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What can virtual accounts do for you?

The next generation of virtual accounts improve visibility, control and centralisation of receivables management, according to HSBC's senior commercialisation manager, Liquidity and Investments, Timothy Bartlett. So-called virtual accounts are a way to manage incoming payments from customers or subsidiaries by using unique account numbers or identifiers to sort or allocate the receivables, while the payment is visible and manageable from the company's main physical account. This allows the accounts receivable team to see exactly who has paid, which is a great benefit.

But the use of virtual accounts among corporates isn't as widespread as one might suppose. This article published by iTreasurer explains why some corporate treasurers are not completely convinced. Drawing on comments from a NeuGroup European Treasurers’ Peer Group meeting, held at the end of last year, the qualms noted by iTreasurer include a problem with the term 'virtual account', with some preferring to call the structure a subaccount. Other concerns are more concrete, such as the tax and audit implications of virtual accounts in some jurisdictions, as well as the know your customer (KYC) requirements for virtual accounts covering multiple legal entities.

In an article earlier this month, HSBC's Bartlett claims that his bank's next-generation virtual accounts offer the corporate treasurer several benefits:

  • There is easier administration for the corporate, who can request a virtual account allocation through HSBCnet. The bank still has to carry out the full KYC process on the legal account holder and due diligence has to be done on different entities holding virtual accounts.
  • The payments and receivables “on behalf of” model (Pobo/Robo) is offered. Bartlett writes: “The segregation provided by the virtual accounts ensures traceability and transparency, while at the same time simplifying the process of making payments under a POBO model.”
  • Virtual accounts also give the treasury good cash visibility and can provide liquidity management in a similar way to notional pooling. But unlike notional pooling, virtual accounts create a net intercompany position.
  • Bartlett adds that the cost of a virtual account is lower than for a normal, physical bank account: “As they are actually ledger records, not real bank accounts, the costs associated with operating them are lower than for physical accounts.”

Citi also announced a new virtual accounts products for corporate clients last year.

However, it seems that not all corporate treasurers are comfortable with the idea of virtual accounts and perhaps, in some jurisdictions and circumstances, the benefits of better receivables management are outweighed by concerns over KYC and audit/tax trails. Interestingly, iTreasurer writes that the corporate treasurers who were in favour of virtual accounts tended to deploy them in smaller markets and developing countries. Despite the progress banks like HSBC and Citi are making, virtual accounts might continue to have their greatest practical application in select circumstances and smaller markets.  


This item appears in the following sections:
Bank Relationship Management & KYC
Know Your Customer
Payments - Bill Collection
Accounts Receivable Management

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