Why the Direct Billing Payments Method has Lost its Luster

Simply put, the direct billing method of making payments is falling behind the times. Next-generation solutions, namely virtual card numbers (VCNs), are practically putting the practice of direct billing out of favor. This is especially true for B2B transactions in the travel sector, where the VCN e-payment value prop aligns perfectly with the needs of third-party travel companies, from Online Travel Agencies (OTAs) and Travel Management Companies (TMCs) to Global Distribution Systems (GDSs), who book travel for leisure and business travelers and make large volume payments to a range of suppliers, namely hotels and airlines.

What’s behind the evolution? Let’s explore the reasons why direct billing is being largely replaced by VCNs.

Direct Billing’s Perennial Challenges

In concert with booking entities, travel suppliers are increasingly moving away from the direct bill model because it’s administratively cumbersome, time-consuming, and costly.

• Credit Management. In a direct billing arrangement, suppliers effectively assume risk by offering credit to their distribution partners. And on the other hand, it’s not always easy or convenient for travel companies to set up a direct billing account with a supplier, especially a hotelier, for example, that isn’t part of a big chain.

• Data and Reconciliation. Processing direct billing transactions on the back end are anything-but-simple. Traditionally manual and at least somewhat paper-based, the reconciliation of charges often requires details (and an expectation of timeliness) that are not available through direct billing processes. Payments data—and companies’ use of it—is becoming more sophisticated and the direct billing method isn’t “set up” for the way booking entities and suppliers need to receive it.

• Automation. Really, it’s the absence of automation that’s causing direct billing to fall short when compared with its technology-powered alternatives. Because direct billing usually involves some form of invoicing—and a payments delay—the process requires manual and potentially error-prone human intervention and results in less-than-optimum cash flow. When overhead and profitability are involved, processes automation becomes imperative—and not always something direct billing arrangements are designed to facilitate.

Why VCNs are Emerging Victorious

These downsides of direct billing make alternatives shine and help explain why VCNs are now the preferred payment method for many travel suppliers. The upsides to VCNs include:

• Safety: Neither party has to share bank information or credit card numbers, and there’s virtually nothing that can be stolen, copied, or lost
• Control: Added controls (where, when, how much, etc.) can be applied to each specific, single-use transaction
• Simplicity: There’s often no need for invoicing or collection, as payments can be set up with “push notifications” and move electronically through credit card networks—and little to no paperwork means less work for both parties’ AP and AR teams
• Data: Rich remittance information is included with each transaction
• Integration: VCNs sync up with a company’s accounts payable and travel booking systems with no hardware or software installation required
• Global Acceptance: VCNs are available in over 20 currencies and payments can be made/received in supplier’s home currency

Making the Switch

Many companies across industries employ a range of payments methods to manage their various B2B relationships, so transitioning to digital solutions is part of an evolution. In other words, there is still a place for paper checks and direct billing for even the most progressive accounting organizations. And because the success of an updated payments program is dependent on suppliers’ acceptance of electronic payments—and their willingness to accommodate their partners’ needs—most companies are rolling out VCNs on a “rolling” basis. One thing is for sure: they’re moving along the continuum, one step (one supplier) at a time.

To learn more about why companies are rethinking their traditional payments strategies and embracing VCNs, read How Using Virtual Card Numbers Reduces the Costs of Doing Business and 5 Ways VCNs Ease Your Cross-Border Payment Pains. For travel industry insights, see Book Hotels Smarter with Virtual Cards, and get ideas for selling the VCN concept to business partners in 5 Reasons Your Suppliers Love To Receive Virtual Payments.