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Payment Outsourcing vs. Your Bank’s Virtual Card Program
You’ve weighed the pros and cons, and decided to outsource vendor payments rather than process in-house. Perhaps your business is growing but adding headcount to the Accounts Payable department is not an option; or you might need a way to work remotely with greater ease.
You’re not alone – as AP departments continue to seek and implement automation solutions, outsourcing payments can become an important part of that strategy. The need for flexible B2B payment options is only increasing.
In this article, we’ll look at the benefits of using a third-party provider vs. bank programs, so you can decide what’s best for your business.
Reduce or eliminate check printing
Reducing or eliminating in-house check printing is one of the primary benefits for AP professionals who decide to outsource.
You have most likely heard the statistics: it costs somewhere between $4 and $20 to process a single paper check. Costs include MICR toner for printers, check stock, envelopes and postage supplies. You’re also paying staff to fold checks, stuff envelopes and mail payments out. Add in the time to deal with vendor inquiries and checks that have been lost in the mail or go uncashed, it’s an expensive and time-consuming process.
Third-party payment providers
Outsource providers will take on check printing for you, relieving your staff of the manual work. In addition, providers will transition your vendors to electronic payment methods – typically a mixture of ACH and virtual card.
Banks
Banks programs may or may not handle check printing and tend to focus on virtual card payments with revenue sharing options.
Vendor Management
Many AP teams lack the human resources to follow-up with vendor inquiries promptly, transition vendors to more efficient electronic payment types, or maintain a clean vendor database.
Depending on the provider, some or all these functions may be handled on your behalf.
Third-party payment providers
Outsource providers often have their own supplier network and will work to onboard any of your vendors not already included in their database. They may also offer ongoing vendor management services like answering inquiries, handling payment issues, and maintaining up-to-date banking records.
Banks
Banks will often onboard vendors for virtual card programs but limit their efforts to the highest-value vendors. Your business will continue to be responsible for ongoing enrollment efforts or paying those vendors in-house if they do not meet the bank’s criteria.
Minimize Liability
Most businesses have been hit with fraud at some point; in fact, the Association of Certified Fraud Examiners 2020 Report to the Nations estimates that organizations lose 5% of their revenue each year.
Outsourcing can provide extra protection against threats like check fraud and Business Email Compromise.
Third-party payment providers
With outsourcing, vendors are not being paid directly from your business account, but from a For-Benefits-Of (FBO) account managed by the payment provider. This enables the provider to assume full liability for any payments made via their services.
Banks
Banks do not often take on responsibility for payments, as your business banking account is the source of funding.
Generate Revenue
One of the most significant benefits of a virtual card program is that your business could receive rebates for those payments. This means cash flows back into your organization, often paying a percentage or sometimes covering the full cost of outsourcing fees.
Third-party payment providers
Outsource providers offer rebates, usually at a lower rate than bank programs. However, because they are often handling a greater number of your vendor payments, the revenue may be comparable.
Banks
Banks can offer higher rebates than most outsource providers, but often on a lower total of vendor payments.
ERP Integration
No matter how you pay, you’ll need to record the information in your ERP system. Different outsourcing solutions have different levels of integration.
Third-party payment providers
Outsource providers will often partially or fully integrate with your ERP system. The deeper the integration, the less manual work for AP staff.
Banks
Banks do not generally offer integration with ERP systems, so AP staff will be responsible for downloading and uploading files, and the manual effort of managing different payment types within the accounting system. Automating these steps with a custom solution can be costly.
| Features | Outsource Providers | Bank Programs |
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| Outsource check printing |
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| Offer vendors multiple payment types |
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| Onboard vendors to electronic payments |
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| Provide ongoing vendor support & issue resolution |
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| Maintain and store vendor information |
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| Take on liability for payments |
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| Offer rebates on virtual card transactions |
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| Integrate with ERP system |
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Choosing a third-party payment provider or a trusted bank for your AP payment outsourcing will depend on what your goals are. Be sure to weigh all the options above and ask any provider you consider what they offer for payment types, vendor management, fraud protection, revenue sharing, and ERP integration.
