Innovations such as the Single Euro Payments Area (SEPA) and the continuing onslaught of regulatory changes have made this a time for corporates to take stock of their treasury infrastructures. Instead of relying on smaller regional banks and duplicating costs by maintaining treasuries and bank accounts all over the world, corporates are beginning to acknowledge that innovations make it possible to consolidate processes without sacrificing information or control. A virtual account structure is exactly one such solution, allowing a corporate to reduce the number of actual bank accounts they maintain, potentially even down to one per currency.
There are several ways to achieve a sleeker set-up, but corporates are – rightly – concerned that they can be costly or disruptive, or, crucially, that a solution might only fix one problem, at the expense of others. Yet, some solutions can be easily accessed and have multiple benefits for treasurers, and such solutions will likely become increasingly popular going forward.
Through virtual accounts, a corporate can rationalise their account structure while maintaining the administrative convenience of having several virtual accounts from which to pay and collect. For example, in the case of payroll payments in different countries, salaries can be paid as usual by human resources departments using an account number corresponding to a virtual account, although – in reality – they are sent out from a single external account.
These accounts can be opened almost immediately and closed autonomously without bank interference – reducing the documents and administration otherwise necessary. It is a solution that places the corporate in control – allowing it to standardise treasury organisation and cash management across its global presence.
Streamlining is Advantageous
Centralising treasury in this way has a plethora of knock-on benefits. With virtual accounts, each customer is given an identifying account number for payables and receivables that can, in turn, be linked to a specific branch or subsidiary’s ‘account.’ In this manner, the potential loss of granularity that can be a danger of centralisation is avoided. Visibility is not a casualty of this tool at all – in fact, there is far greater transparency and information, with a real-time view of cash-flows.
Such clarity facilitates investigations into any customer queries, making them more quickly and simply resolved, which builds trust. And with greater visibility – and the potential to keep a hierarchy of groups distinct from one another virtually – comes better flexibility and control. It also enhances reporting, as one would expect, and eases compliance.
Workflows, then, are significantly accelerated – and reconciliations are automated and more often successful. Indeed, one of the most attractive benefits is the reduction in cost, inefficiency and risk. Automation means fewer demands on manual treasury workers and less chance of human error. Centralisation is more efficient, simply by eliminating the need for duplicate treasuries for example, and therefore less costly – and the system, suitable for both incoming and outgoing payments, is ideal for corporates handling high volumes of payables and receivables, such as pension fund distribution or rent collection.
Furthermore, virtual accounts position corporates to maximise interest returns from each account, and to process the documentation evidencing such gains with ease.
However, the benefits would be immaterial if this solution was impractical to implement. But that needn’t be the case; tools are available that allow corporates to manage their central and virtual account structures. A corporate can open and close accounts at will without going through the bank – accounts that are available for use within a working day. And by replicating their current branch and subsidiary accounts structure virtually, financial booking systems can be left untouched.
The capacity to open and close accounts with such ease, without affecting the overall structure, also expedites a company’s drive for growth. This aspect is a boon during periods of expansion or re-organisation; new accounts can easily be opened for acquisitions and new subsidiaries, and closed with obsolete ones. The virtual accounts structure can include foreign currencies – although this would require a “master account” for each currency – and individual statements are available for each virtual account, with the relevant information and reconciliation capabilities still accessible to local entities, ensuring confidentiality.
However, the transition will nonetheless be somewhat noticeable for local branches. Clearly, the need for a fully-functioning treasury at each subsidiary will be eliminated, and as the centre shoulders the responsibility, local branches will experience some loss of control.
It is essential to the process therefore, that all segments of the company are kept informed throughout, and that the efficiencies gained are demonstrated to outweigh any such local changes. It is also imperative that customers are escorted through the change from beginning to end – loss of information at any point would contradict one of virtual accounts’ major benefits.
With the right banking partner, however, this tool could be the future for many corporates, liberating them to access all the benefits of centralising treasury without sacrificing information or control. As borders become weaker and less pertinent through initiatives such as SEPA, and corporates wish to avoid dependency on small local banks, virtual accounts can herald an era of efficient simplification.
Treasuries should be centralised but also extend "strategic autonomy" to decentralised units because they need to be responsive and close to the customer, argues Richard Scase, author and business forecaster on global megatrends.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
This year promises to further the regulatory compliance burden imposed on financial institutions. How are firms in the sector responding to the challenge?