20 September 2017
Saurabha Gupta

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Saurabha Gupta - Nucleus Software Exports Ltd.

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Virtual Account- A complete Reconciliation Tool for Account Receivables

29 September 2016  |  3919 views  |  0

Corporates keeps on facing challenges in dealing with their AR, specially on the reconciliation of the receiving transaction. An absence of remitter’s information on approaching receipts coming in commonly brings about the procedure separating with considerable authoritative time and cost spent investigating and resolving receivables matching. The subsequent unapplied cash and open invoices routinely prompt traded off client benefit and postpones in shipment release. Monthly financials closure and working capital management often suffer as a consequence.

Traditionally, the AR process has been largely manual which was both tedious and error prone. The repercussions of such an inefficient system were not only the fact that it had cost concern but more importantly there was a goodwill and reputation risk. The associated costs are in the form of employing personnel to reconcile accounts and the cost of delays because of inefficient systems. If the systems are not optimized to collect and reconcile receivables correctly and promptly, there will be the need to set up collections calls and to institute other follow up measures. Additionally, the impression of the company in the external world, like amongst bankers and buyers, will not be positive, especially if the follow up was delayed or incorrect.

However, because the reference data field in many electronic clearing systems is often too short to accommodate a full list of all the invoices covered by a single payment. In addition, the field may be needed for other purposes, such as the customer account number to which the payment relates. As a result, while electronic clearing systems are an opportunity to improve AR management, fully capitalizing on that opportunity requires something more.

One of the solutions to improve the efficiency and effectiveness of the AR process is setting up Virtual Accounts. Typically, the Bank will allow its corporate customers with a range of account numbers to set up Virtual Accounts for their clients. The corporate customer will request their clients to quote the Virtual Account number in their transactions. The Virtual Account number does not mean that a physical account exists – all it represents is the details of the remitter and translates that information for the corporate customers account statement.

Figure 1.1 describes that how virtual account works in case of account receivables.

Corporate can achieve the following benefit using the virtual accounts:-

  • Ease of management

The use of virtual accounts does not require corporates to work numerous physical accounts, taking out the expense for opening and dealing with various accounts.

Nucleus Software’s FinnAxia offers flexibility by allowing virtual account numbers to be set to corporate’s customers, which smoothens the transition, with minimal cost and disruption to the business.

  • Faster reconciliation improve operational efficiency

The use of virtual accounts disposes of issues around missing remitter data thus minimize the manual tracking of invoice payment, empowering customers AR group to concentrate on more profitable capacities and value driven exercise. Reporting quality enhances in light of the fact that virtual accounts speed up operations turnover with transaction captured and the same is available on the statement instantly.

  • Automated reconciliation

Automatic remitter identification from the invoices allow for the straight through cash application in the AR system. This will diminishes significantly the processing float and release the remitter’s credit line which in turn help the remitter on the next booking of the sales ultimately result in better credit control as virtual account enables corporate timely reconciliation of the collection.

  • Cost Effective

Administration costs fall because virtual accounts can be used to identify remitters automatically and are not dependent on the quality of remitter details provided in the payment reference field, eliminating the costs of hiring personnel to reconcile receivables manually;

Corporate clients know about the benefits of utilizing Virtual Accounts and they as a part of turn have been pressurizing Banks to offer them these arrangements. Banks are likewise offering these solutions in some way or the other, by building up some in-house applications or by rolling out improvements in their core banking system. Banks are still during the time spent receiving undeniable frameworks for Virtual Accounts bigly – once this is grasped in a more far reaching way, it will undoubtedly affect Banks' handling ability and their relationship with customer.

Figure 1.1

Figure 1.1: Invoice reconciliation using virtual account TagsPaymentsTransaction banking

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Virtual Account- A complete Reconciliation Tool for Account Receivables

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job title Product Manager
location Noida
member since 2016
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Market R&D in the area of cash management, Product management by merging the cash management requirement and regulation in the product(FinnAxia)

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