In today's dynamic landscape, corporate treasurers are increasingly turning to virtual account structures to modernize operations and enhance efficiency. Virtual accounts have revolutionized treasury management by streamlining cash flow tracking and eliminating reconciliation headaches, enhancing financial control and transparency. Here at J.P. Morgan, we work with corporate treasurers to achieve operational efficiency and unlock working capital by leveraging our virtual solution platforms. However, this transition requires a careful evaluation of legal entity structures, technology requirements and resource availability.

J.P. Morgan virtual solutions

Virtual solutions have paved the way for more holistic virtual account offerings which streamline account structures, allowing for true end-to-end solutions that are fluid, accessible and integrated. They offer broad functionality and facilitate interconnectivity between payables, receivables and liquidity solutions, and support location strategy and global treasury operations.

Global treasurers continually strive for rationalized account structures and centralized transaction processing. More and more, they are turning to virtual accounts as a key tool to provide a comprehensive view of their cash picture and enhance their decision making process.

Virtual accounts are sub-ledger accounts linked to a traditional ‘physical’ demand deposit account, enabling businesses to streamline their cash management processes. Each virtual account has a unique identifier, allowing our corporate clients to assign them to subsidiary legal entities or specific customers, departments or projects for precise tracking and reconciliation.

Unlike traditional bank accounts, virtual accounts do not hold funds directly. Instead, each virtual account serves as a notional representation of funds within a physical bank account. Transactions are always executed and posted to the linked physical bank account, simplifying the consolidation of financial data and cash reporting. With our in-house built Virtual Account Management (VAM) solution, corporate treasuries are able to enhance transparency, reduce the complexity of managing multiple accounts, minimize operational risk associated with manual processes and improve overall efficiency by automating cash flow tracking and reconciliation.

Legal entity structure considerations

For organizations operating as a single legal entity, implementing virtual account structure is typically more straightforward. This approach can significantly improve the reconciliation of various cash flow types, including accounts payable (A/P), accounts receivable (A/R), payroll, supplier/vendor payments and taxes. By consolidating these cash flows into virtual accounts, companies can achieve greater transparency and control.

For organizations made up of multiple subsidiaries, the complexity increases. These entities must consider the need for segregated and ring-fenced accounts to comply with legal, regulatory or compliance requirements. Additionally, they must evaluate intercompany lending agreements and their intercompany credit risk appetite, especially when implementing a pay-on-behalf model. These considerations are critical to help ensure legal and financial integrity across all entities.

Visibility and control

The reporting flexibility VAM offers is a crucial component in supporting operational, intercompany and treasury cash operations, reconciliation and accounting. Our VAM platform is an end-to-end cash management and liquidity tool that supports treasurers at any point along their treasury transformation journey. VAM gives the ability to reflect client payable and receivable transactions and establish virtual account reports by function, which streamlines management reporting.

Multiple bank accounts and a decentralized structure naturally result in lower transparency of activity and require greater resources to manage cash flow and operational risks. The need for information reporting and accounting across a vast network of accounts adds to the challenge.

VAM addresses these challenges by providing a tailor-made solution that meets the requirements of treasury teams. It shows a 360-degree view by business lines across the entire organization, providing actionable insight for improved decision making and risk management. Additionally, treasury teams are able to meet specific audience requirements.

Ease of technology integration

Our Virtual Account Solutions can be integrated with your Enterprise Resource Planning (ERP) or Treasury Management Systems (TMS) to enhance financial management and operational efficiency. The unique account numbers for each virtual account can be tied to your different customers or transaction types, which can be automatically reconciled within the ERP system. This integration enables real-time visibility into cash flow, helps reduce manual reconciliation efforts and improves accuracy in financial reporting. By leveraging the data centralization and process automation capabilities of ERPs, businesses can optimize their financial operations and achieve greater control over their financial resources.

The technology infrastructure supporting treasury operations is pivotal when establishing a virtual sub-ledger based account structure. Together with your treasury and technology team, we will carefully assess current ERP and TMS environments during the scoping process. Migrating to a virtual account structure is often most effective during an upgrade to a next-generation ERP or TMS, which can provide the necessary support and compatibility for virtual accounts.

File format compatibility is a key consideration. Some older files might not easily integrate with virtual accounts, which could lead to operational challenges. It's essential to ensure that your technology systems can accommodate these formats for a smooth and successful transition.

Additionally, treasurers need to evaluate the effect on reporting processes. Comprehensive reporting, both at the macro level and in detailed areas like A/R invoicing and A/P ledger reconciliations, is crucial for ensuring financial accuracy and transparency.

Resource availability

While the shift to a virtual account structure offers substantial benefits for corporate treasurers, it requires meticulous planning and consideration of legal, technological and resource factors. Addressing these elements effectively can lead to a more streamlined, efficient and compliant treasury operation.

Key considerations when implementing a virtual account structure are time, budget and coordination across various departments, including business, sales, technology, finance and accounting. Also, having skilled personnel who are well-trained and readily available is essential for the successful implementation and ongoing management of the project.

J.P. Morgan Virtual Account Management: A customizable set of capabilities that drives results

Virtual accounts can easily be adapted to address evolving treasury strategies. Streamlined structures, detailed information reporting and seamless accounting are mission-critical to executing treasury initiatives. A VAM solution can integrate with current global platforms to deliver a cohesive experience, help improve the receivables and payables reconciliation and reduce the need for multiple bank accounts per currency.

VAM’s customizable, hierarchical reporting features make it simple to reconfigure sub-ledgers and design a virtual account hierarchy that directly reflects business needs:

Looking ahead, together

Our dedicated liquidity and accounts solution team, comprised of seasoned subject matter experts, will partner with you at every stage, sharing best practices and collaboratively addressing treasury considerations. We see that virtual solutions will play a critical role in treasury management today and in the future, and will soon become the industry norm. Together, we will craft a comprehensive and optimal cash management model that drives efficiency and enhances your financial operations.

Corporate clients who have embarked on this journey with us have successfully revamped their legacy account structures, streamlining their entire finance operations for maximum efficiency and agility.

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