Cash & Liquidity Management

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Optimising Cash and Liquidity Management with Virtual Accounts In a demanding, shifting business environment treasurers are looking for techniques and solutions to enhance efficiency and solve operational problems. As such, the use of virtual accounts is attracting increasing attention.

Optimising Cash and Liquidity Management with Virtual Accounts

Optimising Cash and Liquidity Management with Virtual Accounts 

By Jennifer Doherty, Global Head of Commercialisation, Liquidity and Investment Products, Global Liquidity and Cash Management and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management, HSBC


As corporates have become increasingly international, their liquidity and risk management challenges have become more complex. As a result, the role of a corporate treasurer is becoming increasingly strategic, with treasurers now having a far wider range of responsibilities than in the past. In a demanding and shifting business environment, treasurers are therefore looking for techniques and solutions to help them enhance efficiency and solve operational problems. As Jennifer Doherty, Global Head of Commercialisation, Liquidity and Investment Products, Global Liquidity and Cash Management and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management at HSBC explain, virtual accounts are attracting increasing attention in this respect. 


Virtual accounts are not a new concept, having previously been used to improve the accurate identification of receivables, with payees being allocated their own individual virtual account number to pay into. The same virtual technique has since been re-used to allow those managing funds on behalf of multiple clients to segregate client money effectively, whilst still holding funds in a single bank account. 

Today, virtual accounts are being re-imagined as ‘Next Generation Virtual Accounts’ (ngVA) and being put to use in new ways to help treasurers solve today’s cash and liquidity management challenges. 


Account management and payables 

Leading treasuries are now looking to virtual accounts to deliver a number of specific benefits in the cash management space. A case in point is reducing the number of physical accounts required to run day to day operations. Obviously, any physical account has to be replaced by a virtual account, but all other things being equal, the administrative overhead required to run that virtual account will be less than for the corresponding physical account. 

For instance, virtual accounts have the potential to ease the burden of account opening and administration, with tools and services being developed to allow far more ‘self-service’ for clients. This self-service could extend to the online creation and maintenance of virtual account structures, providing corporate treasuries with a far greater degree of control and flexibility. At the same time, the benefits of visibility, control and reporting that come with a suitable physical account structure are maintained. 

A second theme is the desire of treasuries to increase their centralisation of operations and how virtual accounts might help them accomplish this. By using virtual accounts they have the opportunity to build a structure that represents (for example) a set of business units or subsidiaries that can be managed centrally by treasury. Treasury can then make payments on behalf of (POBO) these business units or subsidiaries. The advantage here is that this can deliver the clarity required at the entity or subsidiary level, but still provide a centralised operation for the central treasury, as well as potentially being more cost-efficient to run. 


Receivables 

Another established use for virtual accounts that is attracting increased attention is improving the accuracy of allocating remittances to specific customers. Instead of providing customers with a generic physical account number to which to send their remittances, companies give out individual customer-specific virtual account numbers. Therefore, only that customer knows that account number, so only that customer can send remittances to it. By being able to allocate reliably to a customer level in this manner, treasuries and finance functions are taking a significant step forward in terms of process and cost reduction. This is far more efficient than trying to identify individual customer remittances that are all being made to the same account. 

Furthermore, the relative ease with which virtual accounts can be used to segregate business units/entities means that this degree of granularity can also be extended down to the smallest entities in the corporate structure. This can then be leveraged to maximise the centralisation and efficiency of the receivables process through mechanisms such as receivables on behalf of (ROBO). 

Virtual accounts also fit well with innovations under way in financial infrastructure. Combining the accurate payment referencing made possible by virtual accounts with initiatives such as SWIFT gpi and new immediate payment systems will further increase efficiency and STP, while also reducing the costs associated with manual intervention. Eventually, tracing payables and receivables in near real time from origin to receipt should become a reality, rather than an aspiration. 


 

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