New Insight: Virtual Cards Gain Favor With CFOs as Healthcare Costs Increase

Healthcare is among the largest industries in the world, and with the territory come pain points and inefficiencies as small- to medium-sized companies seek to tap working capital and streamline their payments processes.

Across the globe, the sector accounts for an average 10% of a country’s GDP, ranging from the $12,000 per person spent in the United States to the $5,000 per person spent in Japan.

Although many industries have seen dramatic shifts to digital channels to get payments and all manner of consumer interactions done, healthcare firms are still reliant on paper, including paper checks, billing statements and invoices. But it doesn’t need to be that way. The industry has been evolving, having rebounded from the pandemic, where supply chain snarls and disruptions caused firms to scramble to keep afloat and examine how they used working capital.

Visa Commercial Solutions Head of Working Capital Solutioning Lauren Hewings told Karen Webster that $300 billion in additional costs are added to healthcare systems in the U.S. every year.

“We’ve known that having to source working capital in emergency scenarios is expensive and inefficient, and lends itself to less impactful outcomes,” she said. “Healthcare isn’t really an industry that we associate with high levels of digitized payments.”

But now that healthcare firms have been able to retrench and re-examine their buying patterns and processes, there has been an increase in commercial cards and virtual cards being used as go-to sources of working capital, Hewings said. Virtual cards, especially, let corporate executives take advantage of time-sensitive, critical opportunities, such as paying suppliers early for a discount on inventory without going through the hoops of additional back-office approval processes that could slow things down.

The conversation came against a backdrop where Visa Commercial Solutions and PYMNTS Intelligence found in the “Working Capital Index Report 2024” that across 23 countries and with the insights gleaned from nearly 1,300 chief financial officers and treasurers, a few key storylines are taking shape.

“There’s a positive ripple effect out into the ecosystems when organizations use working capital strategically,” Hewings said.

The use of digital card options represents a growth story, where the joint research showed that the share of healthcare “growth” corporates that used working capital solutions was up 41% year on year — and these firms boosted their reliance on external financing overall by more than half, she said.

Hewings noted that healthcare CFOs and treasurers in the survey use working capital solutions, specifically virtual cards, to pay 30% more of their invoices earlier than the prior year. These executives have greater visibility into their cash flows as they pay their suppliers earlier, and the suppliers can invest in their own operations, buying inventory or hiring more staff.

The use of virtual cards has quadrupled through the past few years, proving invaluable as a strategic tool rather than just plugging cash flow gaps, she said.

“It’s not just a payables story,” as the post-pandemic financing environment evolves, she said.

The shift toward using digital payment options is a global story, where companies operating in regions as far flung as Europe and Asia Pacific are seeing improved performance as working capital solutions become more widely available, Hewings said. Visa and PYMNTS saw a 16% year-over-year gain in the healthcare index scores for both these regions.

The technological changes in healthcare — the proliferation of telehealth services and the introduction of artificial intelligence — help harness the massive amounts of data moving through the ecosystem. Webster noted that the global healthcare industry produces 42 trillion gigabytes of data annually. However, the paper clogging the system is mind-boggling, as 84% of providers still get checks from consumers or businesses. Moving from paper to analog processes remains a high priority. Hewings added that Visa has continuous conversations with clients about digitizing payments and harnessing data to reduce the reliance on paper.

“We’re encouraging issuing clients and banking clients and corporate clients to look at the Working Capital Index report to understand how they are performing against their peers and to learn from the top performers,” she said.

Of the continuing evolution in the healthcare space, Hewings said “the positive shift” toward virtual cards “presents an opportunity for the CFOs and the treasurers of those organizations to look at how they can invest strategically and how they can leverage external sources and working capital” to support those growth efforts.

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