In an ideal world, businesses should be able to send and receive payments in any currency. They should also be able to hold a balance in any currency they wish. In reality, due to the cost and complexity associated with maintaining multiple currency accounts, their usage has been limited.
The availability of virtual International Bank Account Numbers (IBANs), combined with recent advances in treasury technology, is empowering treasurers to use as many virtual IBANs as needed to streamline their reconciliation, improve payment processes, and to facilitate the implementation of currency management solutions.
Using currency accounts and virtual IBANs
Virtual IBANs are IBANs issued for a specific purpose (such as better payment reconciliation). They allow companies to maintain a very cost-efficient structure of multiple currency account numbers, one account number per currency or per client. Payments in different currencies are channelled through these virtual IBANs and deposited in their original currency into a physical account, or converted into a functional currency if needed.
Practical advantages of using currency accounts
For companies with a considerable international presence, or those relying on a global supply chain, currency accounts based on virtual IBANs are the most efficient alternative to streamline processes in four vital areas. These are:
Collection: Use of virtual IBANs to separate collection processes by generating a specific IBAN for each client or each foreign currency. This helps the company to identify where each incoming payment comes from and reduces the time dedicated to reconciliation.
|Use virtual IBANs to improve payment reconciliation|
Payments: Currency accounts based on virtual IBANs allow companies to manage all their payments in different currencies from a centralised platform. This improves the efficiency of their transaction management and greater control over liquidity and cash flows.
Cash Pooling: Virtual IBANs facilitate the maintenance of a dedicated currency account for each subsidiary. This allows acceleration of the incoming side of the internal financial supply chain by pooling cash instantly and reducing costs associated with holding local bank accounts.
FX conversion: Multiple currency accounts facilitate FX netting and optimization of currency conversion, both in terms of cost, as well as in terms of conversion timing. Additionally, international merchants can avoid hefty FX conversion rates forced on them by their payment service provider (PSP), by locating their virtual IBANs in the local market and opting for collection in local currency.
How to choose the right virtual IBANs provider
While virtual IBANs are quickly becoming a commodity, a company needs to be careful when choosing a currency account provider. Before opening new currency accounts or embarking on any new project related to virtual IBANs, these are some of the main things to consider:
- Determine specific needs (collection, payments, cash pooling etc.) and the scope of the project. Define the currency account structure (in terms of currencies and countries they should be located in) for your specific needs and decide on the best way to integrate this with your existing treasury infrastructure.
- Look for external advice. Talk to experts to find out all the ways that currency accounts and virtual IBANs can streamline processes and simplify your treasury management.
- Build a strong business case to prioritize the project. Remember to consider a reduction of payment and reconciliation errors, acceleration of processes, reduction of manual workload and FX conversion savings. On the cost side, don’t forget to include implementation and training costs.
Start using virtual IBANs to streamline your payment processes