Operational transformation: the virtual approach

Lean is the name of the game in corporate treasury. Against constant pressure to do more with less, treasurers must look for new ways to automate labour-intensive processes and gain operational efficiencies.

“I am always impressed with how much our corporate clients achieve with relatively few people in Treasury,” says Dick Oskam, global head of Transaction Services Sales at ING. “That can only happen through the automation of multiple treasury processes.” In recent years, however, innovative ways to automate cash management have been few and far between.

Oskam portrait

This is precisely why ING decided to develop Virtual Cash Management (VCM) – a comprehensive digital cash management solution for corporates designed to help treasury functions reach the next level of optimisation. The solution does this by facilitating centralised cash management with high cash visibility, access and control – through a combination of virtual bank accounts (VBAs) and virtual ledger accounts (VLAs).

In a nutshell, VCM is a unique tool that offers treasurers the ease of use of one single bank account across Europe whiles maintaining the benefits of local payments. It enables treasurers to significantly rationalise and simplify account structures and to enhance in-house bank structures that not only facilitates paying on-behalf-of subsidiaries (POBO), but it also introduces true collecting on-behalf-of subsidiaries (COBO). Both incoming and outgoing payments will be done out of a central account but routed through virtual IBANs’ that a company holds in different countries. Other benefits for the treasurer include invoice matching and reporting, optimised reconciliation, internal transfers, and an intercompany loan administration. 

As such, VCM means that a corporate’s administrative footprint can be vastly reduced, should they so wish. But the solution is built in such a way that they client can pick and choose precisely how they want to gain operational efficiencies. A client could, for example, make use of the centralised cash position but still allow local entities to initiate their payments, as well as giving them the full reporting.

Flexible and adaptable

The beauty of VCM, says Oskam, is that even though payments made by a local entity come out of the central master account, they are routed through local virtual IBANs, meaning that they go out as domestic payments. “We believe this cross-border set-up is unique in the market and that VCM is the first significant innovation made by a bank in a very  long time in the cash management and payment landscape,” he notes.

Clients of ING who have been testing the VCM solution in recent months are quick to agree. According to Gilles Lagers, manager Accounting at Seatrade, “The biggest win with VCM is to have your cash centralised into a master account. This enables 100% insight across the company, and all of your banking networks, as to when cash is coming in and going out. Plus, on a daily basis, we now have access to the complete cash of the entire group.”

Similarly, for Nils Stenger, VP Tax & International Finance and Treasurer at ‎Signode industrial Group, the driver for getting on board with VCM was to ensure that the company was able to use its liquidity in the most efficient manner. This was previously a challenge due to having “around 450 bank accounts and being provided with limited daily insight into cash and liquidity positions,” Stenger explains.

Through his experiences of VCM thus far, Stenger believes that the restriction that cash sitting in one country cannot be fully utilised in another will be eliminated by this solution. He says it also gives the company more flexibility in its cash management, whilst taking into account compliance and KYC requirements.

Improving quality and accuracy

Meanwhile, Roland Burgers, ‎director of Finance and Administration Europe at Troy Chemical Company BV, was keen to find a solution that would help automate the matching of incoming payments with outstanding invoices. “We’ve been testing VCM and we are very hopeful that this system will really achieve what we are looking for,” he confirms. “You simply load your invoices into VCM and incoming payments are then automatically matched to those invoices. Not only does matching take place automatically, but at the same time a journal entry can be created that can be automatically posted into your ERP environment.”

Seatrade’s Lagers is also looking to reduce his team’s workload around reconciliations, by up to 50%, using VCM. “This will mean they can spend more time on reporting and controlling, making sure they have the complete picture of where the company’s cash is – and how it is being used,” he notes.

The future is virtual

For those who are yet to be convinced about the power of virtual solutions in bringing sustainable and justifiable operational efficiencies, Burgers says: “I believe that VCM is a very important piece in the puzzle for delivering deeper automation and efficiency benefits for treasurers and their liquidity management.” 

Companies and banks, he says, “have worked hard over the last decade to make everything more efficient. We have all embraced notional and zero balancing cash pools, but now we must look for the next level of solution. In my view, that next level is virtual.”