Insight & Analysis

A virtual solution to real world treasury challenges?

Published: May 2021

Corporates considering using a virtual account solution need to be clear on what they are signing up for and the extent to which the promised functionality is already available through their treasury management systems.

A maze in Ireland

Virtual accounts can be defined as a series of sub-accounts linked to a single current account. They are designed to reduce the number of physical bank accounts held by corporates and provide these businesses with greater control and visibility over their cash flows.

The benefits of using virtual accounts include automated receivables reconciliation processes, higher invoice matching rates, and lower banking charges – yet their use across the corporate world is far from ubiquitous.

“In addition, virtual accounts generally have a single global documentation source or point of contact as opposed to multiple contacts in different branches within the same bank,” says the head of treasury at a leading aircraft lessor.

However, he also suggests that reluctance on the part of corporate treasurers to use these solutions can be partly attributed to the perception of a virtual account being “not as good” as a real account.

Another possible explanation for corporate reticence is the absence of a standard definition of the term ‘virtual account’ across the cash management industry – even though it is a commonly used term amongst banks and clients to describe a sub-account reporting structure linked to a physical account.

Virtual accounts may address numerous use cases across many client segments, from basic payer identification and receivables reconciliation to supporting complex in-house banking structures observes Jeff Oleske, Virtual Account Product Manager in global transaction services at Bank of America.

At Swiss multinational healthcare company Roche, virtual accounts fit the strategy of centralising visibility of cash, switching to on behalf collections and disconnecting local subsidiaries from banks.

“Around 25% of Roche subsidiaries have no bank account in their name anymore, because of virtual accounts in the name of the in-house bank,” says the company’s Senior Cash Manager Treasury Operations, Stefan Windisch.

Roche’s in-house bank processes credits in virtual accounts with an automation rate of more than 98%.

“We have created better transparency for on behalf-of collections as the virtual account number appears as a fixed value in the bank statement,” adds Windisch. “By having a virtual account dedicated to a group subsidiary, we are sure that the subsidiary is the ultimate beneficiary of the funds received in the virtual account.”

While some virtual account management features are available on treasury management system platforms – such as transaction segregation and detailed reporting – Oleske says these platforms are not able to easily reconcile the multiple physical bank accounts against this segregated reporting.

“Virtual account management streamlines that process by providing a single bank statement that replicates the treasury management system structure using virtual accounts to map to the client’s defined segregation processes,” he adds.

“Similarly, sweeping and interest apportionment are greatly simplified by the use of a single bank account. Finally, building and maintaining these complex structures in a treasury management system can be quite complex and costly – virtual accounts can reduce the complexity of integrating bank reporting, thus simplifying the treasury management system deployment.”

Use of virtual accounts requires system adaptations, including the configuration of the virtual accounts, association with internal references (payers, subsidiaries) and the read/use of additional information in account statements and other reports.

“However, they offer many benefits including economies of scale related to the implementation of an automated reconciliation process,” observes Luc Lefebvre, Product Manager at global transaction and payment services (GTPS) Societe Generale.

“They also provide centralisation benefits – such as the legibility of a group’s activity – and economies related to reducing the number of physical accounts used, while offering the desired level of detail with immediate access to information.”

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