As companies engage in numerous transactions with customers, vendors, and partners, the challenges of reconciling payments, tracking receivables, and maintaining a healthy cash flow have taken center stage. By examining the broader context and complexities surrounding these financial tasks, we would like to reflect on the amazing role virtual accounts play.
The traditional approach to these tasks often leads to errors, inefficiencies, and a lack of real-time visibility into the overall financial health of the business. Recognizing these challenges is the first step toward finding innovative solutions i.e. Virtual Accounts. They facilitate efficiency, accuracy, and decision-making in the modern business environment.
In this blog, let’s break down the tasks and challenges related to the above tasks. We will discuss how a virtual account can assist in addressing the issues and understand how its framework emerges as a strategic tool to streamline the above processes. However, let us first know what a virtual account is.
What is a Virtual Account?
A virtual bank account, often referred to as a virtual account, is a digital representation of a traditional bank account that functions online. It serves specific purposes for payment processing and to segregate funds for designated transactions or clients.
Typical bank accounts have physical branches, and virtual accounts exist as digital bank accounts, providing businesses with a more adaptable means of handling online transactions and automating reconciliation. Also, they are more affordable and require zero physical paperwork.
Further, the virtual accounts can be seen as sub-accounts to the primary linked physical account. Meaning – The primary account functions are central to a business’s funds, while numerous virtual accounts are linked to this main account. Each virtual account has a unique Virtual Account Number assigned for a specific purpose or a customer.
The virtual accounts act as just a unique address for passing the funds to the linked account that remains masked in the background. Thus, you cannot withdraw or hold funds using the virtual one.
Virtual VS Traditional Bank Account
How are virtual accounts more efficient than traditional physical accounts?
Virtual accounts facilitate real-time transaction processing and updates 24/7, offering users flexibility outside traditional banking hours. Also, they support diverse payment modes, including cards, net banking, IMPS, NEFT, RTGS, UPI, recurring payments, etc. Thus, they provide convenient and efficient choices for a modern payment experience.
Moreover, unlike physical accounts, you can reconcile payments through each account in real time with the help of APIs.
Thus, you can imagine how smooth the financial organization and control are using virtual accounts. To understand this further, continue reading about the tasks and challenges handled by virtual accounts in businesses.
Role of Virtual Accounts in Businesses
Virtual accounts connect the previously mentioned tasks of reconciliation of payments, tracking of receivables, and cash flow management into a more structured process. The segregation of transactions through virtual accounts simplifies the overall financial workflow.
Let us understand each of them below:
Reconciliation of Payments:
Reconciliation means making sure the payments received match and are recorded accurately in financial records. However, managing multiple transactions, especially in a business with a high volume of transactions, can lead to errors and discrepancies.
Virtual accounts provide a dedicated account for each transaction or customer. Thus, the reconciliation becomes smooth due to a clear and organized entry of incoming payments.
Example: A virtual account assigned to each customer ID (UPI), say, rahul@icicibank simplifies payment reconciliation for payments from Rahul. When he makes a payment, it is automatically linked to their unique virtual account, reducing errors and streamlining the reconciliation process.
Tracking Receivables:
Along the same line, you can understand how monitoring and managing collections received or owed to the business by customers and clients becomes super-easy.
Virtual accounts allow for automated tracking of receivables by associating each customer with a unique virtual account. This enables businesses to easily identify and manage outstanding payments on a per-customer basis. Also, it helps to provide timely services or product delivery to the ones who have made the payment.
Cash Flow Management:
Businesses need to maintain a healthy balance between incoming and outgoing funds to ensure the business’s liquidity stability. Inconsistent cash flow can lead to operational difficulties and impact the ability to meet financial obligations.
Virtual accounts help in optimizing cash flow by providing real-time visibility into incoming payments. By having separate virtual accounts and assigning virtual accounts to different revenue streams, a business gains a clear view of incoming funds. Also, they can manage cash flow more effectively and allocate funds where they are needed most.
How to open a Virtual Account?
Opening a Virtual Account is as simple as the Virtual Account itself. You just need to find an ideal payment service provider partner or bank. For instance, Accosis offers the best services around the same.
Further, you need to create an account and submit KYC for verification. Once the account is activated, you can start with the Virtual account services securely for each customer or purpose with just the basic details. With the help of APIs, you can create them in bulk and share the details with the customers or other parties through messenger, text, or email.
They can start making payments through multiple payment modes such as debit cards, credit cards, net banking, UPI, etc.
Moreover, Virtual accounts allow increased automation. Automated notifications for incoming payments, reminders for outstanding receivables, and real-time updates on cash flow; all contributing to operational efficiency.
Further, with accurate and up-to-date information provided by virtual accounts, businesses can make informed decisions. This interconnected data helps in forecasting, identifying trends, and implementing strategies to optimize financial performance.
Various Sectors Using Virtual Accounts
Let’s explore the benefits, examples, and use cases for business collections for some of the sectors using virtual accounts:
Education
Virtual accounts streamline fee collection, enhance transparency, and automate payment reconciliation within educational institutions. Examples include universities using virtual accounts for tuition fees and schools managing enrollment payments for each student.
B2B (Business-to-Business)
Virtual accounts offer efficient transaction processing, improving B2B relationships and automating invoicing processes. Examples of B2B are distributors streamlining payments to suppliers and manufacturers collecting payments from retailers using virtual accounts.
Marketplaces
Virtual accounts facilitate seamless payment processing, build trust, and enhance user experiences in online marketplaces. Platforms may collect seller fees and subscription payments with the virtual accounts assigned to each seller.
Distributors
Virtual accounts contribute to improved cash flow and automated payment reconciliation for distributors. For instance – the distributors manage supplier transactions and automate order processing for retailers.
Utility Services
Virtual accounts enhance billing efficiency and customer satisfaction for utility companies. The electricity, water, or gas companies may collect utility bills through virtual accounts assigned to each customer.
Retail
Retailers experience faster point-of-sale transactions, efficient supplier payments, and improved financial control with virtual accounts. They may collect payments from customers and manage supplier transactions using virtual accounts designated for sales channels and suppliers.
Franchises
Franchises benefit from simplified royalty payments and improved financial visibility through virtual accounts. Franchisors seamlessly collect royalties from franchisees through accounts assigned to each franchisee.
Lending
Lending institutions secure loan disbursements and automate repayment tracking using virtual accounts. For instance – banks collect loan repayments and microfinance institutions manage borrower transactions through accounts assigned to each borrower.
Insurance
Insurance companies achieve efficient premium collections and improved policy management using these accounts i.e. collecting payments for each policyholder separately.
In Conclusion
Virtual accounts represent a crucial advancement in modern business finance, addressing challenges in payment reconciliation and optimizing cash flow. These digital tools provide real-time efficiency, offering businesses automated solutions. Across various sectors, from education to marketplaces, virtual accounts play a pivotal role in enhancing financial control. Thus, they signify a significant step towards a more connected and efficient financial future.
Contact Accosis for more information!
