The virtual accounts of yesterday have been adapted for today’s needs and are proving to be successful tools in improving flexibility, productivity and customer self-service. Plus, they provide a suite of cash management applications to help government and corporate treasurers better manage funds.

Cash in organisations is traditionally managed using multiple demand deposit accounts (DDAs), each maintaining, separating and reporting the cash for an operating area or legal entity. This structure typically relies on cash pooling or sweeping to consolidate cash and maximise returns.

As firms grow, cash deposits are dispersed across group and subsidiary bank accounts. This increases cost and complexity and could inhibit transparency and control of liquidity positions. Cash concentration in this environment can be costly and labour intensive due to delays in information gathering, manual processes and batch processing. All these factors impede the optimal use of working capital.

Virtual accounts organise and report on data within real accounts. The data is organised in such a way that it resembles discrete sub-ledgers.

Each virtual account has an opening balance, a closing balance, receipts and payments. These incoming or outgoing payments simultaneously post to the physical account and to the relevant virtual account based on unique identifiers. Instead of operating 20 bank accounts, think of one bank account with 20 excel sheets automatically recording all transactions in the correct sheet.

Scalability and flexibility

Virtual accounts are highly flexible and can be incorporated into a corporate treasury of most sizes to meet their unique needs. Treasurers can set up as many virtual accounts as required. An account can be assigned to each customer or to individual subsidiaries, divisions or product lines.

Benefit - Bank account rationalisation

We know that adding more physical bank accounts increases cost and operational risk given that each account needs to be maintained and reconciled. Its balance needs to be managed, and cheque signatories and digital authorisers must be kept up to date and reported on.

A virtual account goes a long way to eliminating this labour.

Theoretically, an entire organisation could operate with a single DDA utilising VAP but this is not common practice. Most firms still require at least a minimum of physical accounts to operate due to tax and regulatory obligations. A state government for example could operate a single physical account per department or agency and use virtual accounts for all other related entities.

Benefit - Reconciliation improved

Virtual accounts have long been considered the ideal reconciliation tool. By allocating a virtual account to each customer their payments can be largely automatically identified and reconciled.  Manual intervention is only required for unidentified payments.

This improves straight through processing (STP) rates in accounts receivable and reduces the key days sales outstanding (DSO) metric - freeing up working capital and reducing manual reconciliation.

Virtual accounts can also link payments to a specific paying unit inside an organisation allowing for improved budget control.

Use Case – Client money management

VAPs are popular in the management of client money.

When holding client funds, firms often need to comply with regulatory or client requirements relating to access, audit, interest administration, security and segregation. VAPs meet those compliance obligations (by separating them notionally) at a lower cost than opening separate bank accounts for each client. A virtual account is opened for each client allowing a firm to track payments in and out. To date, this has been achieved by managing a ring fenced “client monies” account and matching money to each client separately.

Automating this function in a virtual structure under a single bank account has significant benefits.

VAPs enable treasuries to centralise cash without using complex cash management structures. This improves funds availability, optimises account balances, and makes for more effective cash forecasting. VAPs don’t replace sweeping and pooling mechanisms but are complementary. For example, a VAP hierarchy might map 200 virtual accounts to a single physical account which, in turn, may be part of a notional pool.

Mature VAPs will typically have a configurable dashboard providing insight into cash positions and transactions across physical and virtual accounts. The API-led Open Banking and real time payments is also paving the way for multi-bank virtual account solutions.


VAPs solve multiple pain points and promise a leaner, more strategic treasury function. Treasurers must first assess their aims for account rationalisation, reporting, receipts reconciliations and liquidity management. TMS and ERP integrations should also be considered. CommBank offers comprehensive VAP consulting and transition support, please contact your relationship manager to get started.

About the Author

Elise Fairbairn is a highly experienced banking executive having spent the past 27 years developing a broad range of skills and leading Institutional Bank teams in Sydney, London and New York.

She is the Head of Transaction Banking Solutions at Commonwealth Bank where she manages and guides client solution and integration teams in the domestic and international market.

Elise believes creating a Group-wide strategy that places the customer at its heart is the key to best banking practice.

Elise is also a member of the Australian Institute of Company Directors, and a director at the Fosters School of Business and Pacific Rim Bankers Advisory Board. 

Things you should know

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking independent financial advice before making any decision based on this information. The information in this article and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its publication but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this article. Commonwealth Bank of Australia ABN 48 123 123 124. AFSL and Australian Credit Licence 234945.