How to Apply a Virtual Network Bank
When Arnold Voet took up his position in Aalberts’ treasury department, he was confronted with a group made up of a multitude of small and medium-sized companies. These units had – and were meant to have – a great deal of responsibility and entrepreneurial spirit. The main regional focus is on Europe, North America and Asia. The different companies that have now been combined are responsible for production and sales to realise leading technology/market combinations.
Core markets and organisational structures have a great impact on treasury. For example, FX risk is largely irrelevant for Aalberts, while refinancing in connection with further acquisitions has top priority. Moreover, each acquisition comes with specific banking connections. When Voet started making changes to treasury management, the group had accounts with over 130 banks. Prior to these changes, consolidation had not been on the agenda, with the treasury department mainly focused on more centralised responsibilities. Co-ordinating the co-operation between group companies was not considered a key responsibility.
When taking up office, Voet set out to broaden the horizon and to establish a platform for all group companies – something that adds value to each company by supporting them in their daily operations. One of Aalberts’ guiding principles is fostering group companies’ responsibility and management’s ‘entrepreneurial spirit’. Group companies are clients of the head office, the latter staffed with only 25 people for the entire group – a very lean setup. In line with this principle, treasury is called to establish services that the group companies welcome and adapt accordingly. This included setting up a virtual network bank for the group in order to achieve an efficient banking structure.
What is a virtual network bank?
It is nearly impossible for a two-people treasury team at headquarters (supported by one accountant) to monitor accounts with 130 banks, and at the same time ensure maximum security and visibility.
Aalberts has to combine information from 250 locations, spread across 30 countries and 600 bank accounts. The virtual network bank approach allows the group to organise information in a way that provides central treasury with access to all accounts, while at the same time allowing them to efficiently manage accounts for local entities without taking over local payments operations. It goes without saying that taming this complexity, and the consolidation of the banking landscape that comes with this, are key elements of this project. Reducing the number of banks can potentially have the disadvantage of curtailing local services available to group entities. This might be a feasible approach in a centralised business, but it is by no means compatible with Aalberts’ philosophy.
Against this backdrop, Voet decided to select ten main banks that provide the best coverage and the most comprehensive local services in the relevant regions. The network approach of globally active banks, which is usually considered very important, is not one of the main selection criteria for Voet. What counts most is finding a bank that can provide a local entity with the best possible services to complement their day-to-day operations, in turn fostering acceptance with the group company in question. In this context, payment processing and cash pools in local currency are clearly important services. They are a must-have since the selected banks are all combined in one group-wide, standardised platform when it comes to submitting payment orders and receiving account statements.
This standardised platform is where all payments group-wide are entered – either manually or imported from an ERP system. They’re then authorised and transferred to the banks via this platform. For the local entity, it is essentially irrelevant whether an account to be debited is provided by bank A or bank B. Either way, zero balancing cash pooling ensures current accounts are balanced on a daily basis. Consequently, any local bank could be replaced with any other bank at any time – provided they offer the same required services – without the group company even noticing.