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Transaction Security

Virtual bank accounts for cash management

By | Banking, Money transfer

A virtual bank account has the potential to significantly improve a company’s cash collections. Enhanced automation and accelerated cash centralization adds up-to-the-minute liquidity to enterprise accounting operations. For this reason, electronic payment via virtual banking is fast becoming the preferred source of payment across the globe.

Which payment instruments availed to customers for response to remittances can have a significant effect on an eCommerce or traditional company’s ability to improve cash flow performance.

How does a virtual bank account work?

Like traditional bank accounts, virtual bank accounts can be set up to receive paid in funds. Virtual bank accounts also enable an account holder to utilize the bank account number as a payment reference in reconciliation of intraday and end-of-day collection records by way of an automated reporting feature. For exporter merchants, a virtual account offers a solution to acceptance of multi-currency payment in international and eCommerce trade. Pricing of virtual bank accounts is charged on a per account basis or a per sweep basis.

Promoting Transaction Security

Virtual bank account architecture is supported by International Bank Account Number (IBAN) system transaction coding. Society for Worldwide Interbank Financial Telecommunication (SWIFT) system IBAN accord individual identities to each bank branch within the network. IBANs identify virtual accounts with designated codes used between two banking institutions to transmit transaction data or transaction communications. During a transaction, virtual IBANs verify settlement account numbers held by a corporation or business.

Virtual Accounts are Data Value Added

Remittance information gathered via a virtual bank account can be fed into an enterprise system automatically for reconciliation and control of financial accounts and outstanding invoices. Less expensive for businesses than manual reconciliation, virtual bank accounts can boost the efficiency of an enterprise, by reducing the cost, time, and error quality control associated with accounting and reporting. Electronic remittances may also support rationale for a company’s investment in new technology. Data value added transparency is the end result. When it comes to regulatory adherence to financial control, companies employing automated accounts receivable processing are more likely to survive an audit.

The Pros and Cons to Virtual Bank Accounts

Pros

The use of virtual bank accounts for collections and transactions enables a company to resolve barriers to to the account receivables reconciliation process by way of cash management centralization. For companies with multiple divisions, virtual account management enables a more effective and efficient method of managing a cash in the interest of on-time delivery.

The utility of virtual accounts can also be seen in implementation of payment gateway functions as part of a company’s value chain. The integration of a virtual bank account as part of a company’s enterprise system serves to decrease operational costs and transaction risks related to accuracy of account receivable reconciliation. The result: customer credit limit advancement and increased sales by synchronizing the financial supply chain with order operations.

Cons

One of the cons to using virtual bank account numbers to conduct business, is the pass-through aspect of a centralized, virtual bank account as cash account center for operations. Virtual accounts depositing transactions into a company’s centralized account do not hold value the general ledger at banks. This can cannibalize the fee stream from company division accounts, as well as cash pool sweeps. Yet there is still an upside in that bank revenue is likely to grow from transaction sweeps from division virtual accounts to header accounts, which provides cash flow for parent company operations and investment.

Virtual bank account providers

In Europe Barclays and BNP Paribas are two giant banks providing virtual bank account solutions. If you’re looking for a more affordable solution B2B Pay is worth checking out.