Transform your treasury department today with VAM
When it comes to their treasury, most companies envision their funds for all sorts of purposes flowing from one big account. Stakeholders who work outside of the treasury department may also imagine the work to be simplest when only one master account is involved. But in practice, operating a treasury in this manner is extremely difficult for the officers involved. The easiest comparison is trying to recall information from an encyclopedia-length book when you don’t have any bookmarks or page markers on hand.
Luckily, virtual accounts can serve a similar purpose to page markers in the context of treasury operations. The area of virtual account management, or VAM, entails the creation of stand-in virtual accounts to make or receive payments for a real or “base” corporate banking account. Within this innovative new system, it’s possible for these virtual accounts to operate on multiple levels or within a hierarchy, i.e. having sub-virtual accounts under one virtual account.
In the VAM system, more than one virtual account can be linked to a corporation’s real account, and each account can serve a different purpose. For example, there can be separate virtual accounts for each business line the corporation handles, or separate virtual accounts for the corporation’s accounts receivable and accounts payable. Further, under the accounts receivable, each individual remitter that the corporation receives payment from can have their own virtual account, and so on and so forth. For these reasons, interest in virtual account management solutions is currently on the upswing. Though they require considerable upfront investments, VAM solutions offer corporations a higher level of organization, flexibility, and customization in their treasury management—which are definitely needed if the organization wants to make a profit.
Below is a briefer on why VAM is seeing widespread adoption among banks and their corporate clients, as well as what areas of treasury management the VAM system can change for the better. If this is your first time hearing about VAM, read on about its potential impact on your treasury department.
The burdens corporate treasurers face—and how virtual account management can relieve them
Corporate treasurers serve as the financial risk managers of their home companies. In order for them to do their jobs properly, they require both complete visibility and control over their organization’s funds. After all, this is what allows them to make the best decisions about the corporation’s money given their limited resources, as well as the complexities of the financial system.
In today’s challenging environment, it is the dream of these officers to manage lean and agile treasuries that don’t overtax the company’s central resources. But managing money from only one real corporate account tends to have the opposite effect. This style of treasury management can be extremely cumbersome, and if it relies on processes like manual reconciliation, it can suffer from regular errors and delays—thus costing the institution even more money overall.
The road to better treasury management lies in the proper utilization of both human resources and technologies. The latter is where VAM comes in. These solutions are now offered by banks to their clients in order to enhance the operational efficiency and real-time responsiveness of corporate fund management.
3 key areas that virtual account management will transform
Transitioning to a VAM-driven system will improve your treasury management in three key aspects: your accounts receivable and accounts payable management, your corporate liquidity management, and your granular money management for clients of your own. Below are some details to illustrate how VAM can work for your department.
Accounts receivable and accounts payable management
The virtual hierarchy provided by a VAM system is particularly useful in keeping track of individual accounts payable or accounts receivable. There’s no longer a need for the corporate treasurer and their team to do manual tallies using only data from the real account, which is often quite difficult to sift through. The individual accounts can serve as markers for who owes something to the company, who the company owes, and how much is owed per entity. This could also increase your accuracy and timeliness in either collecting or disbursing your company payments.
Management of corporate liquidity
VAM also provides an elaborate, but clear tagging system for all the assets that determine a corporation’s liquidity. While the cash situation is always centralized, the individual virtual accounts can help give a visual breakdown of balances and available funds at the entity level. Along with representing individual entities, the virtual accounts can also be assigned their own internal credit limits or sub-limits. In addition, these individual accounts can clearly reflect the liquidity of assets that are quantified in currencies other than the dollar. Suffice to say, it will allow corporations to keep exact and detailed tabs on their liquidity situation, which is crucial in their decision-making.
Segregated money management
Lastly, the VAM system allows banks to assist their corporate customers in managing their money for separate clients. Funds will still be centralized in the corporation’s real account, but separate virtual accounts can be assigned for pension funds, co-op funds, property management funds, and others. For many companies, the added facility for compartmentalization can bring some order to the chaos and help them service their own clients to the best of their ability.
Conclusion
In summary, a modern VAM solution can offer your corporation some added efficiency in moving and organizing funds in your treasury. Such solutions are flexible and can be customized according to the needs of the business using it. Make good on your investment in VAM by finding a trustworthy banking partner that can deploy this kind of solution for you. Then, you will be able to watch as your treasury management steadily improves.
