Photo of Noa Segoly, Bank of America Merrill Lynch and Gianluca Gubbini, Viacom.

Virtual account and OBO solutions key to working capital improvements at Viacom

The challenge

For several years, Viacom had concentrated its cash from physical bank accounts throughout Europe into a multi-currency notional pool arranged by European banks.

Increasingly, however, the international treasury team at Viacom had been looking at ways to reduce costs and increase efficiency in this key area. With multiple legal entities each having several bank accounts, the structure was complex and costly.

In one example, the UK subsidiary had a home entertainment division, a theatrical division and a digital division, with multiple company codes and multiple bank accounts for each of these divisions.

Viacom’s track record in adopting effective treasury technology was already impressive: the company was one of the earliest users of SWIFT for Corporates and had leveraged its IT2 treasury management system to give excellent cash visibility across the business. Additionally, it adopted an in-house bank (IHB) structure for the international media networks group, which allowed for cash concentration for 25 entities and a payment-on-behalf-of (POBO) structure. The POBO structure enhanced working capital and reduced transaction costs.

The solution

The result was a switch to Bank of America Merrill Lynch (BofAML) and the implementation of a single entity multi-currency pool with a VAM structure, which replaced the vast majority of local physical accounts with virtual accounts for each entity. By using on-behalf-of (OBO), Viacom can run just one physical bank account in EUR, GBP and US dollar, but multiple virtual accounts, each assigned to a subsidiary and with its own company code in Viacom’s SAP system.

Best practice and innovation

The VAM structure adopted by Viacom represents the cutting edge of treasury and banking technology. Viacom is consistently willing to take advantage of the best available combinations of systems. For example, the company uses its IT2 treasury management system to keep track of the virtual account balances in order to calculate a participant’s intercompany position with the pool leader. The interest is settled to each subsidiary on a monthly basis, using an intercompany service agreement that has been cleared by tax and legal advisors.

Taken together, the VAM structure and other technology changes have allowed Viacom to replicate much of the functionality of an IHB without going through the significant challenges of implementing an IHB using its own SAP ERP system.

Viacom is also well placed to move to the next stage of VAM and associate individual virtual accounts with customers, allowing receipts to be straight through processed to that customer’s sub ledger account, which will reduce days sales outstanding.

Key benefits

• At least 50 bank accounts will have been closed by the end of the project.
• Annual savings of US$200,000 in banking fees alone.
• The new structure releases working capital: under the old cash pool, operational accounts had target balances and cash was often left in them – sometimes up to US$20m in a given day. With the VAM structure, the cash pool itself is the operational account, so cash is always available.
• VAM allows for future developments such as assigning virtual accounts to customers, making reconciliation much faster and easier.
• VAM reduces the amount of time and work to set up a new bank account for a legal entity.

The results speak for themselves; a dramatic reduction in the complexity and cost of cash management operations throughout the business, delivering annual savings of at least US$200,000; significant working capital benefits; and a dramatic improvement in the manageability of the company’s cash.