Virtual Cash Management to Empower Treasurers

Bert van Drie, Global Head Cash and Liquidity Management, ING and colleague Elly Bouwman, Customer Journey Expert Cash and Liquidity Management, discuss the benefits of establishing real-time cash management through centralisation.

In today’s rapidly changing world, the focus of the treasurer is continuously changing. With interest rates fluctuating, managing real-time cash positions, processing payables and receivables, and cash flow forecasting have become crucial in enabling treasurers to take advantage of the investment opportunities that stem from excess liquidity.

Centralising these activities helps treasurers to manage their risk and ensure that their financial needs are met. If corporates are impacted by geopolitical instabilities, cash management can become especially important. Companies need to be able to respond quickly to changes in the marketplace – and this requires effective cash management. Another focus for treasurers is the impact of inflation. Increases in the price of goods and services can have a huge impact on FX positions.

Treasurers can benefit from Virtual Cash Management

Through centralisation, Virtual Cash Management (VCM) is designed to help companies optimise their cash positions and gain real-time access and control. It is a unique combination of two solutions that can work separately or together to provide full real-time cash concentration and control, while also managing intercompany positions. The two solutions are Virtual Bank Accounts (VBA) and Virtual Ledger Accounts (VLA).

Virtual Bank Accounts optimise real-time cash pooling

Many treasurers are familiar with the set-up of a cash pool to increase central insight and optimise cash flow: a domestic and/or cross border account structure to manage working capital intraday and end of day. The next step is to have this in real-time.

VBA accounts are subaccounts that facilitate real-time transaction sweeping to a header account. This is achieved by an automatic real-time transfer of each received payment on a VBA account to a header account. For an outgoing payment from a VBA account, the VBA account will first real-time be funded from the header account.

The benefits for treasurers are real-time cash consolidation and real-time availability of cash on the header account. This results in funds being immediately available for investments to anticipate interest rate changes. Typically, VBA accounts don’t hold a balance (as funds are directly routed to the header account), therefore no overdraft or intraday limits are required, and no interest is calculated. This means that bank account costs and administrative workload can be reduced.

VLAs allocate cash without physical movements

VLA accounts are administrative (“virtual”) reference accounts that enable treasurers to allocate cash without segregating it physically. Treasurers can configure the VLA structures themselves, at any level, in line with business requirements. VLA accounts can be used by different sectors, across all type of industries, large corporates, manufacturing, infrastructure, real-estate, technology or service companies.

VCM client use case

Please click the image to view full-width

This example is based on a real-estate company with several entities in Europe and with accounts in euros. This company has combined cross-border VBA accounts with VLA accounts. This solution supports a step-by-step centralisation approach by setting up VBA accounts in local countries, for processing incoming and outgoing transactions, that are swept to or funded in real-time from the centralised physical header account.

Through ING’s interactive channel, InsideBusiness, treasurers can set up a VLA structure according to their wishes. With a strong emphasis on self-service, companies can open, close, and modify as many VLA accounts as they need under the physical header account, without having the costs of physical bank accounts. The client is able to upload invoices and/or payee data in our VLA system. Incoming and outgoing transactions on the physical account and/or VBA accounts are immediately allocated to the VLA account based on the invoice number and/or the VLA reference collected from the uploaded invoices and payee data files. In real time, the company can upload the MT/CAMT reporting messages into their TMS/ERP systems for each VLA account.

Towards an in-house bank and on-behalf-of structures

The VLA module can also be used for in-house bank (IHB) and on-behalf-of structures enabling invoice allocation and improved reporting without the need for expensive TMS/ERP software implementation. It is designed as a flexible, scalable and simple solution that treasurers can use to open and close as many VLA accounts as they wish , to rationalise bank accounts, centralise real-time cash, improve cash visibility, invoice reconciliation, reporting, and reduce KYC workload on the account-opening process.

Flexible, scalable, simple

In today’s challenging markets with fluctuations in interest rates, geopolitical instabilities and inflation, treasurers may want to accelerate their centralisation journey. A flexible, scalable and simple Virtual Cash Management solution can be a key differentiator. It can be tailored to specific needs, timelines, and resources to achieve required goals and be a tangible success for any company.