From Physical to
Notional to Virtual:
Bank Account Capabilities Evolve as Treasury Matures

Companies often speak of a shared but elusive ideal; a single bank account within the treasury hub to manage payments and cash concentration

 

Supporting Your Unique Path to Centralization

Corporate treasurers are at different junctures on the path to centralization, and each organization defines its end state differently. Despite this, companies often speak of a shared but elusive ideal: a single bank account within the treasury hub to manage payments and cash concentration.

Virtual account solutions enable this vision by combining one physical bank account with an accounting sub-ledger that is uniquely configured to your needs for segregating cash flows. This one-to-many model can be as simple as two sub-accounts, or more granular to reflect the account setup of your general ledger.

The result is flexibility to support you wherever you are on the path towards centralization. Such flexibility makes virtual account management (VAM) a potential pivot point for transforming treasury management and enabling corporate treasury’s shift to a strategic role.

Created with Sketch. Physical Account Subsidiary 1 Subsidiary 2 Subsidiary 3 Virtual Account Management

VAM: A Solution for Advancing Centralization, Standardization and Simplification

As treasury management evolves so do banking solutions. Physical and notional cash concentration capabilities already support centralization. But further innovation of account services has been necessary for banks to fully satisfy treasury’s needs. Virtual account management solutions enable this leap.

The intersection of new banking technology and the maturing strategic role of treasury management have created an inflection point. VAM can be a strategic enabler of treasury’s intertwined objectives for centralization, standardization and simplification. As a result, lean treasury organizations can do more with less resources while managing treasury more effectively.

Some treasury groups use an in-house bank with cash concentration supporting centralized funding and investments. Others want to centralize visibility and control while maintaining some degree of decentralized operations, such as regional treasury centers. Virtual account management accommodates both.
In the evolution from physical to notional to virtual each capability has a role in a global liquidity structure that supports centralization. VAM advances the goal of rationalizing physical accounts. By segregating cash virtually rather than physically, you achieve continuous real-time cash consolidation, reduce reliance on intraday credit and more efficiently manage transaction flows and liquidity. Cash concentration or notional pooling, works alongside this by linking liquidity across virtual account structures.

VAM brings a consistent platform that facilitates standardization. For example, it allows for the orderly and streamlined integration of newly acquired subsidiaries into centralized payables and receivables processes. This includes quickly establishing new virtual accounts and entitlements.

The design of a virtual account hierarchy reflects your business needs. This departs from a traditional approach based on legal entities and aligns your bank account structure more readily with your standardization objectives.
Multiple physical bank accounts limit cash visibility and control. Information reporting and accounting across a vast network of physical accounts adds to the challenge. VAM’s consistent stream of data strengthens centralized visibility and control, providing new insight for improved decision making and risk management. Alongside this data you have flexibility to tailor the information based on audience need across the enterprise.
Standardization provides cybersecurity and risk mitigation benefits. Fewer physical accounts, combined with centrally managed entitlements and limits, aid data security and can reduce the risk of fraud. Should a virtual account ever be compromised, it can be closed quickly and replaced, leaving security of the physical account intact.

 

Many treasury teams contend with multiple ERP systems, manual processes and the need to fit legacy technology infrastructure and processes into a bank’s technology. Virtual accounts streamline your global bank account structure without requiring a single global ERP instance. One account achieves simplification on many levels, including:

  • Starting from a consolidated cash position;
  • Automating intercompany reporting, posting and reconciliation; and
  • Managing foreign currency payments
As part of an in-house bank VAM automates reporting on intercompany balances and transactions across multiple ERP instances for accounting and audit purposes. The solution enables complex accounting while simplifying the entire process. This allows treasury to elevate its focus from the mechanics to strategic management of cash, liquidity and risk.

 

A Strategic Enabler

Virtual accounts are highly flexible and therefore adaptable to your treasury strategy. Streamlining complex physical bank account structures, information reporting and accounting is mission-critical to lean treasury teams tasked with doing more with less.

But VAM also aids another level of treasury agility. Corporate treasurers face dynamic market conditions and unfolding regulatory forces. Virtual account solutions enable flexibility to address ongoing change. It becomes easy to reconfigure your sub-ledger aligned with business needs.

A Look Towards Virtual Treasury Management

The ideal bank account structure should integrate seamlessly within your treasury operations as a perfect reflection of your corporate accounting setup. Virtual account capabilities deliver this promise.

When developing VAM solutions the best banks will take a holistic approach that encompasses your needs on the curve towards centralized treasury. J.P. Morgan has a far-reaching plan with innovation underway for VAM as a platform for value-added services that integrate the management of cash, FX, liquidity and investments.

Treasurers can take advantage of virtual account solutions at different points in the journey towards centralization. Continuous real-time concentration and funding enables the efficient and effective management of transaction flows, risk, and liquidity:

  • Visibility and control. VAM allows for some degree of decentralized operations. Companies can centralize visibility and control while further reducing the number of physical accounts.
  • In-house bank. In tandem with centralized funding and investment VAM supports migration to an On Behalf Of approach for payables and receivables.
  • Full virtualization. A centralized treasury can layer in advanced liquidity management capabilities such as multicurrency virtual account structures, virtual cash concentration and pooling, remote payment clearing, and internal netting.

Learn More

For more information, contact your J.P. Morgan Treasury Representative.

J.P. Morgan is the marketing name for the Treasury Services business of JPMorgan Chase Bank, N.A. and its affiliates worldwide

© 2017 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC.

The products and services described in this document are offered by JPMorgan Chase Bank, N.A. or its affiliates subject to applicable laws and regulations and service terms. Not all products and services are available in all locations. Eligibility for particular products and services will be determined by JPMorgan Chase Bank, N.A. or its affiliates.

 

Copyright © 2018 JPMorgan Chase & Co. All rights reserved.