Material Gains with Virtual Accounts
By Gianluca Marcolongo, SSC Treasury Manager, OTB SpA
Fashion leader OTB, parent company of major brands such as Diesel, Maison Margiela, Marni, Paula Cademartori and Viktor & Rolf, is a pioneer not only in its core business, but also in cash management. In 2016, in co-operation with partner bank UniCredit, OTB implemented an innovative virtual account solution in order to gain efficiency in the centralised collections management. In this article, Gianluca Marcolongo, SSC Treasury Manager, OTB SpA explores the project in more detail.
OTB has a centralised treasury function which deals with collections for account of several group entities; the drawback was that the collections account was owned by OTB, with the entity as beneficiary. This meant that customers were asked to specify the beneficiary entity in the remittance information, which inevitably resulted in some confusion and it was difficult to reconcile incoming payments that frequently lacked this information. OTB is a group committed to efficiency and excellence in every part of our operations, so we were seeking to resolve this challenge. This would in turn allow us to improve the customer experience whilst improving our own working capital position by reconciling flows more quickly.
Although we wanted to continue operating on a COBO basis, we wanted the process to be more convenient, efficient and automated. Firstly, the collections account would be in the name of an OTB entity, but secondly, we opted to implement UniCredit’s virtual account solution. We already had a relationship with UniCredit in Italy, and decided to extend this further based on the quality of this relationship and the innovative solutions that they offered.
Virtual accounts and SWIFT
We implemented the collections factory, including virtual accounts, for several OTB entities in February 2017. We use an Italian-based treasury management system (TMS), Piteco, which is integrated with SAP. We are also connected to SWIFT, so we receive information in ISO 20022 format which we then integrate into our TMS for reconciliation purposes, at which point the ledger of the relevant entity is also updated in SAP.
There were a variety of reasons for deciding to connect to our banks via SWIFT. Previously, we had several different banking systems, which created security issues as credentials and access mechanisms were different in each case. SWIFT offered a secure and consistent way of connecting with our banks, with the ability to connect to additional banks in the future as we extend our services to other countries and regions, including the Americas and Asia.
It has inevitably taken time to transfer our operations fully from the existing, not virtual, bank account ; even now, some customers are still using the previous settlement instructions. However, it was often difficult to explain to our customers the role of OTB as centralised treasury in the group, who our treasury provider was, and why they were paying into its account. Now, using virtual accounts, we have a specific virtual account for each legal entity, which is far clearer for customers, and avoids the need for them to specify the beneficiary name. From an OTB perspective, we have been able to automate the reconciliation of incoming flows and post to the ledger of the respective entity almost entirely, with very few exceptions.
“OTB is one of the first clients in Italy to use virtual accounts extensively, but we are now rolling out our virtual account solution across all countries in our network, therefore offering all clients a comparable level of efficiency, visibility and automation when operating on a COBO or POBO basis. While the payments industry is becoming largely commoditised, UniCredit’s virtual account solution is a valuable way of enhancing the customer experience and enabling treasury and finance teams to improve the service they offer to the wider business.”
Stefano Gemelli, Senior International Cash Management Sales, UniCredit
Introducing virtual accounts
A virtual account solution enables companies to provide customers with local IBAN (the ‘virtual’ account), but these are linked to a central collections account. Clients can choose to assign a virtual account IBAN to each entity, through to individual customers, product lines or even invoices. This makes it easier to reconcile the collections account, and post incoming flows to the relevant intercompany account and customer credit account automatically.