Commentary
All your cash in one place – but with each transaction tagged so it can be identified and allocated automatically. This is the promise of virtual bank accounts: the first offering was a unique IBAN for each customer to pay into, although all the cash really goes into the main account. This makes it easier to reconcile the receipts to invoices – the customer is already identified.
The second step is to keep one bank account, but give each subsidiary or division its own IBAN: no need for cash sweeping or pooling – all the cash is in one place. But you can then use the tags on the records to constitute and account for each entity. This structure is used by many in-house banks.
Banks have been marketing virtual accounts for more than a decade. In a recent CXC poll (results here) , 30% of respondees said they use them: of these, 84% found the product met or exceeded expectations, while 16% were disappointed.
So – what is happening? Why hasn’t the product taken the world by storm?
Overall:
Some peers have effective solutions, which vary from complete in-house banks to receivables and payables solutions with varying degrees of sophistication.
Others have found that they are able to achieve many of the objectives of virtual accounts by using the enhanced data recognition and machine learning capabilities of more recent ERPs. These peers generally found virtual accounts added limited value.
During our call, we learned of unexpected uses of virtual accounts. These included managing payroll confidentiality, enforcing limits on employee credit cards, and segregating customer cash.
Positive cases:
- One peer achieves significant benefits, not only from cash pooling, but from eliminating the need to do intercompany settlements. Several peers have implemented...
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