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Virtual Accounts: A Solution for All?

  • By AFP Staff
  • Published: 4/27/2021

For treasurers, attaining visibility to, and control of, cash is a critical objective. Although today’s technology makes achieving that objective easier than ever before, it does require companies to know how best to deploy the various solutions and innovations that are available.

Many potentially useful solutions are misunderstood as being overly complex or only suitable for certain types of organization. The result is that some of these solutions are ignored, even by the very companies that would benefit most from using them.

One such misunderstood tool is the virtual account structure. Virtual accounts have been around for a number of years, in a few different guises. Because they are integral to the operation of many in-house bank structures, it is understandable that some organizations write off virtual accounts as not suitable for them.

The reality is much different. Virtual bank accounts can be used by almost any organization that wants to improve visibility to cash, with benefits to companies of any size and complexity. Many businesses use virtual accounts already, whether as a tool to help manage different pockets of cash or as an aide to receivables reconciliation.

Virtual accounts are similar to traditional physical accounts in many ways. From a functional perspective, virtual accounts may be directly addressable with their own bank account number, or assignable via an additional reference number. Technically, a virtual bank account is a sub-account within a traditional physical bank account held by a company with a bank.

For most organizations, once a physical bank account is established, a virtual bank account structure can be easily set up, as most of the pain associated with additional bank accounts – such as knowing your customer and managing signers – is stripped away.

The AFP Executive Guide to Virtual Account Management examines the potential benefits of a virtual account structure in more detail. Three points stand out:

  1. Virtual account structures are highly flexible. Companies can set up virtual accounts to meet their particular needs on day one. Once operational, structures are easy to amend to reflect users’ changing needs. They can be used as a tool to aid centralization, or they can help segregate funds by project, business unit or client.

  2. They can be “technology lite” for the user opening or operating virtual accounts. It’s a common misconception that companies need a complex treasury workstation to manage virtual accounts. In reality, any bank that offers virtual accounts will provide the same service treasury expects when using traditional bank accounts — although organizations can choose to run the virtual accounts themselves. Companies just need to be able to capture the data provided by the bank.

  3. Any company can improve visibility to cash by using virtual accounts. The key benefit is that companies can eliminate many physical bank accounts, simplifying their account structure at a stroke, making it easier to track the flow of cash through an organization, whatever its size and complexity.

For these reasons, virtual accounts can, and do, help organizations use cash and working capital as efficiently as possible.

See the AFP Guide to Virtual Account Management for more information.

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