The Reality of Virtual Liquidity Management

Box 1: Virtual accounts: a refresher

The term ‘virtual accounts’ is often used (sometimes erroneously) to refer to different solutions that fall under the same umbrella. To clarify, what many banks and treasurers call ‘virtual accounts’ are in fact virtual IBANs.

Meanwhile, the term ‘virtual accounts’ is also sometimes used to refer to administrative ‘subaccounts’ of one physical bank account, usually known as the ‘Master Account’. Under the Master Account, corporates can open, close, and modify as many virtual accounts as required by the business. They can also organise account hierarchies as they see fit. Since the Master Account forms part of the cash management bank’s ledger, this kind of solution is increasingly known as Virtual Ledger Management (VLM). 

One of the main benefits of VLM is that cash can be earmarked as belonging to a particular virtual account. This means that corporates can allocate funds without needing to segregate them physically. VLM can also help with overcoming some of the challenges associated with payments/collections on behalf of (POBO/COBO) structures.

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