The banking system is far more complicated for corporate clients than for private persons. It consists of thousands of financial entities which all, in one way or another, affect the market globally by increasing companies' area of responsibility.
Businesses often struggle with regulatory compliance issues, transactional support, as well as managing several separate business accounts. In fact, the approach of holding multiple accounts is used not only by transnational corporations, but also by ordinary companies that have several branches or various product lines.
When trying to deal with core banking processes, business owners have a lot to consider. Desperate attempts to bring all bills and documentation together manually can lead to financial losses and fines. To replace the legacy mechanism, the FinTech market offers corporate bank account management solutions, presenting a holistic view on all vital operations. Let's take a closer look at this ecosystem.
Reasons for using multiple accounts
As companies often run several business branches, or operate in different countries, most of them use an average of 6 banks for cash management services. Over 26% use more than 10 banks, according to the Association for Financial Professionals. In fact, the number of individual bank accounts managed can vary from less than 50, to 100, or even 1 000.
Companies often extract financial benefit from using numerous accounts. In fact, what is involved here is the utilisation of advanced perks such as lower interest rates and cashback. Additionally, the company has a so-called “escape route” if one of the banks they use collapses. Organisations are in search of a tool which allows "switching" between accounts in a few clicks. So, how do they manage these accounts nowadays?
Managing business accounts: how is the process organised?
Since companies run accounts manually, in most cases, they are waiting for a breakthrough in this industry. The FinTech Report notes that 46% of companies with a total income between £384 million and £800 million still use Excel spreadsheets for cash forecasting, tax payment, managing entitlements, currency regulation and measuring financial performance between all accounts.
Industry experts point out the worrying issues stemming from the use of such procedures:
Time-consuming exercise. A lengthy process which causes enormous operational and maintenance costs to increase. Firstly, a company overcharges for the involved long chain of manual efforts. Secondly, the cost of delays from ongoing operations is dauntingly high. British companies face nearly £40 billion shortfalls due to late payments.
Data loss. Almost a fifth of all large businesses have suffered financial injuries as a result of spreadsheet errors. Data migration of entries, balances, P&L/balance sheet data, customer information, contracts, or invoices may not be fully completed using Excel. While the current volume of information is huge, system capabilities are too limited. Such a situation creates unbridgeable gaps.
Documentation challenges and bank communications. Inability to keep track of every account equally produces incorrect financial reporting risk. The required documentation varies from account to account, and companies fall short during strategic decision-making due to this distorted view of the business situation.
Electronic bank account management as an alternative in modern corporate banking practice
A few years ago, electronic bank account management solutions emerged as a new lease of life in the banking system. They were incorporated as a communication channel between companies and banks, allowing them to open, close and manage accounts online, but have not been widely utilised until very recently.
“EBAM goes a long way to helping with these, but solutions are variable, and there remains some lack of standardisation across banks,” explains Alex Wang, Global Transaction Services EMEA Solutions Consultant at Bank of America Merrill Lynch.
While some businesses use tedious spreadsheets and others try to come to terms with EBAM practice, a significant number of users experience a lack of control over funds which gives rise to substantial risks.
Basic expectations from corporate banking solutions
As users are tired of legacy solutions that only partly cover their area of responsibility, the FinTech market is quickly moving towards corporate banking experience customisation. There are some principles to follow:
- The first and foremost requirement is to provide concerted efforts to maintain day-to-day banking tasks in real time. Every account needs to be linked up to the system to conveniently and safely store account information.
- The second rule is that the solution should become a common link between corporate and bank records. This includes solving regulatory and compliance issues.
- One more perspective is a cloud computing option that would facilitate the mitigation of risks regarding sensitive data loss, together with high computing ability and secure storage of each account.
Corporate Bank Account Management Software as a comprehensive solution
The resolution to these tremendous tasks is relying upon the corporate bank account management software opportunities:
Cash management. Around 80-90% of small and mid-size companies failed as a result of poor cash management. The main reason for this is the vast amount of data from different sources that causes an imbalance in expenses and payments.
To make cash management smooth through all accounts, it’s worth implementing an integrated dashboard with real-time visibility. The user may add accounts from various banks, track the movement of funds for each separate account, and group them depending on the needs. The system also allows online payments to be made to legal entities.
Thus, a consolidation of efforts will not only enhance the cash inflow, but also contribute to:
- better cash visibility - The holistic view on all transactions ensures the aggregation and optimisation of payment flows, as well as encouraging bank cooperation.
- accurate budget planning - Due to actual revenue display and the reliability of financial data, it's undoubtedly easier to meet unexpected expenses and implement a deliberate financial policy.
Bookkeeping. Inaccurate bookkeeping is ranked as a primary concern for the vast majority of companies. The situation has arisen due to heightened risks associated with false billing, cheque tampering, etc.
Our initiative in this field is to customise invoice payments depending on the company’s needs. In this way, the priority solution will be the AP (accounts payable) automation - capturing and processing the invoice-to-pay process between accounts without human errors. For ease of global consolidation, the system will be endowed with filters to set up currencies for each specific bill, or for groups of invoices. In turn, invoice history will be integrated with cloud storage.
Even though the measures listed above are not new in the digital banking arena, this experience must be adopted for business accounts to:
- reduce operational cost - Automated invoice processing saves companies up to 50% per invoice, in comparison to manual processing. The source of these savings is rooted in reduced labour costs.
- avoid fraud and errors - AP automation eliminates manual entry mistakes from outgoing payments to vendors by 37%. Thus, an automated process reaches a high level of accuracy, leaving no room for fraud.
- advance auditing - As everything is securely stored in the cloud, no more paper bills or forms are needed. In such a way, it's possible to cut down audit time, thereby focusing on strategic goals.
Tax preparation. In well-performing businesses, particular attention has been given to effective tax policy. However, the variety of taxes, including Income Tax, Value Added Tax (VAT) and Corporation Tax can create a real mess for company management.
For taxation purposes, it’s worth introducing a single tax engine which exports financial data from each connected account into premade forms for the subsequent automatic tax calculation. Keeping in mind the necessity of multi-country compliance, the system will also determine local tax obligations and the latest rules (OFAC, FCPA, and EU Data Protection Directive), using built-in geolocation to notify the account holder.
Either way, it's really hard to control all tax regulations coming from the opposite side. To ensure total tax obligation coverage, we advise professional assistance. Nevertheless, a proposed tool will bring some bonuses such:
- avoid penalties for late payments - According to the HM Revenue & Customs guide, any payments made 30 days late are taxed by 5%. In turn, automatic alerting of upcoming tax liabilities eliminates delays.
- accurate tracking - Due to the single entry point, all taxable accounts will be included in the payroll, which contributes to transparent tax policies.
Financial reporting. In addition, financial reporting is directly connected with documentation burden, both inside the company and beyond its borders. Surprisingly, about 32% of companies are forced to adopt at least 16 different reporting systems to adjust documents to the requirements of varying authorities.
The right tool for internal usage would be the cloud dashboard. Automatically collected financial data is shaped into consolidating charts to enable the real-time comparison of sensitive KPIs across the whole unit. In turn, to accommodate accounting according to different regulations, the reporting system will contain forms with reporting checklists following regularity and consistency principles of GAAP (Generally Accepted Accounting Principles), FRC (Financial Reporting Council) or other optional reporting standards.
For companies who want to attract investments and improve overall productivity, accurate reporting is an essential measure that also brings the following benefits:
- greater consistency at all levels - By applying systematic internal reporting to each area of business, operations will gain a profound understanding of all weak spots and the actual state of assets.
- instant adaptability to arising changes - Real-time insight into crucial financial data gives a supreme authority to fix micro-issues that influence the company's well-being.
- simplified banking relationships - Using custom reporting forms, the company is empowered to send accounting reports by default. This feature removes a great burden in terms of streamlining documentation and improving multi-level communication.
Risk management. Day-to-day financial activities are always accompanied by potential risks, such as vague interest rates, bad loans or other financial shocks. The use of spreadsheets and emails to manage risk and control enforcement only provokes frauds.
Realising a huge gap in the risk management process, our advice would be to begin with risk assessment while investigating its sources. The cloud system will integrate external market innovations and the internal company state into a comprehensive picture to identify possible threats. This could include a cost overrun by one of the accounts, or duplicate payments, etc. All past cases will be compiled in a risk cloud library to generate action plans.
This tool can be implemented using advanced algorithms for:
- better capital protection - By reducing asset imbalance, invested money bills will bring higher profits.
- attractiveness for investors - Business stability is another serious determinant of a reliable organisation to attract investments. For some companies, external financing affects profitability and the possibility of implementing a diversification strategy.
This tool is more costly than those mentioned above, as a deep analysis of all processes is applied. However, our point is to facilitate the management of numerous accounts at all levels, where mitigating risks is a necessary feature to be included. In this case, the choice is yours as to whether or not to insert it.
The solution may be supplemented with other extensions that will contribute to intense and cohesive operational activity.
Should I apply all these tools to my particular case?
We don’t need to convince you once again that holding multiple accounts has a great number of business advantages; this approach is already so widely used it has become an undeniable fact. Now, an ambitious task is to establish a more convenient management process without financial losses. However, companies aren’t obliged to tap into complex solutions with unnecessary features. This decision depends on the company’s needs and methods of doing business.
When considering the most common reasons for businesses to open numerous accounts, we have selected a few key features:
Different interest rates - opening opportunities for savings. So, small, mid-size and large companies are in need of:
- Cash management tools - smooth cash transfer between accounts.
- Bill paying - processing incoming cheques.
- Financial reporting tools – tracking movement of funds and expediency of administering bank accounts.
A necessary measure to set up and operate businesses across international branches requires a large scale solution:
- Cash management tools - supervise and protect fund transfers across all units.
- Bookkeeping features - smooth out the invoice-to-payment process.
- Tax preparing tools - produce a tax return in accordance with multi-country compliance.
- Financial reporting - examine the state of business and track amendments to International Financial Policy.
- Risk management - in this case, it is far more crucial to track exchange rates properly and overcome foreign currency fluctuations, etc.
Ease tax pressure
It is no longer a secret that some accounts are held for withdrawal without banking cash transaction tax and other tax liabilities. For these purposes, the original features are:
- Tax preparation tools - provide precise information about tax rates through accounts.
- Financial dashboard - as an integral part of the cash management tool, it compiles all account statements in real time.
In search of a favourable financial climate, the companies take the risk of holding multiple business accounts. Despite a well-known statement “ less is more”, this approach insists on the opposite. Rewards in the form of increased savings, reduced tax pressure, higher profits and real opportunities for growth are so tempting for businesses. However, the process of managing such accounts through Excel spreadsheets can cast a pall over these benefits.
Corporate bank account management software handles diverse data streams across all bank accounts, reducing the likelihood of human error. If you are still unsure, the solution will serve as a business trigger for companies who are struggling to handle a growing number of accounts. It not only facilitates the maintenance process, but also promotes operational cost reduction.
When thinking in a strategic way, the software may help companies go beyond just holding bank accounts, due to its versatility. Once you have added custom features, the solution turns into a personal risk manager and tax calculator in one package.