When you receive payments from several customers, keeping track of them maximizes efficiency. That’s one reason why the industry continues adopting virtual accounts.
Depending on your company size, it has a dedicated account receivables and payables department or a professional who handles those duties.
Nonetheless, each has essential duties since it deals with the incoming and outgoing cash. Therefore, they have a significant focus on cash management. The business world is rarely stagnant. So it’s no surprise that someone also would try to revolutionize cash management.
A revolutionary cash management method is virtual accounts.
The good news is that virtual accounts don’t require a series of new physical ones. Instead, they assign unique numbers to clients created within one physical account.
When trying out new technology or services, it’s normal to wonder how it benefits an organization. In this case, the technology improves the efficiency of expense reconciliation. It’s also cost-effective and doesn’t create more paper trails.
Let’s take a closer look at everything you need to know about virtual accounts.
What Is a Virtual Account?
A virtual account lives within your company’s current corporate bank account. It acts as a virtual ledger. In a way, it partitions payments received by clients. Thus, your team overseeing the receivables identifies the payments by the client more quickly.
Your team probably already employs invoice numbers. If they use accounting and bookkeeping software, they apply the payment to the appropriate custom account and payment term.
Virtual accounts provide another layer of security and streamline the process further.
For example, your team will work with the company’s financial institution and create a series of virtual accounts. Then, they organize the account numbers and assign them to clients. Next, they pass out the information to the clients.
When each sends payments, they go into their account, giving your team a more efficient way to post funds.
Hotel Engine provides more information about virtual accounts.
Virtual Account Benefits
The first versions of these accounts appeared in Asia during the early 2000s. Then, banking giants in the United States caught wind of it.
During this time, mobile and online banking also got off the ground. These technologies coincided with the broader use of cell phones and text messaging. Each provided sets of benefits, namely convenience.
Virtual accounts also provide benefits, including:
- Lower operating costs
- Easier reconciliation
- Streamlined reporting
- Higher fraud prevention
Like mobile banking, this cash management technology aims to improve cash receiving and reconciling. As it continues improving, it will only become more efficient.
Each of these benefits leads to lower operating costs. For some companies, the technology can automate several steps in the cash management process.
How to Establish a Virtual Account
To establish virtual accounts, contact your company’s banking institution. You might decide to open an account that solely receives funds. Then, create the accounts within it.
If you work with a financial institution that already specializes in these accounts, they might provide an online platform that allows your team to set them without extra help.
For example, the institution provides users with APIs. Once a user enters the appropriate information into the fields, the platform returns an account and routing number.
Your team must take note of the information and apply the correct customer information. Then, they can give it to the client.
To optimize its use, your team might need to remind the clients by including the information on invoices.
Virtual accounts also work for outgoing payments. For example, your team can use them to pay for traveling expenses during corporate trips.
Your team assigns an account to each employee who travels, such as traveling sales team members. Then, your banking institution gives each account a card that acts like a credit card.
When professionals pay for ground transportation, food, or entertainment, your corporate travel manager quickly sees who spent the funds. Then, they can match the information to the corresponding expense report.
The point of using virtual versions of bank accounts is easier reconciliation. Even small businesses benefit from this technology.
The age of digital banking continues unfolding. It started in the early 2000s with online and mobile banking and expanded into virtual accounts. To establish this service for your company, contact your current company banking institution. They will help you establish them through their institution or you might use third-party APIs.