What are virtual IBANs and how do they help reconciliation

Matthieu Blandineau
January 2023
min read

Due to their simplicity, reliability, and low cost, SEPA payments represent 97% of the total value of payments in the eurozone. A major contributor to this high usage is B2B payments, as most companies pay their invoices using bank transfers. However, reconciling these payments, which is mandatory for accurate bookkeeping and cash management, isn’t always easy. 

Why virtual IBANs? The challenges of reconciling incoming payments at scale

Bookkeeping can be tedious for any business. But it can be particularly challenging for companies receiving large volumes of payments, such as credit instalments, insurance premiums, or account top-ups.

Indeed, in such cases, identifying the payer and the underlying transaction corresponding to a payment can be tedious, leading to a complex reconciliation process.

Payers can make mistakes when adding a reference to a bank transfer or even in the transfer amount itself. Sometimes, a transfer’s originating account might differ from the one expected. Payers can also pay the amount corresponding to a transaction through multiple bank transfers.

When they happen, all these situations can make reconciliation automation workflows fail and require resource-intensive manual investigation and resolution, back and forths with the payers, or even definitely unrecovered payments.

Enter virtual IBANs.

What are virtual IBANs?

Virtual IBANs are additional IBANs assigned to traditional or “physical” bank accounts.

You may have heard about virtual accounts. Virtual IBANs are the same as virtual accounts: additional account numbers (IBANs) are assigned to a main bank account.

They are created by the banks holding bank accounts. They can be used to send and receive money from and to the physical account, where the funds are ultimately held. One bank account can have several virtual IBANs, but one virtual IBAN is assigned to only one main bank account. Virtual accounts do not have balances themselves.

Behind the scenes, when a bank transfer is sent to a virtual IBAN, the bank holding the virtual account and its corresponding physical account will route the money to the physical bank account.

What are the advantages of virtual IBANs?

Companies receiving large volumes of incoming payments can streamline their reconciliation process using virtual IBANs. By assigning a virtual IBAN per counterparty and instructing payers to send bank payments to the assigned virtual IBAN, they can precisely identify incoming payments and reconcile them with transactions. Companies can even assign one virtual IBAN per transaction when payers can come to make various, not regular or recurring, payments.

Virtual IBANs enable companies to automate their reconciliation process further. Indeed, this process will be less sensitive to bank transfer reference errors, discrepancies, or even amount errors when the payer realises and sends the rest of the amount in a second payment.

It also lets companies enable their customers to send payments from any account of their choice without any additional manual reconciliation task required on the company side.

In addition to easing reconciliations, virtual IBANs also enable a better view of payment operations. When assigned to specific counterparties for both incoming and outgoing payments, they allow companies to produce analytical accounting reports, per customer or activity sector, for instance.

Lending, insurance, and payment companies can leverage virtual IBANs to easily track and reconcile instalments, premium payments, or wallet top-ups, even in the case of transfer reference or amount mistakes and even when the payment is sent from an unknown bank account.

How to leverage virtual IBANs?

First, companies that want to benefit from virtual accounts must ask their bank to create them. Banks usually provide a range of virtual IBANs that companies can use as they wish.

But to benefit from the advantages of virtual accounts, companies need to manage the virtual IBANs generated by their bank. Managing virtual accounts first means assigning them to specific counterparties or specific expected payments.

As we covered in this article, virtual IBANs are used to automate reconciliations. However, not all reconciliation solutions natively support virtual IBANs.

Finally, banks charge for virtual IBANs, which can get expensive with large volumes. So companies can only count on a limited number of virtual IBANs. They need to be able to recycle virtual IBANs, which means reassigning the virtual accounts to new counterparties or new expected payments.

To manage all those processes required to benefit from virtual IBANs fully, companies have few choices.

They can manage virtual IBANs manually, using spreadsheets, for instance. Still, it just moves the manual tasks and potential errors from the reconciliation workflow to this new virtual account management workflow.

Another option is to build a virtual account management software in-house, but it can require precious engineering resources for the initial design and development and maintenance instead of using these resources to improve their core products.

Numeral’s payment operations platform enables companies to send, receive, and reconcile payments through their banks with a single API and dashboard and natively manages virtual accounts.

Not sure where to start?

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