How Virtual Cards Enhance Security in Accounts Payable Automation

With cybercrime on the rise in B2B payments, virtual cards are becoming recognized as a way to lower incidents of security threats and fraud.

The digital economy is growing, and as businesses process increasing volumes of transactions with limited resources, accounts payable (AP) automation has become a critical tool for improving efficiency and accuracy. At the same time, AP departments are under growing threats due to security risks as fraudsters and cybercriminals continue to outsmart personnel and IT systems. 

Among the tools available to protect business-to-business (B2B) payments, virtual cards are emerging as a powerful solution. This article will help you explore how virtual cards enhance security in accounts payable automation, the various payment methods available, and the added benefits that come with using virtual cards.

The Growing Problem of Security Threats and Fraud in B2B

In the B2B landscape, financial fraud and cybercrime are serious concerns and the growing reliance on digital transactions has made businesses vulnerable to a wide array of security threats. In fact, AP departments are often the primary target for fraudsters due to the high volume of payments they process daily–particularly check payments.

Looking more closely at cybercrime statistics, 80% of organizations reported being victims of payment fraud in 2023 according to the Association for Financial Professionals' (AFP) 2024 Payments Fraud and Control Survey. This high frequency of fraud attempts, combined with the increasing sophistication of attackers, makes it imperative for businesses to strengthen their payment security measures and rethink how payments are being processed. 

Here are more specifics from the AFP survey worth noting:

• Checks were the payment method most vulnerable to fraud, with 65% of respondents reporting their organizations faced fraud attacks of this type. 
• Payments made via ACH credits (47%), wire transfers (39%) and ACH debits (20%) were the next payment methods most vulnerable to fraud.
• Thirty percent of survey respondents were unsuccessful in recovering funds lost to fraud.

The Most Common Types of Security Threats

Before delving into the specifics of virtual cards and how they enhance security, it's essential to understand the most common types of security threats AP departments face.

Check Fraud. B2B check fraud occurs when criminals manipulate or falsify checks to steal funds, and the most common fraud methods include forging signatures, altering check amounts, and creating counterfeit checks. With manual check processing still common in B2B transactions, fraudsters continue to exploit vulnerabilities like limited oversight and lack of secure processing practices. 

Phishing Attacks. This insidious form of fraud happens when cybercriminals impersonate legitimate businesses or individuals and attempt to trick employees into revealing sensitive information like login credentials or payment information. Criminals will use fraudulent emails and fake websites that invite employees to click on malicious links or download harmful attachments. 

Business Email Compromise (BEC). Have you ever received a business email that didn’t look exactly like a business email and turned out to be fake? If so, you’ve likely been exposed to BEC. These types of emails impersonate trusted professionals and indicate urgency to trick employees into transferring funds or revealing sensitive information. Because these emails often mimic legitimate email communications, they can be quite convincing and have the capacity to manipulate AP teams into authorizing illegitimate payments.

Invoice Fraud. Fraudulent invoices are designed to pass into an AP staff member’s hands with the anticipation they will be processed and paid without sufficient verification. Criminals will impersonate legitimate suppliers or create entirely fake companies before issuing these invoices. In some cases, internal employees will even collude with external actors to manipulate the invoicing process. 

Insider Fraud. This is a crime no one who manages AP employees ever wants to uncover, but it happens. With insider fraud, an employee will exploit their position to commit fraudulent activities such as unauthorized payments, embezzlement, or manipulating financial records for personal gain. This can involve creating fake vendors, inflating invoices, or diverting funds from legitimate transactions. Insider fraud is particularly dangerous because employees have access to sensitive systems and may understand internal processes, making detection harder. 

By understanding these risks, businesses can better appreciate the importance of implementing advanced payment methods that mitigate fraud—such as virtual credit cards.

Payment Options Available with AP Automation

As you begin exploring AP automation options for your business, it’s helpful to know that most automation solutions offer a variety of payment options–each with varying levels of security and convenience. Below are the most common options available through AP automation platforms.

#1. Checks. A long-time staple of B2B payments, traditional paper checks are one of the most vulnerable payment methods in business today. Paper checks can be lost, stolen, or altered, exposing companies to significant fraud risks. Despite their drawbacks, checks are still widely used by businesses, though their popularity is declining as more secure digital options emerge.

#2. ACH (Automated Clearing House). ACH transfers allow for the electronic transfer of funds between banks. While more secure than paper checks, ACH transactions are not without their vulnerabilities since fraudsters can exploit weaknesses in the system, particularly if sensitive banking information is compromised. ACH transfers also take time to process, which can delay payment reconciliations.

#3. Wire Transfer. Common with international transactions, wire transfers are another popular method of B2B payment. While secure, wire transfers can be expensive and are typically irreversible if they are sent in the wrong direction, meaning errors or fraudulent transfers can be costly. Wire transfers are also time consuming, as they require stringent verification procedures in order to prevent fraud.

#4. Corporate Credit Cards. As a more streamlined approach to B2B payments, corporate credit cards offer greater security and flexibility than any of the payment methods mentioned above. However, the risk of card theft, unauthorized spending, and card number breaches remains. Corporate cards can also make tracking and managing expenses more cumbersome, especially when issued to multiple employees.

#5. Virtual Credit Cards. Because they provide the highest level of security in AP automation, virtual credit cards are a growing option for businesses ready to begin their digital transformations. These cards are generated for one-time use or for a specific vendor, with customizable spending limits and expiration dates as well as user limits. Because they are digital, virtual cards cannot be physically stolen or copied–a feature offering more enhanced fraud protection than any other payment method.

How Virtual Cards Work

Virtual credit cards are digital payment tools that function similarly to traditional credit cards but are used exclusively for online transactions. Instead of a physical card, virtual cards generate a unique 16-digit number, along with an expiration date and security code, for each transaction. Once a transaction is complete, the card number becomes invalid and can never be used again for another transaction.

The flexibility and control offered by virtual cards make them ideal for AP departments looking to reduce their exposure to fraud. When issuing payments via a virtual card, businesses can set custom spending limits, expiration dates, and vendor-specific restrictions. In addition, payment restrictions can be set per employee on a permissions-based level. This makes it impossible for any unauthorized individuals to use a virtual card outside of its intended purpose.

The Difference Between Virtual Cards and Corporate Credit Cards

While both virtual and corporate credit cards facilitate payments, virtual cards offer greater security for AP automation. First of all, corporate credit cards are physical, which makes them vulnerable to theft, loss, or misuse, whereas virtual cards exist solely in digital format, reducing the risk of physical theft or skimming.

Next, corporate cards can be used repeatedly for various purchases, increasing fraud risk if compromised. In contrast, virtual cards are often single-use or vendor-specific, features that significantly limit exposure to fraud. It’s also important to understand that virtual cards offer customizable controls for spending limits, expiration dates, and vendor restrictions, providing more flexibility than corporate cards. 

Additionally, virtual cards automatically capture transaction data, enabling AP teams to reconcile payments easily and track spending, offering greater visibility into company finances and reducing the risk of errors or fraud.

The Added Benefits of Virtual Credit Cards: Cash Rebates

Beyond enhanced security, virtual credit cards offer an additional benefit that many businesses overlook: cash rebates. Many virtual card providers offer rebate programs that reward businesses with a percentage of each transaction made using the card. This can generate significant savings over time, especially for businesses that process a high volume of transactions. In some cases, the cash rebates received are enough to pay for the entire cost of an AP automation solution.

Overall, by using virtual cards for routine B2B payments, companies not only protect themselves from fraud but also earn cashback incentives that can boost their bottom line. These rebates can be applied to a variety of business expenses, providing a tangible financial benefit on top of the security enhancements.

Frequently Asked Questions About Virtual Cards

1. Can I use a virtual credit card on my mobile device?

Yes, virtual credit cards are designed for digital transactions, and they can be used on mobile devices just as easily as on desktop computers. Many AP automation platforms provide mobile apps or mobile-friendly interfaces, allowing users to generate and use virtual cards directly from their smartphones or tablets.

2. What kind of controls can I set on a virtual credit card?

Virtual cards offer a wide range of customizable controls, including spending limits, expiration dates, and vendor restrictions. You can specify how much can be spent on each card, when the card expires, and which vendor can accept payments from that card. These controls add an extra layer of security and ensure that payments are made only as intended.

3. What percentage of businesses use virtual credit cards for B2B payments?

According to Payments Journal, an increasing number of businesses globally are using virtual cards for B2B payments, and this uptick is being attributed to growth in online B2B marketplaces, trends in digitization, and fraud prevention capabilities. The percentage of virtual card use is expected to grow as more companies recognize the security and financial benefits of virtual cards–especially in conjunction with AP automation.

4. Can virtual credit cards be reused?

Yes and no. Virtual credit cards can be configured for repeated payments to a specific vendor or for one-time use. After a payment is completed, single-use cards become invalid and cannot be reused. However, businesses can generate new virtual cards for future payments or set up recurring payments using virtual cards designed for long-term vendor relationships.

Getting Started with Virtual Cards Begins with AP Automation

Virtual credit cards offer a powerful tool for enhancing security in AP automation by providing unique, customizable payment options that limit your business’s exposure to fraud. With the added benefits of cash rebates and greater control over payments, virtual cards represent a valuable asset as you seek to streamline your AP processes and safeguard your payment processes.

Learn more about invoice and payment automation by reaching out to CloudX for a free consultation. Your walkthrough will include information about using APSmart® and PAYSmart® to seamlessly deploy virtual card payments in your AP department and prevent security threats and fraud.