires you to have a physical card present at the bank or ATM, you cannot obtain one using the virtual version of your credit card.

What is the difference between virtual cards and digital wallets?

Digital wallets are electronic versions of your physical wallet—they store your credit cards and other payment forms and allow you to pay for things without your physical wallet in hand. Digital wallets include mobile wallets, like those on your mobile device, as well as other forms of digital payment, such as those from providers like Zelle® and PayPal. 

You can store virtual credit cards within a digital wallet, but you don’t have to in order to make payments online or in-app. 

Both virtual cards and digital wallets are secure payment methods that tokenize your card numbers to protect your real information. However, you don't have as much control over the card with a digital or mobile wallet as you would with a virtual credit card. For example, you can't send someone your mobile wallet to pay for something, but you can send them a virtual card.