December 14, 2020 | 5 min read

How virtual cards can enable faster disbursements

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Liabilities management can turn into a delicate balancing act for businesses. Paying vendors, creditors, workers, or customers too slowly can create dissatisfaction, lead to late fees, and put everything from production capacity to contract renewals at risk. Yet processing every liability too quickly can significantly hurt liquidity or increase incidents of fraudulent or unwanted payments.

Businesses should have dynamic control over their payment methods, such as the ability to make faster, more calculated disbursements on demand. Rapid and flexible payment control can be easily achieved with virtual cards created on a modern card issuing platform. Disbursements made using virtual cards empower businesses to make more informed payment decisions without negatively impacting critical relationships or incurring unnecessary risks.

Faster disbursements via virtual cards and ACH

Federal Reserve data indicates Automated Clearing House (ACH) settlements are the fastest-growing noncash payment option. ACH offers some notable advantages over paper checks, including a low cost per transaction, but it lacks the kind of timing flexibility that’s increasingly critical for small- and medium-sized business survival and for customer satisfaction for use cases such as insurance claim payouts.

Businesses that choose ACH are often bound to more restrictive transaction and settlement methods. Standard ACH payments can take 3-5 business days to settle once the disbursement is issued. This longer settlement window was solved in part by the introduction of same-day ACH settlements, yet ACH still maintains scheduling restrictions that can lead to late or delayed payments.

Even same-day ACH settlements must comply with strict submission times. Transaction submissions made outside of the submission window will be pushed to the next available date and time. And because ACH does not settle transactions on weekends or bank holidays, a transaction submission made at the end of the business day on Friday may not reach the recipient until the following week. For some businesses, that delay could result in late fees, among other impacts.

Virtual cards enable instant disbursements

By comparison, virtual cards built on Marqeta’s modern card issuing platform offer instantaneous disbursement with spend controls and security that don’t exist through traditional cards.

Features such as Just-in-Time (JIT) Funding allow virtual cards to carry a $0 balance until a disbursement is requested. Businesses can control the exact time, location, and purpose of each disbursement, as well as the exact amount to be disbursed at the requested time.

Businesses, workers, and customers suffer when disbursements are slow

A 2019 Intuit report on cash flow challenges faced by small businesses found that 32% were unable to either pay vendors, pay back pending loans, or pay themselves or their employees due primarily to slow payment processing. The consequences included staff reductions, delayed investment opportunities, and, finally, going out of business. In the U.S., one third of small business report delays of 30 days or more before receiving payment on invoices.

For customers who receive payouts as part of a business relationship — for example, a consumer filing an insurance claim — slow payments can affect customer loyalty.

Virtual cards help solve for slow payments with faster disbursements. Businesses can instantly provision and disburse the precise amount requested via approved digital wallets, even without an active physical card.

Disbursement methods such as ACH and traditional payment cards are still viable, but they’re not ideal for every business need. As instant payments become the norm, more and more companies are likely to find using virtual cards for disbursements is the best option for their business — and for the companies that they do business with as well.

The bottom line: Enabling faster disbursements with better security controls can significantly improve business relationships across the board.

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