Virtual account management is a great way to automate the categorization of transactions. This reduces the amount of work for staff and helps to ensure that payments are received on time. It also simplifies liquidity management by eliminating the need for complex sweeping structures. It also supports better business reporting by simplifying bank account administration.
Benefits
For businesses, VAM offers enhanced visibility and control of cash. It eliminates the need for complex sweeping structures, and streamlines transaction processing. In addition, it can reduce administrative costs by simplifying account opening and closing processes. And it makes reconciliation easier by removing the need to manually review transactions that do not have reference numbers and by automating how they are categorized. Treasurers can centralize liquidity with virtual accounts without complicated sweeping structures, which supports efficient funds availability and optimized account balances, while also supporting effective cash forecasting and cash management. They can create hierarchies of virtual account management that reflect their organizational structure and use them to manage cash contributions, lend working capital to subsidiaries, and implement rules-based interest allocation—all within a single physical bank account.
It is often faster to open and manage virtual accounts, which are sub-ledger accounts tied to a physical demand deposit account. And they provide a more accurate picture of activity than manual reconciliation processes because they operate in real time.
Challenges
The use of virtual accounts has significant regulatory challenges, especially when used in multiple countries and regions. It is important for treasury to consult with tax, legal, and banking experts prior to the implementation of such structures to ensure that they meet all the necessary requirements. Additionally, implementing and maintaining a VAM structure can take a considerable amount of time and resources from treasury teams. It is also challenging for teams to retrain on the new system, particularly if they had been using a more traditional architecture.
However, the benefits of VAM can outweigh the challenges. For example, a treasurer can centralize collection on behalf of by consolidating multiple physical bank accounts into a single virtual account structure. This can significantly reduce treasury’s operating costs and improve the transparency of activity in the Group Treasury environment. The elimination of the need for multiple physical bank accounts can also dramatically reduce the amount of treasury work required to manage liquidity.
Implementation
For business customers, VAM reduces the number of physical bank accounts that need to be maintained, and the number of banking arrangements. This can save them significant time and money, as well as reduce their risk exposure. VAM can also reduce the need for complex sweeping structures and simplify accounting and reporting. Reconciliation processes are easier, as transaction summaries don’t have to be manually sorted and matched.
For banks, offering digital lending solutions enables them to offer a more agile treasury solution that offers centralization and cost efficiency. It allows them to replace COBO and POBO accounts with a single virtual account, providing real-time insight into payments and liquidity positions. It also enables smooth transaction allocations and interest apportionment at the underlying client level, as well as multi-currency and FX hedging capabilities. This is important, as treasurers demand deeper, more immediate insight into cash and liquidity positions. They want to make more informed decisions and avoid the financial exposures that can result from not having enough working capital.
Training
Account managers face a common dilemma when they have to choose between spending more time on new customer acquisition or increasing revenue from existing clients. This training from RAIN Group solves this by identifying accounts that have the greatest opportunity to grow and equipping teams with the tools, skills, and action plan to achieve success. A major benefit of virtual account management is that it segregates balances and transactions within a physical account, enabling corporations to streamline their financial operations and control capital. Banks can leverage VAM to reduce the hassle of opening and closing multiple DDAs for corporate clients, such as title and escrow companies, suppliers, and construction firms.
Develop a long-term roadmap for key accounts with this training from Miller Heiman Group. This 4-week program equips sales professionals with the application skills needed to systematically review, grow, and protect their most valuable accounts. Learn to identify opportunities, boost repeat business, and fend off competitive intrusions.
Conclusion
Our VAM solution helps to save time and effort for business customers by organizing their incoming and outgoing payments into discrete sub-ledgers inside a single physical account. It also provides them with greater reporting granularity. It’s a solution that more community financial institutions (CFIs) are offering to their business clients, as they face economic shifts.
