One of the claims for SEPA has been that it would be possible to have far fewer bank accounts in the Eurozone as there would be no need to have a local bank accounts in every country This is true, and is being achieved by many companies, but how far can the bank account reduction programmes go?
Bank account dreams
Many corporate treasurers are trying to reduce the number of bank accounts, and have set up rigorous control procedures to minimise or even stop the opening of new bank accounts. Some corporate treasurers dream of just having the four bank accounts per currency that consultants say is the minimum: an A/P account, an A/R account, a treasury and a payroll account. Even fewer dream of one bank account per currency, and no-one really hankers after single account for all currencies - but these are all possible theoretically.
There are all sorts of problems in trying to achieve one bank account per currency. One of the many problems is that large groups keep setting up new legal entities, and/or buying other groups/companies. But in the age of virtual account technology, what is sensible? cost effective?
Virtual account technology is here, and it works
One of the leaders in virtual account technology systems and platforms is CashFac who have been providing virtual account based services for many years. The services are based on an advanced platform which enables corporate treasury departments to run their cash management from just one bank account in which they can have multiple virtual accounts with this single account.
Source & Copyright©2014 - CashFac
And within the single account, the CashFac Virtual Banking Technology architecture supports internal (operational and management) and external views controlled by permissions. Alastair McGill, Managing Director, Global Business at Cashfac, explains, "Cashfac partners with Banks who place our virtual account technology at the heart of many of their corporate cash management services. For example, one financial services client we're currently engaged with has embarked on a project to reduce around 25,000 real bank accounts to one and then utilize virtual accounts beneath."
Multi-dimensional views of External Bank Accounts
Source & Copyright©2014 - CashFac
Users of the CashFac platform, include insurance companies, estate agents and many more, who need to centralise their liquidity and minimise bank charges.
One account per currency per a country? or one globally?
One major multi-national corporation with a Shared Service Centre in a country in Eastern Europe uses just one bank account to make and receive all intra-country payments in the SSC country. They have set up a referencing system to allocate unique references to each payment and each receipt. This involved making sure all business units and their customers used the correct code. The system is working well; however, they have not rolled the system out world-wide. The set up cost-benefit of introducing the reference numbering system, etc. in all the business units was too great to warrant the investment. There are easier and more attractive ways to invest their time and resources.
For most corporates a single bank account per currency remains an elusive target. It is probably simpler to aim for four: an A/P account, an A/R account, a treasury and a payroll account. This involves fewer legal and procedural hassles, and, given the maturity of the virtual account platforms and the understanding of how to manage virtual accounts, is definitely doable. Particularly, if the business is just being set up.
One account for all currencies - a step too far?
Danske Bank’s multi-currency account for cash pools, which was launched in 2011, allows companies to hold all their currencies at the bank in a single account regardless of the number of currencies. There is real-time updating of the account as any funds are deposited or used. Corporate clients choose a base currency which is used to calculate the overall nominal balance of the account, as figure below shows.
Source: Danske Bank
This account minimises the need to carryout swaps to fund the ebbs and flows of daily trade and minimises exposure. The One Account is available in any nominal currency and in any location where Danske Bank has branches.
This OneAccount isn’t really an account for all currencies. It is just a way of looking at the value is held at Danske Bank.
CTMfile take: In the long run, having fewer bank accounts is normally cost-effective - it saves time and money and is often simpler, while having excessive numbers of bank accounts can be costly and complex. However, striving for just one account can also be complex and expensive. Maybe corporate treasurers should aim for: four accounts/currency and open as few as practically possible above this?
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