White Paper:

E-Payments: Critical Considerations for Choosing an Electronic Payments Solution Provider

Written by: Mark Brousseau

March 4, 2016

15 min read

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Executive Summary

Companies of all sizes are under increased pressure to reduce costs, improve operational efficiencies and mitigate potential risks. One strategy to achieve these objectives is to migrate from paper checks to electronic payments for disbursements. Unsurprisingly, the majority of companies show increased interest in electronic payments. More businesses are taking the migration to electronic payments a step further by implementing virtual credit card programs. This can turn an organization’s accounts payable department from a cost center to a revenue generator. However, choosing the wrong electronic payments solution provider can result in missed opportunities for rebates, needless transaction fees, disgruntled vendors, higher cost of goods and higher risk from co-mingled funds. This white paper details key considerations for selecting an electronic payments solution provider.

Slow Electronic Payments Adoption

While there has been substantial growth in business-to-business electronic payments adoption in recent years, corporate America still has a long way to go in its efforts to eradicate paper checks.

A survey completed by Remittance Coalition in 2012 revealed 65 percent of businesses make business-to-business payments “mainly” by check. Additionally, Aite Group research found a similar statistic that 70 percent of business-to-business payments are made by check.

Businesses say the biggest barrier to electronic payments adoption is to get customers and vendors on-board with the idea. In the same 2012 Remittance coalition survey, 63 percent of businesses cite the difficulty to convince customers and vendors to use electronic payments as the top barrier to adoption. Forty-four percent say the lack of integration between electronic payments and back-end systems was the biggest barrier, while 33 percent of businesses cite the difficulty applying electronic remittance data to payments and 22 percent of businesses identify the difficulty verifying correct payment receipt.

Similarly, in a 2012 AFP survey more than 30 percent of businesses say convincing customers to pay electronically is a “major barrier” to electronic payments adoption. Aite Group also notes that a concern for businesses is exposing bank account numbers to vendors.

The Turning Tide

Over the past several years, electronic payments adoption has picked up steam. More businesses migrate to electronic payment methods such as Automated Clearing House (ACH) transactions and virtual credit cards in order to reduce disbursement costs, mitigate payments fraud risks, improve reporting and receive potentially lucrative monthly rebates on card transactions.

While virtually every organization recognizes ACH transactions, virtual credit cards may not be as familiar. Virtual cards are unique card numbers that are tied back to a real card number. The real card number allows the issuer to control overall credit limits and perform billing. Virtual

cards are ideal for disbursements because they can be generated when needed (on a batch or real-time basis) and allow the payer to specify the maximum credit limit (to the penny), as well as when each card number expires. Virtual cards are easily processed by vendors using their point-of-sale terminal or online merchant terminal. Authorization and settlement occur identically to other card types.

The Remittance Coalition survey also highlights that 92 percent of businesses have a “high” level of interest (47 percent of respondents) or a “moderate” level of interest (45 percent of respondents) in using more electronic payments. Only 8 percent of respondents say their business has a “low” level of interest in using more electronic payments. In fact, nearly 30 percent of accounts payable professionals surveyed by IOFM in 2014 indicate that deploying an electronic payments solution is among their department’s top improvement priorities. Similarly, Ardent Partners’ report, “Electronic Payments 2012: It Pays to Pay Electronically,” finds that most organizations plan to increase its use of cards for business-to- business transactions.

Mitigation of payments fraud risks is a major driver of increased electronic payment adoption. According the 2011 AFP Payments Fraud and Control Survey, 81 percent of organizations have increased its use of electronic payments for business-to-business transactions to mitigate fraud risks. The same survey found that criminals still target checks more than other types of payments. Similarly, a growing number of vendors will readily accept invoice payments via a virtual credit card in part because that payment method does not require them to share their bank account information.

The Benefits

Electronic payments offer tremendous benefits to vendors and companies alike.

Vendors benefit from:

  • Improved payment delivery times
  • Reduced internal processing costs
  • Streamlined reconciliation processes
  • Less manual keying for AR posting
  • Reduced AR workload
  • Fewer data entry errors
  • Fewer collection issues
  • Better visibility into cash flow

Companies benefit from:

  • Streamlined business processes
  • Reduced printing/postage costs
  • Improved cash visibility
  • No loss in float
  • Fewer manual AP tasks and reduced errors
  • Fewer payment disputes
  • Reduced opportunity for payments fraud
  • Earning virtual card rebate revenue

More importantly, migrating to electronic payments can positively impact a company’s bottom line.

For example, a company with 5,000 checks per month at a cost of $1.50 is spending $90,000 per year just to pay invoices by check. Assuming an average value of $1,100, by migrating 25 percent of its checks to a virtual card program that has an average rebate of $13.75, a company can earn $206,250 yearly from the rebates. This will turn the finance department into a revenue generator. By migrating 50 percent of its checks to ACH at $.50 per payment, a company could save about $30,000 per year.

Additionally, virtual credit cards offer tremendous security and reconciliation advantages. The cards are issued for a specific dollar amount, therefore vendors may not charge more than the limit on the card. For example, Vendor A sends an invoice to its customer for $2,000. A week later, the same vendor sends another invoice for $3,000. When the vendor receives the virtual card number for the first payment, it might be tempted to process it for the $5,000 total.

However, because the virtual credit card was issued for $2,000, the $5,000 transaction would be declined. In addition, because it is single use, the card may not be used for any more purchases once the $2,000 has been charged.

Reconciliation is vastly simplified with virtual credit cards because each payment is now associated with its own unique card number. Some virtual credit cards also allow additional data elements to be passed to the issuer when the virtual credit card number is generated. Those additional card numbers often include data commonly seen in remittance details, such as the invoice number, purchase order number, reference number, etc. The issuer can provide these additional data elements back to the company in their statement, making automated reconciliation a reality. The vendors and their associated merchant acquiring banks no longer need to pass this data back to the issuer.

A Case Study

A large Atlanta-based property management firm with offices from coast-to-coast is an example of a company that has achieved operational and added source of revenue benefits from migrating to electronic payments.

For some time, the firm held out against migrating to electronic payments because it was skeptical that its vendors would not agree to accept electronic payments in general, and virtual credit card transactions, in particular. In fact, the firm’s internally developed business model suggested that it would take more than a year to achieve measurable payback on electronic payments. After thorough research of the market, the firm eventually felt confident to move forward because 1.) The growing momentum for electronic payments and 2.) They had found a solutions provider offering an outsourced payments model that eliminated the operation impact and delivered vendor enrollment services. The electronic payments solution also integrated with the firm’s existing AP automation platform, NexusPayables.

The firm achieved immediate benefits on its decision to migrate to electronic payments.

As part of the research for its vendor enrollment program, the firm’s electronic payments solution provider discovered that 18 percent of the firm’s vendors already accepted card payments from other companies. Sure enough, at the end of the first full month after migrating to electronic payments, the firm received rebates on its spend from 18 percent of its vendors. Miraculously, this achievement in only a single month was 2 ½ times what its internally developed model projected it would receive at the end of the first year after migrating to electronic payments.

More importantly, by using a vendor opt-in enrollment program rather than mandating vendors to accept electronic payments, the firm was able to maintain its strong vendor relationships. In just three months, with continued assistance of the vendor opt-in enrollment program, the firm has increased their pool of vendors that accept virtual credit card payments from 18 percent to 26 percent. The adoption of electronic payments among the firm’s vendors continues to grow, meaning the firm will achieve even higher rebates over time.

Additionally, outsourcing its payments to a third-party reduced the property management firm’s transaction costs by up to two-thirds per transaction. The partner also offered a customer portal that provided more visibility and control for payment approvals. Also, the partner’s bank-neutral approach enabled the firm to use a single entity to generate electronic payments nationwide, rather than having to maintain relationships with dozens of individual banks, each charging significant fees.

Six Critical Electronic Payments Solution Provider Considerations

The benefits described above are not uncommon among companies that have migrated to electronic payments, but achieving these benefits requires companies to choose the right electronic payments partner.

Given that electronic payments are a newer concept to most U.S.-based payables and treasury departments, and companies are unaware of the critical components of an electronic payments program, there are many electronic payment providers taking advantage of the situation.

Below are six critical considerations for choosing an electronic payments provider:

1. 100-150 basis points (1 to 1.5%) are industry standard on virtual card rebates:

More and more companies are earning thousands of dollars a year from virtual credit card rebates. These rebates transform accounts payable from a cost-center to a profit-center. However, some electronic payments solutions providers have companies believing that “basis points don’t matter.” Companies should never receive less than 100 basis points (or 1 percent back) on their virtual credit card spend. It is clear why the electronic payments solution providers that offer as few as 20 basis points do not want companies focused on rebates. These providers also do not want companies to know that they are pocketing more than 150 basis points on card transactions that they facilitate on a company’s behalf. For one firm, an 80- basis point difference would have amounted to $360,000 a year in money left on the table. Unfortunately, the money lost to lower basis points is not made up elsewhere and the electronic payments solution provider is not delivering a value-added service worth sacrificing hundreds of thousands of dollars a year in rebates.

2. Zero transaction fees on your vendor virtual card payments:

Credit card issuers do not charge electronic payments solution providers a fee to make virtual card payments. However, some electronic payments solution providers sock companies with fees of up to 68 cents per transaction to initiate card transactions. This is pure profit for the solution provider. Some solution providers justify the fees as being essential to their customer service, but in reality, they are making large profits from the virtual card spend, so they should never need to charge these transaction fees. Other solution providers are actually using money received from these fees to promise guaranteed rebates to companies. It doesn’t make any sense for a company to receive a guaranteed rebate that is a fraction of what they are paying the payment provider (especially since these fees should never have been charged in the first place)!

3. No rebate cap on a single virtual card transaction:

There should never be a cap on the amount of money a company can earn as a rebate on a single virtual credit card transaction. In fact, most credit card issuers encourage companies to use virtual cards for large-ticket purchases. That has not stopped some electronic payments providers from capping the amount of money a company can earn on a single transaction at a measly $50 or less! Assuming a $100,000 purchase (increasingly common in today’s environment) and a rebate of 100 basis points, the company would be missing out on $950 by using an electronic payments solution provider with a cap of $50 per transaction.

4. Do not force vendors to accept cards:

As with most things, one electronic payments option is not right for all vendors. Some electronic payments solution providers force your vendors to opt-out of virtual card programs, an arduous process that often results in disgruntled vendors. In addition to a negative impact on trade relationships, requiring vendors to opt-out of receiving card payments is likely to result in higher cost of goods as disgruntled vendors raise your prices to recoup the fees they pay to accept your card payments. A better approach is for vendors to opt-in to your electronic payments program and offer them a range of options to make the program as appealing as possible. Companies can achieve high vendor adoption rates by leveraging enrollment programs that include e-mail and mail campaigns to drive adoption among small vendors, and phone campaigns to any vendor with which a business spends over $5,000. With each campaign multiple follow-up calls to hold-outs (“gentle persistence”) are recommended, as well as repeating campaigns every six months to capture new vendors. Furthermore, companies should offer vendors a range of electronic payment options, including virtual card payments, ACH payments for vendors that will not accept virtual card payments or for situations where card payments are not practical, and a secure self- service web portal that vendors can use to accept electronic payments and receive detailed remittance data.

5. No co-mingling of funds:

Any corporate auditor would never allow a depository institution to co-mingle their company’s funds with those of other businesses. However, some electronic payments solution providers do just that with the funds they collect from businesses for making payment on their behalf. When you consider that these so-called trust funds are typically administered by unregulated third-parties, there is no telling how the money is managed or whether it is only being used to fund electronic payments transactions.

6. Beware of unrealistic spend estimates:

Be leery of electronic payments solution providers that include mortgage payments, investor disbursements, utility payments or taxes in their calculation of your potential annual credit card rebates. It is unlikely that any of the recipients of these types of payments will be willing to “eat” the interchange fees associated with virtual credit card payments. Electronic payments solution providers should eliminate payments to these types of entities from their annual rebate calculations. In the case of a West coast construction company, eliminating payments to these types of entities resulted in a potential eligible spend of $44 million out of the company’s total spend of $310 million. Companies should also eliminate vendors that it spends less than $3,000 per year or more than $3 million a year as they are typically poor candidates for virtual credit cards. Some electronic payments solution providers also have access to a database of companies known to accept virtual cards. This data helps companies fine-tune their spend calculation and better target their enrollment efforts.

Clearly, there is a lot riding on choosing the right electronic payments solution provider. With the wrong partner, companies risk missing out on lucrative rebates, paying unnecessary transaction fees, alienating their vendors, being saddled with higher costs of goods, and putting their money at risk.


More companies are seeing the benefits of switching their disbursements from paper checks to electronic payments such as ACH transactions and virtual credit card programs. Compared to checks, electronic payments save businesses thousands of dollars of year. Electronic payments also help mitigate payments fraud, while simplifying reconciliation. Also, businesses can earn lucrative rebates from virtual card payments based on a defined percentage of their total monthly spend. Choosing the wrong electronic payments provider undermines the benefits of using electronic payments for disbursements. Companies should be getting a minimum annual rebate of 100 basis points on virtual card payments to vendors who opt-in, with no credit card fees and no cap on per-transaction rebates. Anything less from other electronic payments program offers should have companies running for the door.

About the Author

Mark Brousseau is a noted analyst, speaker and writer, with more than 21 years of experience advising leading providers of payments and document automation solutions. He is chair of The Institute of Finance & Management’s (IOFM) payments practice and leads AP, AR and payments research and educational projects for both IOFM and the Institute of Financial Operations (IFO). 

Brousseau began his career in financial services as senior editor of Item Processing Report, where he won many editorial awards. Additionally, he has written a popular guide to writing RFPs, and has authored many articles.

About Nexus

Nexus Systems is the leading provider of web-based applications that drive business process efficiencies and business process accountability, focusing on Accounts Payable. From its inception in 1999, the team at Nexus Systems has worked diligently to maintain its reputation as a highly responsive, innovative, and dynamic software company. Nexus Systems is a privately held company headquartered in the Washington, DC, Metropolitan Area, in Falls Church, Virginia. Its staff is comprised of technically savvy, hand-picked professionals with a dedication to satisfying each customer. Its flagship product, NexusPayables, automates the traditionally paper intensive accounts payable procure-to-pay process and is recognized as the best-in-class paperless solution. The NexusPayables application enjoys continued success as a result of its mature and robust functionality, intuitive interface, flexibility, compatibility with other systems, and overall ease of use. Please visit www.NexusSystems.com.