A future-proof cash management solution within corporate banking will succeed only when corporate banks recognize the evolving demands of their corporate clients. This is no easy feat when considering the complex banking requirements large businesses have. The most notable being a good oversight of multiple accounts covering different parts of the business, across different regions and even countries.
Physical accounts can be expensive and time-intensive to open and manage. Virtual accounts, by contrast, can help corporate clients to boost treasury productivity while reducing costs. They also offer easy customization and flexibility, allowing businesses to adapt and scale to changing needs.
Additionally, Virtual Account Management (VAM) can be a powerful alternative solution to the operational challenges that come with managing multiple accounts.
This article explores how Virtual Account Management (VAM) can enhance cash management in corporate banking. It highlights how VAM boosts productivity, increases visibility, and provides flexibility, all while lowering costs and reducing complexity for corporate treasurers.
The complexity of corporate cash management
Managing cash deposits and transactions across multiple bank accounts is crucial yet complex. Large firms with global subsidiaries or cross border operations may handle thousands of accounts covering various segments.
Managing multiple bank accounts presents the challenge of limited visibility into a corporation’s cash position, making it harder to manage cash efficiently. This situation can also result in missed opportunities to reduce costs and streamline processes.
More than a fifth (22%) of corporate treasury and risk management professionals recently said that getting better visibility of their cash position and cash forecasting is a main priority.
For example, one account may be utilizing an overdraft and is paying an interest rate of 10% while another account has a cash surplus earning 5% interest. In this case, it might make sense for the entity with the cash surplus to have loaned or given money to the other division, ultimately saving the parent company interest payment costs.
This structure is known as pooling or sweeping but today, there are solutions in the market – like virtual accounts – to simplify or complement these structures.
What is virtual account management?
Virtual accounts are a set of administrative ‘sub-accounts’ underlying one physical bank account, usually known as the master account. Both the master account and the total of all associated virtual accounts remain synchronized using various accounting methods, all in real-time.
Payment postings to the master account are replicated into the virtual account hierarchy using either virtual account numbers or reference IDs, which allows for an automated reconciliation process.
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How corporate treasurers can use virtual account management
A modern VAM solution gives corporate treasurers and financial controllers a way of organizing and reporting data through a single bank account.
Additionally, through self-service features, treasury teams can organize account hierarchies and align them with their legal, operational, or business function structure regardless of business agility. VAM features like automated reconciliation, cash concentration, and cross-border cash management align perfectly with treasurers’ demands for optimized liquidity.
Some providers allow companies to combine VAM with traditional processes such as pooling and sweeping to enhance money management across the business.
Given that the money is centralized inside one master account, treasurers are also able to reduce or move away from complex liquidity arrangements such as notional pooling, which require strict regulatory oversight and are often costly to run.
Corporate’s VAM benefits in a nutshell
VAM empowers treasurers to shift from reactive cash managers to strategic financial leaders. It simplifies their operations, enhances visibility, optimizes liquidity, and provides the flexibility to adapt to dynamic business needs—all while driving down costs. With VAM, treasurers can focus on enabling growth and delivering value, positioning themselves as indispensable partners to their organizations.
Boost treasury productivity and cut costs
VAM eliminates inefficiencies by consolidating physical accounts into a single master account structure, reducing account maintenance costs and banking fees. Automated reconciliation and self-service capabilities minimize reliance on manual processes, saving time and labor while enabling treasury teams to focus on strategic priorities. This streamlined approach cuts operational expenses and improves overall treasury productivity.
Gain greater visibility to manage day-to-day cash better
VAM provides real-time, centralized visibility into cash positions across all accounts, subsidiaries, and regions. Treasurers can track and manage daily inflows and outflows with clarity, ensuring accurate cash allocation for routine operations. By integrating with existing ERP and treasury systems, VAM delivers actionable insights that simplify cash management tasks and improve control over liquidity.
Drive smarter liquidity decisions
With VAM’s predictive insights, treasurers can forecast cash flows with precision, enabling proactive decision-making to optimize liquidity. Treasurers can allocate surplus funds for investments, avoid overdraft fees, and ensure the company is always prepared for unexpected financial needs. This enhanced decision-making capability aligns liquidity management with broader business goals, strengthening financial resilience and creating long-term value.
Scale and adapt to changing business needs without extra burden
VAM empowers corporate treasurers to adapt quickly to changing business requirements by offering customizable and scalable virtual account structures. Whether it’s setting up accounts for new subsidiaries, managing project-specific cash flows, or restructuring accounts to align with organizational changes, VAM ensures treasurers can act swiftly without adding physical accounts or increasing complexity. This flexibility supports dynamic growth, acquisitions, or market shifts, enabling treasurers to stay ahead in a fast-evolving business landscape.
Finding the right virtual account management partner
To ensure having the right partner at your side, here is a checklist for choosing the right VAM provider.
- Functional capabilities: Does the solution meet your corporate bank’s specific needs? Evaluate the breadth and depth of the product features, including account structuring, cash management, payments and collections, reconciliation, reporting, etc.
- Integration ability: How easily can the solution be integrated with your existing systems? The best VAM solutions will seamlessly work with your bank’s existing ERP systems, treasury management systems, and other digital infrastructure.
- Scalability: Does the solution scale to accommodate the size and complexity of your bank’s operations? Whether it’s the number of accounts, transaction volume, or geographic spread, ensure the solution can grow with your bank.
- Cost: Evaluate the total cost of ownership of the solution, including licensing, implementation, training, maintenance, and upgrade costs. Consider the return on investment that the solution can deliver.
- Future-proofing: Does the solution incorporate the latest trends and technologies, like AI, machine learning, and automation? A future-ready solution can help your bank stay competitive in the long run.
Virtual Account Management will become a must-have feature in cash management as corporate banks look to build stronger customer relationships.
SAP Fioneer is capable of delivering virtual accounts within a few months. To learn more about our Virtual Account Management (VAM) solution, check out our demo options below.
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