Visibility and Control for Corporates

Centralisation and agility

If the last few years have taught treasurers anything it is that they need to be able to react to world events quickly. The concept of agile treasury management whereby the business of treasury can perform alongside such events has become a necessary means of survival. Virtual Cash Management (VCM) is a powerful tool that allows corporations to adopt an agile treasury management model. Not only does VCM help treasurers react more quickly to events, but it also helps them achieve their strategic goals be they centralisation, cost efficiencies or risk reduction.

At its simplest, virtual cash management involves organising and reporting transactional data from a rationalized number of physical bank accounts. Segregation and aggregation of transactions and balances enables a centralised visibility of liquidity using virtual account structures, while providing transactional detail at virtual account level for reporting and audit-trail purposes. Virtual cash management can be self-administrated which means corporates can decide which accounts to open and initiate this themselves. The Tietoevry “Future of corporate cash management” survey in 2022 highlighted that corporates find the process of bank account management to be cumbersome and costly so anything that helps this is welcome.

A little-known fact is that virtual accounts corporate customers can create account structures reflecting liquidity held in accounts in other banks, with a multi-bank virtual overlay consolidating liquidity positions. Account information from other banks can be populated through statements or Open Banking APIs (e.g., PSD2). It is also possible to initiate payment requests from the virtual accounts that are linked to the physical accounts held in the other bank. As the corporate trend continues of banking with multiple banks (see survey) then this becomes even more relevant.

Additionally, VCM provides a mechanism for administering “on-behalf-of” relationships within entity hierarchies and centralised payables and receivables processing. In such a structure, payments and collections of an entire company can be managed from a small number of dedicated physical bank accounts owned by the parent entity and supported by virtual accounts. Centralisation of this nature brings other benefits including improved liquidity, better FX rates and reduced risk.

VCM enables banks to offer their clients more simplified banking structures which support business growth and bring greater control and visibility to treasury processes. Corporates want banks to be their partners and this value-added service helps with that relationship.

The latest virtual accounts technology enables a fundamental transformation in the provision of global cash management services. For example, notional pools associated with the same physical account in a domestic structure can be administered virtually, where participating entities are linked virtually to the same physical bank account. Pooling and sweeping enable customers to gain a greater visibility of their cash and thereby better control, something that corporate treasurers are always striving for.

Virtual cash management is perfect for corporations that are seeking

	Central visibility of multi-bank funds.
	Real-time and centralised visibility and control over corporate liquidity positions.
	Real-time reporting to support more efficient cash flow forecasting at the entity level.
	Rationalisation and simplification of physical bank accounts and banking relationships leading to cost reduction.
	Improved efficiencies and levels of automation in incoming funds allocation processes.
	Enhanced reporting to ERP and associated improvements in levels of straight-through reconciliation.
	Trackable and transparent transaction data.
	Support for POBO and COBO centralisation and factory models.
	Full self-servicing capabilities to define additional virtual account services (e.g., interest apportionment and reporting) to reflect corporate operations and ERP structures.

Example: Virtual cash management