Enter the world of virtual bank account. Are you interested in how these can help your Treasury and how to implement them in SAP? Look no further; in this article we will guide you through the first steps of virtual accounts in SAP.
In its most basic form, a virtual bank account can be described as a bank account number towards which a payment can be initiated, but where ultimately the credit is going to happen on a “real” bank account. It is a service that is mostly associated with a concept called “Collections on behalf”.
“Virtual account” (VA) is a product that is continuously developed by the global cash management banks. Within the product of virtual accounts, there are many variants and sub-services that a bank could support. Some examples:
In the most typical way, a virtual account structure is setup as follows;
So why would a treasury typically start implementing virtual accounts in their cash management processes?
Cash centralization: Cash centralization is ultimately the main goal of implementing any liquidity structure and virtual accounts are an excellent in supporting automatic processes to centralize cash to i.e. the treasury entity.
Centralized bank relationship management (and improved negotiating position): By implementing a centrally coordinated liquidity structure, the relationship with the bank can be centrally managed and negotiation position becomes a bit stronger.
Centralized bank connectivity: By implementing a centrally coordinated liquidity structure, bank connectivity can be centralized as well, bringing further reductions in IT costs.
Daylight overdraft facility requirement reduction: Where a zero-balance type of liquidity structure typically brings the funds into the master account after EOD, for any payments made throughout the day being executed over the master account, need to be funded through i.e. a daylight overdraft facility. By employing a virtual account structure on the other hand, the collections will be credited on the master account throughout the day, effectively funding your master account.
Intraday cash balance reporting: in a virtual account setup, as the credits flow in throughout the day on the master account, it becomes feasible to better estimate EOD balances from intraday statement reporting
Reduction of required bank accounts and associated costs: Depending on the bank and country requirements, typically opening a virtual account requires less effort in terms of KYC, contract work and suchlike, as compared to opening up a real account and hanging the account in the liquidity structure through i.e. a zero balancing agreement.
Reduction of vendor confusion: In a more classical Payment factory/Payment on own Behalf (POBO) model where a centralized Treasury entity executes payments on behalf of its operating companies, it is an often heard complaint of the beneficiaries of payments (i.e. trade vendors) that it is unclear that a payment originated from the operating company, causing issues in their reconciliation processes. Executing POBO through a virtual account attempts to remedy this.
This is the first part of a series on how to set up virtual accounts in SAP. Click here to read the second part, on Virtual Accounts Concepts.
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