IBANs help usher in the next generation of virtual account management

By Matthew Davies | 11 October 2016

The introduction of the Single Euro Payments Area (SEPA) two years ago, ushered in a new wave of payment systems to meet the regulatory call for the increased simplification of bank transfers. Since then, as corporates seek innovative ways to reconcile their vast numbers of accounts, virtual account management (VAM) is gaining popularity as the next generation of data reconciliation.

Put simply, VAM allows companies to create, modify or close from a single, physical bank account, separate virtual accounts (VAs) to segregate and organise their payments, receivables and payroll. A limitless number of VAs can be set up which provide clearer visibility for reporting and liquidity purposes, helping treasurers achieve greater control over transaction activity and reconciliation. VAs also create opportunities for companies to centralise, streamline and reduce the number of physical accounts, in some cases by as much as 93 percent or more.

How IBANs are helping pave the way

Early incarnations of VAM solutions used reference numbers, but this proved problematic when the ‘unique identifier’ was omitted or incorrectly entered. The use of IBANs has dramatically changed this.

As IBANs were created over 19 years ago, customers are already familiar with using them for paying into specific bank accounts. Furthermore, as IBANs replace manual intervention with automated processes, not only do they reduce errors, they also improve transaction speed making the payables and receivables process more secure, efficient and faster, and benefitting both the company and its customers.

Furthermore, not only are IBANs standardised globally, but payment orders can be verified before monies are transferred, allowing companies to more easily manage their cross-border payments and at the same time, mitigate risk.

Practical advantages of virtual accounts

VAM also offers a number of other important practical advantages. As IBANs can automatically identify remitters and are not dependent on the quality of details provided in the payment reference field, administration costs and the need to employ personnel to manually reconcile receivables can drastically decrease. Reporting quality also improves because VAs speed up processing with transactions captured and displayed on statements in real time and securely, providing companies with timely, customised reporting and more visibility of data. In addition, the credit control process is stronger because VAs enable timely and accurate reconciliation of collection information, thereby delivering a clearer picture of customer accounts.

An enhanced VAM offering will also integrate with other products and lines of business, such as liquidity, trade and FX, to provide clients with a true end to end solution beyond simple payments and receipts reconciliation.

The future is virtual

VAM allows companies to have more control over their payments and receipts reconciliations, and streamlines traditional account structures. By taking it a step further and using internationally recognised IBANs as the unique identifier, VAM also reduces the need for manually entered reference data and makes tracking and reporting of transactions easier. In an age when treasury team’s remits are increasingly complex and stretched, VAM’s straight-forward, automated approach is a welcome solution that is fast being adopted. 

By Matthew Davies, co-head of Product Management, GTS EMEA, Bank of America Merrill Lynch.

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