As corporates have become increasingly international, their liquidity and risk management challenges have become more complex. As a result, the role of a corporate treasurer is becoming increasingly strategic, with treasurers now having a far wider range of responsibilities than in the past. In a demanding and shifting business environment, treasurers are therefore looking for techniques and solutions to help them enhance efficiency and solve operational problems. As Jennifer Doherty, Global Head of Commercialisation, Liquidity and Investment Products, Global Liquidity and Cash Management and Mark Evans, Head of Payment Advisory, Global Liquidity and Cash Management at HSBC explain, virtual accounts are attracting increasing attention in this respect.

    Virtual accounts are not a new concept, having previously been used to improve the accurate identification of receivables, with payees being allocated their own individual virtual account number to pay into. The same virtual technique has since been reused to allow those managing funds on behalf of multiple clients to segregate client money effectively, whilst still holding funds in a single bank account.

    Today, virtual accounts are being reimagined as “Next Generation Virtual Accounts” (ngVA) and being put to use in new ways to help treasurers solve today’s cash and liquidity management challenges.

    Cash management

    Account management and payables

    Leading treasuries are now looking to virtual accounts to deliver a number of specific benefits in the cash management space. A case in point is reducing the number of physical accounts required to run day-to-day operations. Obviously, any physical account has to be replaced by virtual account, but all other things being equal, the administrative overhead required to run that virtual account will be less than for the corresponding physical account.

    For instance, virtual accounts have the potential to ease the burden of account opening and administration, with tools and services being developed to allow far more “self-service” for clients. This self-service could extend to the online creation and maintenance of virtual account structures, providing corporate treasuries with a far greater degree of control and flexibility. At the same time, the benefits of visibility, control and reporting that come with a suitable physical account structure are maintained.

    A second theme is the desire of treasuries to increase their centralisation of operations and how virtual accounts might help them accomplish this. By using virtual accounts, they have the opportunity to build a structure that represents (for example) a set of business units or subsidiaries that can be managed centrally by treasury. Treasury can then make payments on behalf of (POBO) these business units or subsidiaries. The advantage here is that this can deliver the clarity required at the entity or subsidiary level, but still provide a centralised operation for the central treasury, as well as potentially being more cost-efficient to run.


    Another established use for virtual accounts that is attracting increased attention is improving the accuracy of allocating remittances to specific customers. Instead of providing customers with a generic physical account number to which to send their remittances, companies give out individual customer-specific virtual account numbers. Therefore, only that customer knows that account number, so only that customer can send remittances to it. By being able to allocate reliably to a customer level in this manner, treasuries and finance functions are taking a significant step forward in terms of process and cost reduction. This is far more efficient than trying to identify individual customer remittances that are all being made to the same account.

    Furthermore, the relative ease with which virtual accounts can be used to segregate business units/ entities means that this degree of granularity can also be extended down to the smallest entities in the corporate structure. This can then be leveraged to maximise the centralisation and efficiency of the receivables process through mechanisms such as receivables on behalf of (ROBO).

    Virtual accounts also fit well with innovations underway in financial infrastructure. Combining the accurate payment referencing made possible by virtual accounts with initiatives such as SWIFT gpi and new immediate payment systems will further increase efficiency and STP, while also reducing the costs associated with manual intervention. Eventually, tracing payables and receivables in near real time from origin to receipt should become a reality, rather than an aspiration.

    This high degree of control and transparency, coupled with the potential for self-servicing also makes virtual accounts potentially valuable as client money accounts for professional firms, such as insurance companies and lawyers, or for landlords needing to hold tenant deposits in a segregated manner. Rather than funds being aggregated in a pooled client account, with all the attendant bookkeeping overhead, virtual accounts can be opened near instantaneously for new clients or tenants and then closed again when no longer needed.

    In-house banking

    On the payables side, there is growing appreciation of the role virtual accounts can play when operating an in-house bank. Individual business entities or subsidiaries each have their own virtual bank account, which considerably eases the correct allocation of entries to the internal in-house bank ledger.

    Looking to the future, the data and process automation possibilities raised by combining host to host processing and virtual accounts are likely to expand

    For those not already operating an in-house bank, virtual accounts offer the opportunity to implement and operate one at considerably lower cost than if using physical accounts. By the same token, assuming a capable virtual account solution is available from a suitable banking partner, the implementation of an in-house bank based on virtual accounts should also be appreciably faster than one based on physical accounts.

    In a sense, virtual accounts have something to offer businesses of all sizes. Many different-sized companies and businesses can benefit from having a clearer picture of which customers have paid them. Mid- and large-sized professional firms can benefit from their client money account capabilities, while large corporates can benefit in terms of smoothing the path to greater centralisation.

    Virtual plus physical: maintaining consistency

    There are certain countries where virtual accounts may have less applicability. For instance, some jurisdictions do not allow POBO, so the use of virtual accounts by central treasury to execute payments on behalf of business units will not be possible. However, assuming the company’s bank account has a sufficiently extensive global network and advanced banking platform, this can be worked around. In this situation, the corporate could open virtual accounts where POBO is permitted and physical accounts where it is not. Central treasury could still maintain control of both sets of accounts and have a consistent transparent global view of them collectively on its electronic banking platform.

    Liquidity management

    A third option

    If a corporation has created the optimal infrastructure for its payables and receivables, then by implication it will also have implicitly created a natural pool of liquidity. In this respect, virtual accounts are effectively an alternative liquidity management structure that fits conceptually halfway between physical cash concentration and notional pooling.

    In the case of cash concentration, various entities’ cash is co-mingled, which has prompted more sophisticated banks to create innovative ways of enabling their clients to track physical cash as it moves to and fro creating intercompany loans. Virtual accounts radically simplify this because they dispense with the need to move cash physically to concentrate into the parent entity. If the bank concerned has a virtual account offering that also includes intercompany tracking capability then virtual accounts effectively form the basis of a new and viable liquidity management solution.

    Any comparison with notional pooling also throws up some interesting opportunities for virtual accounts to act as an alternative or complementary solution. In the past, there has been a tendency among some corporate treasuries to use single entity notional pools in order to centralise cash, but also to be able to distinguish between each entity’s cash easily on a re-account basis. As virtual accounts are themselves essentially a quasi-notional pool for a single entity, they could provide a more flexible and cost-effective alternative in this respect.

    It is important to be clear that virtual accounts are not necessarily just a hybrid replacement for existing liquidity structures. They also have the potential to enhance those structures in terms of flexibility and cost. For instance, cash concentration might be made into a physical account that is part of a virtual account structure, on top which might be a multicurrency notional pool. Or a corporate might be operating a notional pool instead of cash concentration because its articles of association forbid the comingling of entities’ cash. Virtual accounts could obviously assist here in providing a more cost-effective and convenient alternative.

    As mentioned above, virtual accounts off er corporates the opportunity to self-manage account structures flexibly and at relatively modest cost. In the context of liquidity management, this opens the door to incorporating cash into a liquidity structure that might previously have been too inconvenient to add.

    Timeline, opportunity, technology

    It seems likely that those corporates already using host-to-host processing with their banks will be among the first to start using virtual accounts for streamlining payables/receivables using POBO/ROBO, and/or for further centralisation measures. Assuming the bank’s host-to-host solution supports the latest XML message standards, there is a natural technological fit here with virtual accounts in terms of STP data flows and automation/efficiency more generally.

    Looking to the future, the data and process automation possibilities raised by combining host-to-host processing and virtual accounts are likely to expand. One of the historic problems bedeviling the automated reconciliation of receivables is that clearing systems have limited capacity for handling remittance information (such as invoice numbers covered by a remittance) and so that information becomes truncated and partially lost during the clearing process. Banks have assisted here by providing parallel information routing mechanisms, or routing data internally (when payee and recipient are both clients). However, the modernisation of country payment systems to provide immediate payments solutions has also often included an increase in the number of characters of remittance information permitted in the payment message. A related innovation is the SWIFT gpi Rich Payment Data service, which supports the secure transfer of multiple associated data items via the cloud in parallel with (and linked to) a payment. Couple these developments with per-customer virtual accounts for remittances and there is clearly a very considerable opportunity to increase the automation of accounts by reconciling down to the item, as well as the customer, level.

    Although virtual accounts clearly have much to offer across both cash and liquidity, the extent of the benefits they actually deliver will depend heavily on the quality of a bank’s virtual account management platform and the number of countries to which the platform can be applied. A virtual account platform that is well integrated with the bank’s host-to-host and electronic banking platforms is obviously a must, as well as one that is easy to integrate with clients’ ERP or treasury management systems. In addition, the extent of the virtual account platform’s client “self-service” capabilities in terms of both administration and sophistication of virtual account hierarchy configuration is obviously an important consideration.


    Next-generation virtual accounts clearly offer opportunities to a broad range of businesses, from the global multinational to professional service companies. The intriguing point about them is that they are not just a solution that functions in isolation, but also a valuable catalyst that creates or improves capabilities across the whole cash and liquidity management spectrum. In addition, they may have possibilities in other areas, such as joint ventures, where there may be a need for segregation in the context of taxation.

    Nevertheless, if the virtual account benefit is to be maximised, the quality of individual banks’ virtual account platforms is the key, as is the extent of the country network across to which virtual accounts can be applied. An integrated platform that can be leveraged across a global network will clearly add the maximum value from the perspective of large multinationals seeking to streamline and centralise their cash and liquidity management.


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