Optimization of procurement processes is a big topic these days. It’s easy to see why: With the onset of virtual cards and other technologies, new procurement solutions have been popping up to meet the current needs of the market, offering secure, immediate, and easy-to-set-up payments.
Especially these days, it’s not uncommon for businesses to become inundated with small but numerous expenses. Sure, this sort of ‘here and there’ spending may be relatively small at an individual level, but they make up for it in volume.
Worst of all though, many of these purchases take place online, need immediate payment or are ‘card only’.
Imagine the following scenarios:
These are examples of some of the trickiest payments to track.
Why? Because they are often incompatible with a company’s existing procurement system
Did you know that 80% of your admin work comes from only 20% of your B2B purchases? This is the reason why. And it’s not just that it’s slow and resource-intensive, either. It also impacts cash flow and the overall working capital optimization within a company.
It comes down to the fact that many businesses are not prepared for sudden changes such as, using a recent example, the huge trend towards remote working.
Companies need to be ready for pretty much any eventuality, which you can do by optimizing your procurement services to make it fit for purpose in the current environment.
By taking the time to optimize procurement for your business, you will not only gain a wider overview of long-tail spending, but also speed up payments and free up your time.
In the past, business to business payment often took place in the form of bank transfers. Actually, that’s still the case in a lot of situations. It’s seen as the gold standard, even.
However, the current B2B spending landscape is now shifting towards the use of digital payment methods. This trend has been taking place over several years now, catching up to what’s going on in the consumer side of things.
This can be seen in the growth of commercial card usage. Commercial cards are essentially credit cards issued by a company that are used to make purchases for the company.
As things stand, commercial cards have continued to penetrate the market, but there is still plenty of room for growth
As this is going on, we can also see a trend towards other digital B2B payment solutions. Examples include contactless mobile payment or virtual cards – but we’ll be going into much more details about this option later on.
That’s a shame, as digital payment methods have great potential in B2B spending, and procurement payments make up a sizable portion of that.
Hang on – why exactly are digital payment methods like cards and mobile seen as the future for B2B payments? That is due to their compatibility and ubiquity with online payment channels.
A lot of modern procurement spending takes place online, so having a payment card or other means of digital payment offers the most convenience (or at least the least friction) to accommodate this.
Procurement refers to the processes associated with acquiring goods and services from external sources. This includes expenses from buying business equipment for a new office, for example. But that’s not all.
The topic of procurement is actually pretty broad, encompassing many different mechanisms and individuals in a business. It can be broadly split into two parts: sourcing and purchasing.
As the name suggests, sourcing revolves around working with suppliers, including negotiations and the writing up of contracts. That’s not really relevant for us right now
On the purchasing side of things, we start to delve into approvals, ordering and payments. This is what we will be focusing on here.
As mentioned, procurement is a process, and so is made up of a few different steps:
At some of the larger companies, for example, they may have whole teams dedicated to payment processing, while smaller companies may only have a finance team that allocates some of their time to it.
Anyway, to avoid being bogged down by the intricacies of the entire process, we will be looking specifically at that last step – payment processing.
We’re able to leverage our experience in payment processes to reveal the savings potential and process efficiencies you could be experiencing for your business when it comes to procurement payments. This, of course, involves optimizing the process.
On the surface, many procurement expenses, particularly those one-off, ad hoc spends, can appear to be insignificant. They usually make up only a small part of your company’s expense budget, after all.
However, this has led many businesses to overlook potential inefficiencies in their procurement process, leaving them needlessly overpaying on their procurement bill. Take a look at this:
Traditional purchase-to-pay process for ad-hoc transactions using a PO process
This shows the traditional process from purchase to payment for ad hoc transactions using a PO process. There are plenty of hidden expenses that begin to appear when adding new suppliers to the mix, something necessary when it comes to many procurement payments of the ad hoc variety.
Compare that now to this card-enabled purchase to payment process for ad hoc transactions, eliminating the PO process.
It should speak for itself: B2B procurement spending is massive. Those often small, one-off payments can really begin to add up over time. Therefore, you need to stay on top of them and do what you can to streamline things.
However, there is also another key area impacted by procurement: cash flow.
Cash flow is pretty self-explanatory. It refers to the flow of cash into and out of a business.
Its link to procurement spending should also be obvious, too: when you are paying for things, that money will then flow out of your business and to the supplier.
Procurement presents a bit of an issue with cash flow. Businesses often have a whole system in place for planning out their cash flow, known as working capital management.
To make sure there is enough money around to make ends meet, they need to know when money is coming in and when it is going out.
As you can imagine, the ad hoc nature of many procurement spends are difficult to plan for, especially when it doesn’t fit within the expense framework that is in place.
This is where a major optimization opportunity lies. If there was a way for you to effectively control this spending, then you would be able to manage your business’ working capital better, and thus ensure its financial health.
Does such a thing exist? We’ll get into that in a bit. But first, here’s a tip to help you out:
The savings potential of procurement is at the moment of payment.
The payment step offers a surprising amount of opportunity for optimization, whether it is through the method of payment, the planning of the cash conversion cycle or what you do with the data you collect. It’s just a case of knowing how you can best go about it.
Pretty diverse, right? It is no wonder that ad hoc procurement payments can fall through the cracks and eat up resources.
While this may not have been a huge problem before, recent changes in the market such as the move towards remote working, the subscription economy and the general shift towards online payments have made certain processes inefficient or obsolete.
All this while increasing transparency and boosting security. There’s nothing worse than waiting on a payment for a critical piece of hardware or software, after all.
However, before you can begin optimizing your procurement payment processes, you need to identify inefficiencies in your current setup. So then, what exactly are some common procurement inefficiencies you should be looking out for?
Putting things broadly, traditional payment methods are coming up short in many ways as the B2B realm becomes digital:
This leads to a lack of clarity, a lack of centralization and little to no overview. You could probably describe the situation as such: current procurement processes are incompatible with modern practices and so must be updated.
You can see this in one of the main inefficiencies in procurement payments, which is how products ordered on an ad hoc basis come from several dozen suppliers each need to be set up and managed in the system.
This messes up cash flow as it ties up money immediately. There’s little opportunity to negotiate when payment will take place or any potential discounts with the supplier.
Then, you need to consider how these transactions generate hundreds of invoices that then need to be approved, processed, and paid.
Altogether, the costs relating to reconciliation, audit and compliance, and reduction of fraud – all standard processes when making B2B payments – add up to around €332 per order.
If you then consider on top of all this how many of these payments are one-off, you can start to get the picture. At scale, this really adds up.
Ad hoc spending refers to highly specific purchases that are usually made to deal with specific needs. They are typically not large-scale orders, instead being made on the spot as an issue or need arises.
By its very nature, procurement revolves around ad hoc expenses and payments that are often being made online. They are also usually unpredictable to an extent, adding to the nightmare.
Let’s look back at that statistic we mentioned earlier:
Here’s a common scenario for you:
That jingle your marketing department wants to use for their new campaign? That needs to be purchased online and payment needs to happen immediately.
Many companies don’t have a system in place that can deal with this efficiently, and so it must go through an antiquated and time-consuming system of approval, coordination, and payment.
Actually, many of these expenses are often made through either the private employees’ credit card, prepaid card or even with the manager’s credit card.
A lack of standardization, with visibility only becoming possible when presented in the expense note or when the card statement arrives (this poses a fraud risk as well).
Looking from another perspective, it will take time from yours and likely numerous other people’s schedules to deal with - time that could be better spent on other tasks.
When you consider that you may be then be approached by the product management team looking to purchase online tickets for a fair that very same day, you can start to see the problem.
But every cloud has a silver lining, and every issue represents an opportunity to optimize and save.
So, those tricky ad hoc and online payments need to be dealt with properly in order to enjoy these potential time and money savings. Is there a solution available out there for this predicament?
Imagine, if you will, that there was a way to maintain control centrally overall spending, while still allowing the flexibility to make immediate one-off payments online.
This was a far-off dream for some time, but as the need for procurement reform came to the forefront, companies began to seek such a solution.
Eventually, they found what they needed in the form of corporate card payments.
More specifically, virtual card payments are seen as the solution to many of the issues plaguing the modern procurement scene: the inability to handle ad hoc purchases made from many different suppliers.
Virtual cards are essentially a jack of all trades with huge growth potential – and they are doing just that. Uptake of virtual card products for use in procurement is rising rapidly as companies adapt and optimize their procurement payments.
Anyway, we should already know the questions that modern procurement poses by this point. Now, we need to look at why virtual card payments are answering those questions and why it is growing at such a phenomenal rate.
First though, we need to ask the important question: What are virtual cards?
Corporate cards in general are on the up in Western Europe.
Between 2021 and 2024, virtual cards are expected to grow by 30% to a total of €41.7 billion in the region alone. This was only accelerated by the events of 2020.
Virtual cards are essentially payment cards that exist only in digital form.
They come with all the necessary information for making a card payment: a card number, an expiration date, a CVC etc., but without the physical card itself.
It is from their virtual-ness – and digital-first design – that they get their value. That second aspect in particular, the digital-first design, provides huge benefits that fit the current needs of the market:
1. New card numbers are quick and easy to generate, meaning you don’t need to wait around for a card to be manufactured and sent to you
2. They are surprisingly flexible and versatile by their very nature
Of course, even with all the flexibility they provide, the control of spending still remains in the hands of a central party in your company.
So not all cards are created equal, with some card providers offering a couple different varieties that are optimized for different payment needs. Let’s cover them now.
There are two main forms of virtual card, which is single-use and multi-use. Each works slightly differently and so offers different strengths.
As the names suggest, single-use virtual cards are designed for one-time use.
Safety is an inherent strength of single-use cards as they are essentially ‘disposable’, in that they become invalid after use.
That means even if the card number were to get into the wrong hands somehow after it had been used, those hands wouldn’t be able to do anything with it. Even before use, they are secure due to ability to lock them down for very specific uses based on the parameters you set.
Another benefit of having a dedicated card number for each individual purchase is that tracking and invoicing become much easier.
At the same time, all transactions are billed centrally and summarized in one single statement, meaning you won’t have to chase up each transaction. You’re getting the best of both worlds, essentially.
As such, one-off payments like the following are well-suited to this first variety of virtual card:
Multi-use virtual cards are designed for recurring payments that are made to the same supplier.
Of course, multi-use cards are also incredibly secure, but convenience and efficiency are probably the main strengths of this variety.
Once again, a single card number can be generated, but instead of becoming invalid after the payment is made, they can continue to be used. However, they only work for recurring payments with the same provider.
The benefit here is that these payments can be automated – you just need to set the number of transactions, the expiration date, the maximum total amount for the transactions, and the currency.
Here are a few examples of where multi-use virtual cards shine:
These lists are far from exhaustive but should give you a good overview of how each type works best. As you would expect, their rise to prominence will come down to the benefits they offer to all involved parties.
Virtual cards bring about several key advantages over the alternatives:
"Unlock your payment potential with virtual cards"
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The benefits of using virtual cards will be felt outside of your company just as much as inside. Every interaction that involves virtual cards payments will leave all parties happy.
As a buyer, maintaining a good relationship with suppliers is incredibly important for getting the best deals. However, what each side desires usually puts them at odds with one another.
Thankfully, virtual cards provide both sides with the best of both worlds.
On the one hand, buyers are able to enjoy more flexible payment timing and terms, while suppliers will enjoy faster payments, which then helps them to speed up their access to capital.
Within your company, virtual cards should prove popular with everyone is some way. Let’s take a look at some examples.
Modern payment workflows need to be adapted for the growing need for procurement.
Unfortunately, traditional supplier management processes were not designed around remote working and the increasing reliance of digital payments.
Thankfully for us, virtual cards are well-adapted for B2B procurement payments. In fact, they can be seen as one of, if not the, best solution for procurement payments.
By incorporating virtual cards into your procurement process, you will enjoy all the benefits we have described so far, while also managing payments your previous system likely overlooked.
Getting into the specifics, you’ll find a surprisingly long list of use cases across a whole host of industries, especially within the realm of procurement.
Having a secure and transparent solution available for ad hoc purchases will enable you to simplify almost every aspect of the process.
There is never an all-round solution to problems. With everything having its own strengths and weaknesses, it’s worth thinking about how you can leverage the strengths to your advantage. This can be done by thinking carefully about the different ways and scenarios where you use them.
You should also review all the different kinds of online expenses, indirect expenses, and new kinds of expenses from online platforms your company is facing now.
For virtual cards, there are a number of different uses cases where their strengths can come into play when improving your payment processes for procurement, such as:
Interested to learn more about the different use cases for virtual cards? Read our dedicated blog post here.
With little hesitation, it is very easy to recommend virtual payment cards for most businesses.
If procurement is something you are involved with, then you very likely know the common pain points associated with the expense process for infrequent, ad hoc payments.
Some expenses don’t quite fit into your traditional payment system. These small, indirect purchases may appear insignificant as they only account for a fraction of total purchasing volume.
However, they disproportionately influence admin costs.
You’re basically leaving money on the table if you don’t have some sort of solution in place that properly captures these payments for you to monitor and manage effectively. You can’t go around chasing every payment, especially as remote working continues to be popular.
Virtual cards fit the bill for uses like these, bringing numerous benefits to the table as we have discussed at length here.
Not only do they offer convenience and security, but they also allow you to empower your departments to make independent purchases while you maintain control of the process.
That means you free up your time and still get to manage things.
Every stakeholder, from the employees to the travel managers and accounting team, and even beyond with external partners like suppliers, benefit in some way from the use of virtual card when making procurement payments.
Whether it’s because things progress faster, money is being saved, more control is being granted or things are just easier to deal with, virtual cards make for a great answer to common B2B payments woes.
The long list of benefits these digital corporate cards offer make them a great choice for businesses. Put simply, virtual cards make a good deal, easier.