Virtual Becomes Reality: Virtual Bank Accounts Streamline Corporate Treasury

Published  3 MIN READ


Anders la Cour, Co-founder and Chief Executive Officer of Banking Circle investigates how virtual accounts are helping treasury departments manage cashflow more efficiently.

Managing liquidity is an ongoing challenge for any business. Ensuring cashflow is maintained and balanced is vital to business success – any imbalance can have devastating effects, especially on smaller firms. Separate accounts for each client is one way to increase transparency and reduce the time spent reconciling payments with invoices. However, managing a huge list of bank accounts can add to the burden rather than ease it.

Despite living in an age of international interconnection and e-commerce, cross border payments remain a stumbling block capable of stifling business growth. One increasingly popular solution to this growing problem is virtual accounts.

Painkillers for payment management

The business holds a master account and creates a virtual account for each client or partner so that payments can be identified more easily. Clients send payments to the relevant virtual account and they can then be settled back to the master account or kept separate depending on the business requirement. When the payment is received, sender details are recorded so that the payment can be instantly recognised and matched with an invoice, increasing payments acceptance.

Local payments can be made simpler and easier to manage with virtual accounts, but the biggest benefits are undoubtedly felt in processing cross border payments. Some virtual accounts available can provide an International Bank Account Number (IBAN) so that payments can be made into the account by clients based all over the world. Virtual IBAN accounts are opening up borders, breaking down international barriers, and allowing many merchants and service providers to transact internationally for the first time.

The currency problem

Industry experts in the past few years have warned that the increasing volatility between cross currency rates will continue to present huge challenges for organisations as swings become larger and more violent. This has been a reality for UK businesses ever since the Government announced there would be a Referendum to determine if the country wanted to stay in the EU, not to mention when the result was confirmed.

Depending on the provider, Virtual IBAN accounts ensure payments happen in real-time and at low cost, with good FX rates. For example, Banking Circle Virtual IBAN provides segregated IBAN accounts with access to a substantial liquidity pool that protects businesses from fluctuating FX rates, making forecasting more accurate and international trade more achievable and affordable.

Virtually rewriting banking solutions

For treasurers, virtual IBANs deliver full transparency alongside faster settlement and reconciliation. We know from numerous conversations with heads of businesses, that many companies have a straight-through processing (STP) rate of 50-60% for payments reconciliation and must employ a team to manually intervene and process the remaining 40-50%. Processing payments via virtual IBANs means that all payments are completely segregated at IBAN level as each IBAN is assigned to the sender which eliminates the need for manual intervention and allows businesses to achieve 100% STP for payments settlement and reconciliation.

There are advantages for payment providers, too. Enhancing the service payments businesses and other financial institutions can offer their customers, virtual IBANs create a crucial competitive edge. And all without requiring any significant investment in resources or systems. With end-to-end transparency and clear segregation of funds, virtual IBANs also provide reduced AML and KYC risk.

At Banking Circle, we believe that the future of payments is cohesive – in the not-quite-near-enough-future there will be no differentiation between local and cross border payments. All payments will occur quickly, at low cost, and eventually without any cost implications. Payments will simply be payments. We are continually working to make this future a reality as soon as possible.