Photo of Jasmine Lee and Andrew Peddie, British American Tobacco Limited.
BAT Korea worked with its partners to re-engineer its accounts receivables and reconciliation process using virtual account technology, significantly improving efficiency and keeping its customers happy.
British American Tobacco (BAT) is a global consumer goods company that sells tobacco and nicotine products worldwide. Its operations in Korea involve selling to over 60,000 retailers across the country.
British American Tobacco Korea re-engineers its accounts receivables and reconciliation processes with virtual account technology
BAT Korea’s main challenge for treasury operations is managing collections from its 60,000+ retailers across the country. In the buyer-driven market of Korea, corporations tend to maintain multiple accounts for the sole purpose of collections – leading to a manual and complicated reconciliation process.
BAT Korea engaged Deutsche Bank to provide a solution that would streamline the collection process by running it through a single bank, without disrupting existing processes.
The company was keen for this streamlined process to lead to significantly faster and more efficient reconciliation. As part of this, BAT Korea was looking for a smooth migration, without any complaints from retailers. It also sought to increase its intra-day liquidity through the solution.
The bank provided BAT Korea with a virtual accounts solution for payment collection, known as NostroCollect. Deutsche Bank’s five local partner banks – IBK, Shinhan, Woori, Kookmin and NH Bank – as well as a local e-banking platform vendor – formed part of the response.
NostroCollect ties virtual accounts to local partner banks, extending these banks’ nationwide network to BAT, without the company having to maintain accounts at these banks. BAT’s payers transfer funds to their designated virtual accounts, at their local bank of choice, identification of the payer being effected immediately.
The balance in each virtual account is swept once an hour to BAT’s concentration account so funds can be used intraday, increasing BAT Korea’s liquidity, enabling an enhanced reconciliation process, harmonised with the company’s own treasury tools. The MT940 file indicates all incoming payment details at a line-item level, allowing BAT Korea to reconcile each payer’s transfers automatically in its customer management system (CMS).
The bank provides reporting for incoming funds on multiple levels – offering line-by-line details on incoming funds in MT940 via SWIFT Score, as well as an online solution for viewing the individual collection items on a real-time basis.
The bank is developing a customised multi-cash file that provides the total collection amount per region and is automatically reflected in BAT’s ERP system. This will further reduce manual reconciliations between two different systems.
For payers, being able to work with a preferred local bank, with multiple channels for fund transfers, is a benefit. Any local channel using the KFTC clearing house (such as tele-banking, bank counter, online-banking, mobile app, or ATM) can be used by the payer to remit payments to BAT Korea’s virtual accounts.
Best practice and innovation
The solution lowered BAT Korea’s operational burden related to accounts receivable and reconciliations on many levels. It worked by reducing the number of collection accounts, streamlining the collections process, increasing the company’s liquidity position, rationalising the reconciliation process and further automating clearing of outstanding accounts receivable. It also provided convenience and satisfaction to payers.
Further, there was no change in the way retailers interacted with BAT Korea, and the migration to the bank’s solution was so smooth and successful that no complaints were received from retailers during the transition.
Improved efficiency on collections.
Improved credit management.
Payers can select local bank of their choice to transfer funds to.
Payers choose payment channel.
Increased intra-day liquidity by approximately 20%.