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Virtual Accounts Help Treasury and Accounting Bridge Multiple ERPs 

By August 11, 2020 September 20th, 2020 No Comments

The advantages of using virtual accounts for accounting and reconciliation across ERPs.

A member at a recent NeuGroup meeting described his company’s pilot initiatives with its primary transaction banks in Europe to roll out virtual accounts (VAs).

  • Treasury is doing the projects in partnership with accounting which are aimed at reducing the all-in cost of account reconciliation, cash application and account maintenance (estmated by the member at about $4,000 per account) while also improving liquidity access and management.

Tangible benefits. The VA advantages are even more tangible for the member’s company, because of recent large acquisitions that have resulted in the company operating multiple enterprise resource planning (ERP) systems.

  • VAs allow them to identify payments and separate account statements, helping to automate posting and reconciliation across various systems.
  • Physical accounts reside in one ERP, and VAs allow for more seamless reconciliation in the other.

Another member with as many as 70 ERP instances noted that his company was also looking into VAs to help with reconciliation and cash consolidation in conjunction with its cash pools.

  • The company may begin by using internal dummy, subledger accounts in the general ledger (GL) vs. VAs.

VAs vs. subledgers. This prompted a debate on the merits of VAs vs subledger accounts in the ERP or even the treasury management system (TMS).

  • “Replicating real bank accounts with virtual accounts was deemed the easier sell to accounting and other functions, since you can get the whole account infrastructure, MT940 reports from SWIFT included,” one member noted.
  • You can also establish clear account ownership with VAs to do the reconciliation.

Reporting benefits. Mark Smith, head of global liquidity at Goldman Sachs’ newly launched transaction banking unit offering Virtual Integrated Accounts, concurs that the benefits of the reporting capability of VAs have helped fuel their growth among corporates.

  • A key advantage to a VA is the unique identifier assigned to each incoming receipt and outgoing payment so that the bank’s VA solution can attribute it to the correct VA, and in turn the bank account with which it is associated.
  • These identifiers can be simple reference numbers, or they can be configured as a clearly-recognized account number, such as an International Bank Account Number or IBAN, so a payment instruction need only contain the VA identifier to be automatically posted and reconciled across associated physical and VAs.

Tax concerns. While accounting can be easily sold on VAs, tax departments are more leery.  

  • Several companies reported tax being concerned about assigning VAs to multiple entities, for example, which would help transform pay-on-behalf-of and receive-on-behalf-on structures and allow in-house banks to fully leverage them.
  • To work around this, treasury must get tax comfortable with affiliates using VAs with the parent or treasury center like they would an intercompany ledger.
  • To do that, they must properly organize their payment and receipt structure in the centralized entity.
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Antony Michels

Author Antony Michels

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