Cash & Liquidity ManagementCash ManagementUnlocking the path to clarity in cash management through virtual accounts

Unlocking the path to clarity in cash management through virtual accounts

In today’s economic landscape capital clarity is essential

In the disruption following the global lockdown, it became immediately clear that for corporates in today’s landscape, better cashflow management and forecasting have become even more significant priorities. But that’s easier said than done as finance departments scramble to get accurate, up-to-date overviews of their cash positions.

And as the uncertainty continues, corporates are not only looking to minimise the time it takes from capturing a cash ‘snapshot’ to creating an accurate cash report, but are also increasingly reliant on real-time working capital clarity to inform their next steps around recovery

“Corporates today, have had a heightened focus for real-time availability of insights, which are critical to making informed capital decisions”, says Jeffrey Edison, global solutions lead at Oracle Financial Services. “They wanted an accurate visibility of information in order to predict the short- and medium-term future as the pandemic evolves.”

Edison points out that corporates in every industry – and in no matter what position – benefit from having real time visibility.

“When you’re cash rich, you want to optimise your working capital, accessing the liquidity you have spread across the globe. When you’re cash poor, you need to manage it even more effectively so that you’re not paying to borrow money.”

For Edison, one of the key enablers to cash visibility and forecasting is the use of virtual accounts but places the caveat that virtual account management (VAM) alone is not the entire solution.

“VAM isn’t the tool that allows you to do cash flow forecasting at the snap of your fingers, but it’s a piece of the puzzle; it’s part of the solution.”

A typical use case of virtual accounts allows commercial clients to replicate their corporate structures virtually. These virtual accounts mimic the organisational set up but link to the actual physical accounts that a corporate has with the bank, in turn simplifying the complexity of managing many physical accounts.

Whereas a corporate could have hundreds of virtual accounts, it may have only a dozen or less real physical accounts with their banking partner, says Edison.

“With virtual accounts, [corporates] have the self-service functionality they need to open as many accounts as necessary to track, monitor and manage their various payables and receivables. From a corporate point of view, it just simplifies things immensely.”

Compared to opening a new physical bank account, virtual accounts can be opened and closed by the corporate without intervention from the bank.

“[From the bank’s perspective], you can also have a lighter touch on KYC. You don’t need to do KYC and customer due diligence for every account that is opened because you’re doing it at the customer level. Whereas with physically separated accounts, generally the bank wants to know why you are creating more accounts and account openings typically involve a lot of paperwork”.

Combined with open banking initiatives like PSD2, VAM can also provide a central depository of information for a global corporate’s cash position.

“With Open Banking APIs, corporates can have real-time access to physical accounts in other banks. They can then include those [accounts] into the virtual account structure. Corporates consider, ‘do I need to do sweeping or topping between my virtual accounts and the corresponding physical accounts in different banks.”

With the ability to look at its accounts from different banks around the world, a corporate has greater accessibility and data control to better utilise its working capital.


Edison – who has helped implement several VAM projects – says virtual accounts can also help with cost-savings.

“For one of the corporates that I worked with on a project, the payments that they had going between their subsidiaries represented 40 percent of the total payment volumes that they had. They were sending payments out to their banks; it would go from one bank to another bank and then it would come back to the corporate in another country.

“Using virtual accounts, that company has eliminated 40 percent of the payment volumes that they were sending out and, in some cases, waiting on the money for several days”.

However, Edison says businesses need to look at their own needs before deciding if virtual accounts would be worth investing and integrating into their existing structure.

“Small businesses, or those businesses who mainly focus in a local market, could use virtual accounts but it probably wouldn’t really make sense.”

“For a company that predominantly works in a single currency or domestic marketplace, there are less advantages for using virtual accounts. Companies that can benefit from VAM are now defined not by their size but by complexity and business breadth. In addition, there are business areas where virtual accounts make a lot of sense, like property management or legal firms, for client money segregation. Businesses that handle other people’s money, debts, payables and receivables.”

Ultimately, virtual accounts are only one part of a greater machine that enables real-time forecasting and Edison says it takes a combination of several digital tools to get real-time visibility.

“When you can combine information from a bank’s virtual account management system, the bank’s physical accounts, corporate’s ERP system, and other systems at the bank like payments, only then can we get to a complete and accurate real-time view of cashflow. In addition, artificial intelligence and machine learning allow predictive cash flow forecasting to forecast future cash flow surplus or shortfall”.

“Nobody’s ever going to be able to predict the next Black Swan event like this pandemic but having visibility and control equips corporates to manage unexpected situations more responsively.”

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